A Forecast of the Meetings Industry in 2013

Building on fragile gains

Prognosticators for M&C's annual forecast really had their work cut out for them this year, their efforts further complicated by the U.S. elections and continuing economic uncertainty. Just how the Obama administration and Congress deal with the "fiscal cliff" likely will affect the industry as a whole.

At least, notes U.S. Travel Association COO Geoff Freeman, the government should have the industry's best interests at heart. "Regardless of which side of the aisle you're on," he notes, "the current administration has been supportive of our industry. This bodes well."

Generally speaking, analysts foresee continued improvement for travel suppliers, though in most cases at a somewhat slower pace than they have enjoyed in recent years. Modest hikes are likely in terms of hotel rates and airfare, with some exceptions. In Latin America, for example, costs could skyrocket in the strongest markets, principally Brazil. In the following pages, we take a closer look at industry segments.

Hotels: Demand Pushes Occupancy, Rates Up  
The U.S. lodging market enjoyed record levels of demand in the first half of 2012, with those high occupancy gains responsible for surging revenue. According to hotel data provider STR, though, we're now seeing a shift, in which hotelier revenue per available room increasingly is driven by rate growth as opposed to occupancy. And that trend likely will mean moderate rate increases in 2013 and beyond. "We anticipate room rates to reach 2008 levels, not factoring for inflation," noted STR president Amanda Hite when the company unveiled its forecast in September.

STR projects a 4.4 percent rise in average daily rate for this year and an additional 4.6 percent gain (to $111.01) in 2013. Occupancy, projected to rise 2.1 percent this year, should flatten out to just an 0.3 percent increase in 2013.

The inherent challenge in such projections is the big question mark of the economy, both here and abroad. For example, while PKF Hospitality Research's 2013 forecast calls for a slightly more robust 5.2 percent rise in average daily rate, 1.0 percent increase in occupancy and 6.1 percent RevPAR growth, the consultancy examined other possibilities, too.

One such scenario PKF-HR considered, in its October Hotel Horizons Market Update podcast, is dubbed the "Fiscal Cliff," in which the U.S. falls into another recession next spring. This would result in occupancy declining by a projected 1.8 percent in 2013, and average daily rate increasing by a paltry 1.9 percent. The other scenario -- "Kick the Cliff," in which there are no changes to taxes or spending -- would actually see occupancy rise by 2.1 percent, and average daily rate increase by 4.9 percent, slightly less than in the more expected case.

Proceeding with caution. Economic uncertainties mean planners and travel buyers have been reluctant to make too many long-term commitments thus far. "In North America, we're seeing that the travel buyer is very cautious because of variables such as the economic conditions in Europe," notes Joel Wartgow, senior director of Carlson Wagonlit Travel Solutions Group, Americas. "And because of that, we're expecting very moderate increases in prices for 2013."

American Express Global Business Travel, for its part, expects upper-range hotels in North America to see more robust increases (Click here for "How Room Rates Will Rise" chart).

Differences by destination. As usual, rate increases will vary considerably depending on location. According to Ovation Travel Group, proposed 2013 hotel rate increases from hotels in major global metropolitan areas average 6 percent, based on pre-negotiation proposals.

San Francisco rate-increase proposals top all regions, at 12 percent; Boston and Palo Alto, Calif., properties are looking for 8 percent increases. New York City, Los Angeles and Atlanta rate proposals are about 5 percent higher than this year's, while San Diego looks like a bargain with a 1 percent rate-hike proposal.

Among international destinations, London and Tokyo hotels are seeking the industry-average increase of 6 percent, according to Ovation, while in Paris, rate increases should be closer to 3 percent. American Express expects conservative increases in European hotel rates across the continent, despite the low supply growth due to the economic crisis.

According to CWT's Meetings & Events supplement to its 2013 Travel Pricing Forecast, European meeting costs will remain flat or rise by 2 percent or less next year.

Latin boom. In Latin America, lodging costs could skyrocket in 2013, depending on the country. Per-attendee, per-day meeting-cost increases will be the highest in the world, according to the CWT Forecast M&E supplement, at 9.8 to 12.2 percent. The upshot, writes Tony Wagner, vice president of CWT Meetings & Events in the Americas, is that "group sizes may decrease in the 5-9 percent range, and meeting durations will shrink to offset rate increases."

Hotel rate increases should be highest in Brazil, where CWT expects spikes of 13.3 to 14.8 percent in the first half of the year and 13.1 to 14.5 percent in the second half. CWT's forecast also calls for significant rate growth in Chile, Argentina, Colombia and Mexico. Brazil's rate growth, in particular, will be driven by surging demand that is expected to outpace supply growth for the next few years.

According to CWT's Tony Wagner, "Organizations holding meetings in Latin America do not tend to book far in advance. However, planners may need to adjust their behavior in order to secure space or risk being turned away at the last minute by full hotels and other facilities."

By Michael J. Shapiro


Airlines: Expect Higher Fares, Fewer Flights
Airlines faced their share of challenges in 2012, notably the rising and occasionally volatile price of oil. And operational hiccups touched many people traveling for meetings and business this year, especially American Airlines passengers. The bankrupt carrier was plagued by a rash of cancellations this fall, fueled by pilot and mechanic dissatisfaction with proposed labor contracts.

Meanwhile, speculation about US Airways acquiring the ailing carrier persists. Robert Herbst, principal analyst with Airline Financials, says, "If American management successfully exits bankruptcy as a stand-alone carrier, we believe it is inevitable that American and US Airways will merge together."

Kevin Mitchell, president of the Radnor, Pa.-based Business Travel Coalition, believes the possible merger could very well lead to higher prices, reduced service to midsize communities and less flexible consumer-facing policies. On the other hand, he says, disallowing such a merger after approving the United-Continental and Delta-Northwest deals could effectively push American and US Airways out of the competitive market.

Airlines eye profits. Despite all the challenges, many airlines thrived this year, enough so that in October the International Air Transport Association forecasted a $4.1 billion profit for the industry worldwide for 2012 -- a full $1.1 billion more than IATA forecast in June. However, Hurricane Sandy, having severely battered the mid-Atlantic region in late October, likely will dampen fourth-quarter profits. Herbst predicts that the seven largest U.S. carriers will lose a combined $450 million to $500 million in revenue due to the disaster.

Still, the IATA's forecast calls for global profits to rise again in 2013, to $7.5 billion. The airlines simply are performing better in a difficult environment worldwide, according to IATA's director general and CEO, Tony Tyler. That's especially true in North America, where carriers are flourishing, thanks primarily to tight capacity management.

IATA expects North American airline profits to grow again in 2013. Carriers in Latin America and the Asia Pacific region should see a more modest boost in profits. European airlines are forecast to be the only region in the red for 2013.

Expect modest fare hikes.
American Express Business Travel credits demand and tightly managed capacity for projected modest airfare increases for North America in 2013 (Click here for "Fare Warning" chart), while Egencia advises that North American ticket prices could climb by as much as 5 percent.

Global expectations vary. In Latin America, regional carrier consolidation combined with booming economies leads Amex to project short-haul economy-class increases of 7 to 10 percent, long-haul economy fare hikes of 5 to 8 percent, and long-haul business-fare increases of 4 to 7 percent.

Airfares in the Asia Pacific region likely will vary significantly by country, says Amex, with fares in India liable to rise as much as 8 percent. Yet in China, domestic fares in particular are likely to remain flat or fall slightly in 2013.

Amex predicts low single-digit increases for the Europe, Middle East and Africa region overall, although countries hit hardest by the economic crisis will likely see declines. In Spain, Amex projects a decrease in long-haul economy fares of 5 to 8 percent. Those booking travel in Russia, Poland or South Africa, however, could see fare increases exceeding the region's average.

By Michael J. Shapiro

Incentives: Economic Concerns Temper Optimism 
Incentive programs are undergoing a resurgence as various sectors of the economy -- including technology and automotive -- improve, says Fay Beauchine, president, business loyalty, for motivation firm Aimia U.S. "During the depths of the recession, many companies cut back or did away with their programs," she notes. "Now, most industries have brought incentives back."

Jim Ruszala, senior director of marketing at Maritz Travel, says he also sees "a steady increase in the adoption of incentive travel strategies -- from both returning clients and new ones -- on the horizon."

Destinations in Demand chart

Another positive sign: Firms no longer are avoiding high-end properties. "Luxury hotels are back. Customers understand that the hotel is part of the experience and not just a bed to sleep in," notes Beauchine, who adds that Aimia also is seeing interest in upper-upscale brands like JW Marriott and Westin.

Yet despite this good news, few in the industry are expecting incentive travel to return to pre-2008 levels in the next 12 months. According to a fall 2012 Incentive Research Foundation survey, more than a third (36 percent) of the 246 incentive professionals polled said the economy had a negative impact on their ability to plan and implement programs.

Another factor is the rising cost of program components, particularly air travel. Randy Hunt, president and co-owner of McVeigh Performance Group, told M&C that "consistently high airfares and decreased capacity have forced incentive clients to cut back on the total number of nights for programs and F&B spend."

Other trends affecting the incentive industry in  2013 include the following.

Budgets will remain flat.
According to the IRF survey, roughly half the professionals polled anticipate no change to incentive budgets, while 31 percent expect a slight increase.

Qualifiers will increase in number.
Companies are rewarding more winners, according to 41 percent of respondents to the IRF survey. Fay Beauchine attributes this to firms expanding their sales forces in the past few years. She also cites the growth of nonsales programs, particularly in the health-care industry, that reward employees for outstanding performance.

Program design will get smarter. "We have seen an increase in requests for a third tier of qualifiers added to a two-tier program," says Beauchine. "This tier includes merchandise, individual travel or gift-card programs, which widen the circle of inclusion into incentive and recognition programs."

Maritz's Jim Ruszala says the reality of program costs surpassing budget increases is leading firms to rethink program design. "You don't want to take away those aspects that provide the strongest motivational value for participants, so more investment is going into better design, which can help you align best with your budget as well as to what participants value most, such as hosted meals and awards ceremonies," he says.

Sun and fun will be key draws.
North America is the top choice for incentive travel, according to 53 percent of IRF survey respondents. The Caribbean is the second-most popular (46 percent), followed by Europe (41 percent).

Warm-weather spots in North America, especially Cancún, the Riviera Maya and Hawaii, appeal most to McVeigh's  clients, says Randy Hunt. "Europe has been a challenge, with airfares often higher than the ground portion of the incentive program itself," he notes.

Hunt also notes that Caribbean cruises and all-inclusive properties are popular due to their perceived value.

Use of social media will remain strong.
Sixty-two percent of IRF survey respondents use social media tools or techniques to enhance incentive programs. More than a third (36 percent) use gamification in their contests and programs. The experts contacted for this article believe the use of social media for incentive-related purposes can only increase in the foreseeable future.

Procurement will increase in influence. The involvement of firms' procurement and purchasing departments with incentive travel programs is expected to increase to "some degree" in 2013, according to 51 percent of respondents to the IRF survey.

By Lisa A. Grimaldi

Conference Centers: Revenue Up, But New Product Lags 
While the hotel industry overall has been gaining ground in the past two years, conference centers are rebounding a bit more modestly and were expected to record a 4.1 percent improvement in revenues in 2012 over 2011 in North America.

Dave Arnold"We've seen continued improvement in 2012," says Dave Arnold, CEO East for PKF Consulting. "Occupancies have rebounded fairly well, but the only places it's booming is in major cities in the Northeast, in San Francisco, Houston, Miami. We're now seeing the ability to raise rates, which is key. Some properties are almost all the way back to inflation-adjusted levels of 2007."

"New" is rare. What's driving some of this improvement is that there are absolutely no new facilities being built that would fit the strict Quality Standards of the International Association of Conference Centers. "The only new supply I'm seeing in dribs and drabs is university centers, whose owners have the land and the built-in market to get this done," says Arnold. "Most of the capital is for acquisition of existing product."

Some markets could shrink. Arnold fears for the properties in more obscure and rural markets. "Sure, things are almost across-the-board better than they were at the bottom," he says. "But in the Midwest, in some of the tougher locations, the business is stable but it's not growing much more than the rate of inflation." And there might be some places that won't survive -- out in the woods where centers just don't have enough business to hold them until the market is better.

By Sarah J.F. Braley

Trade Shows: Steady Gains, But Wildcards to Watch
Exhibition industry officials are forecasting continued growth in 2013, after promising reports from second-quarter 2012. According to the Center for Exhibition Industry Research, the trade show segment saw an overall increase of 2 percent for the second quarter, year-over-year, including a 4.3 percent rise in attendance.

"Attendance is a leading indicator, which means when it goes up, other indicators tend to follow," says Doug Ducate, CEIR president and CEO. He says that next year will likely see "a nominal 3 or 4 percent growth." Other predictions include the following.

World events will matter. The endangered euro, a potential withdrawal of Greece or Spain from the EU, and/or a slowdown in China would all have a major impact on the global economy and, consequently, global exhibitions, says David DuBois, president and CEO of the International Association for Exhibitions and Events. As such, Ducate and DuBois both are "cautiously optimistic" for growth for exhibitions at best. "Unless the GDP gets stronger," says Ducate, "our industry will muddle along at this 2 to 3 percent growth a year."

Renovations will outpace new centers.
On the facility front, only two new-builds are expected to emerge in 2013, the Music City Center in Nashville and the Cleveland Medical Mart & Convention Center. But other developments include newly expanded space at the San Jose (Calif.) Convention Center and the Ernest N. Morial Convention Center in New Orleans, both to debut next year.

"We're probably going to see another dip after these bigger projects are done and more of an investment in secondary and tertiary markets as they try to compete," says Todd Voth, senior principal and partner at Populous, an architecture firm currently working on convention center projects in San Antonio, San Jose, Oklahoma City and Los Angeles.

Voth says planners can expect more interesting social and customer-friendly spaces in convention centers that allow attendees to connect better than before. "The market is starting to reflect the interests of a younger generation," notes Voth, "and facilities must meet those needs."

By Michael C. Lowe

The Future of the Planning Profession 

As in other industries, professionals in the meetings realm must find new ways to prove their value to their organization's bottom line, which means adding new skills to their repertoire. Here's a look at how the nature of meeting planning -- and meetings themselves -- are likely to evolve.

The rise of specialists New technologies and increased emphasis on experience and engagement will help usher in an age of specialists who can bring specific, in-depth expertise to meetings.

"The event industry doesn't have much in the way of defined roles," says Rohit Talwar, CEO of Foresight Research and consulting firm Fast Future and author of the IMEX Power of 10 study on the future of meetings. "But we may begin seeing titles like 'Learning Architect,' a person who would focus on providing engaging content and speakers, or 'Digital Strategist,' who would be in charge of building an event's community and communicating an event's brand."  

These new positions, adds Talwar, means planners just starting their careers can find holes where talent is needed in cutting-edge areas like social media, and focus on becoming experts from the outset.

Proving Roi The effort, still in its formative stages, to "prove that meetings offer long-term economic impacts that reach farther than just the tourism revenues generated during the event" will remain imperative, says Talwar.

Smaller meetingsRick GarlickPlanners can expect to see a move toward more regional meetings that might be linked by teleconferencing instead of major national events, "because of concerns over loss of productivity and travel costs," says Rick Garlick, strategic consultant with Maritz Research Hospitality Group and lead researcher for HSMAI's Future of Meetings report. "Face-to-face is not going away, but it will continue to be modified."

Smaller meetings also will mean an opportunity for smaller spaces and more unique venues to grab market share from their larger counterparts. "Such properties can cater to a group's specific needs or provide a more specialized function," notes Garlick. This also is good news for secondary or tertiary destinations that don't have convention facilities.

Both Talwar and Garlick agree that technology will continue to play a key role in the development and implementation of meetings. As Talwar notes, "It's important for planners to stay on top of new developments and find a network of other planners who can share new ideas and trends."

By Michael C. Lowe