BLOCK BUSTERS

Meetings & Conventions - BLOCK BUSTERS - May 2003

May 2003 BLOCK BUSTERS
With the threat of attrition looming larger than ever, planners are rethinking how or if they will hold hotel rooms

As more of her attendees book outside the block, the American Academy of Pediatrics’ Donna Karl, CMP, wonders how her meeting is being valued.

By CARLA BENINI The evidence is mounting. Something is seriously wrong with the process of booking hotels for meeting attendees, and the problems are becoming increasingly vexing and expensive for planners. For example:

• Donna Karl, CMP, director of convention and meeting services for the American Academy of Pediatrics in Elk Grove Village, Ill., has been booking the same size room block for a decade, even though her overall attendance has doubled over that same time period. “I’m not sure the city is correctly evaluating the value of my meeting,” she says.

• For the first time ever, Bob Hope, CMP, managing director of housing, registration and travel services for the Radiological Society of North America in Oak Brook, Ill., had to return guest rooms to his contracted hotels. Though some other factors were at play greater room inventory in the host city and fewer numbers of exhibitors per booth he also found that 7,000 of the 20,000 attendees had booked outside the block.

• A client of Brian Roy, vice president of sales and marketing for San Francisco-based Convention Management Resources, had roughly 50 rooms blocked at a hotel during a citywide meeting in Los Angeles, yet when the bus came around to pick up attendees for an event, considerably more people were in line. The result: A crowded bus and a number of stranded attendees, some of whom had legitimately booked through the housing bureau.

• Bruce Harris, president and CEO of Conferon Inc. in Twinsburg, Ohio, has a client who was liable for $500,000 in attrition charges despite only a 13 percent decrease in attendance, which by itself would not have resulted in the penalty. Realizing the numbers didn’t jive, the client conducted a member survey that pulled up some startling facts: Sixty-one different hotels up to 45 minutes away from the meeting site had been booked by attendees. For some, “the cab ride alone would have cost more than the guest room,” Harris says.

The stories outlined above are symptomatic of a crisis in attendee housing. The reverberating effects of a weak economy on business travel, hotel occupancy and meeting attendance, combined with the technological ease of finding cheap rates, have led to an epidemic of booking outside the block and huge financial risks for many groups.

As problems mount, the two sides in the conflict are digging in. Planners blame hotels for undermining their ability to fill their blocks. And many hoteliers insist they have the right to price rooms as they see fit, whether or not they undercut a meeting rate.

So fed up are some conference organizers that they want out of the rooming business and are drastically reducing or eliminating blocks and leaving attendees to fend for themselves.

The situation has become alarming enough that some industry veterans anticipate the complete demise of the room block. “I have heard at least one hotel executive predict that within five years, associations will deal with rooming for members the same way airlines deal with seats. It will be the member’s responsibility exclusively,” says Henry Schaffer, a hospitality lawyer with Howe & Hutton Ltd. in Chicago.

Not all insiders view things in such stark terms, and a number of planners are beginning to find ways to stanch attendees’ exodus from blocked properties. But most agree that room block commitments and the fulfillment of same as criteria for gauging the value of business constitute the single biggest challenge facing meeting professionals today.

Losing rooms online
Few meetings better illustrate the chaotic reality of the issue than a recent gathering held by a client of Conferon. The group’s total room nights numbered 2,400, and of those, 896 were booked through nonconference-related Web sites. A total of 13 different rates were booked, and 11 of those were less than the negotiated group rate. One rate came in at $68 less than the group price.

“The Internet is really migrating meeting attendees into low-cost rooms,” says Conferon’s Harris.

Indeed, low rates are easily found not only on sites like Expedia, Hotels.com and Travelocity, but also on the Web sites of hotel chains and individual properties. “The power of the Internet is finally being realized, and that power is not always positive,” says William C. Peeper, president of the Orlando/Orange County Convention & Visitors Bureau. “We’ve basically lost control of the attendee.”

Likely to complicate things even further is a projection that within the next three years, hotel reservations made online will increase from 9 percent of total bookings to 20 percent, according to PhoCusWright, a research firm based in Sherman, Conn.

But other forces are at play, say experts. Attendees increasingly are being driven to stay at their company’s preferred hotels whether or not they are within the room block. As corporate travel and procurement departments strengthen compliance tools, employees are finding it harder to circumvent the corporate mandate, even for meetings hosted by outside organizations.

A shift in the makeup of the urban hotel market also is affecting rooming decisions. Today’s hotel growth is in the limited-service sector, and more of these properties are being built downtown to feed off convention business. For meetings based in convention centers, there is little incentive to book at a headquarters property when equally convenient hotels are available for half the price.

Even concerns of corporate espionage are at play. Robyn Kriegel, CAE, executive director of the Silver Spring, Md.-based American Society for Parenteral and Enteral Nutrition, says attendees from the same corporation often will intentionally book outside her block so they can conduct confidential meetings of their own. “They don’t want to risk people talking in the bathroom,” says Kriegel.

Any or all of these factors can result in deteriorating room blocks, though in two distinct ways. The first occurs when attendees book within the contracted hotels but not through their association’s housing system, and thus they might not be identified as participants. The second occurs when attendees ignore the association’s hotel package and reserve in a non-block property. These folks are even harder to track down.

Either method directly affects attendance data and more. When attendees circumvent their association’s housing process, they chip away at the definable value of a meeting. Planners ultimately are left unable to gauge the worth of their business; they risk losing negotiating clout and forfeiting their ability to block the necessary number of hotel rooms and amount of convention center space for future conferences.

And, of course, the resulting attrition charges can be devastating. “The minute hotels undercut my rate, they undermine my ability to fill my block, and all attrition issues are out the door,” says Christine Lyons, CMP, manager of convention services for the National Park and Recreation Association in Ashburn, Va. Lyons has been “burned” by attrition charges of up to $50,000. From now on, she says, she will refuse to sign a contract with an attrition clause.

But the omission of an attrition clause is hardly a guarantee, says Schaffer of Howe & Hutton. If a planner falls significantly short of filling the block, the hotel could sue whether or not an attrition clause is present in the contract. “The outcome [of a suit] is unpredictable. The only thing that is predictable is that your legal costs will be considerable,” Schaffer says.

The way for planners to become free of any financial responsibility, according to Schaffer, is to stipulate in a contract with no attrition clause that they will not be liable for unused rooms.

Losing face to lower rates
Beyond the obvious financial risks, many planners find it just plain offensive that hotels would release cheaper rates during their meeting dates. They say they are embarrassed when their CEO can book a room for $40 below the group rate. Ultimately, the situation can expose planners to questions about their competence in negotiating and their overall worth to the association.

“It makes you look stupid and the association look bad,” says James Jorkasky, senior vice president of membership and strategic development for the American Association for Homecare in Alexandria, Va.

“Our credibility with our members suffers if they can find cheaper rates,” says Amanda Rushing, CMP, director of conventions and exhibitions for the National Association of Elementary School Principals in Alexandria, Va.

It’s one thing for a hotel to wait until after the reservation cutoff date to post cheaper room rates. Planners grudgingly accept that this is when fence-sitting attendees will begin to troll the Net for deals that will make or break their decision to go.

But it’s another matter when hotels announce deals that seem destined to undercut a planner’s efforts. Example: For a conference that took place in New Orleans, Kenita D. Hidalgo, CMP, director of meetings for Printing Industries of America in Alexandria, Va., learned her headquarters property had posted on its own Web site a rate $40 below hers a full 45 days before her meeting well before her cutoff date. Hidalgo says she immediately called the property and had them remove the rate from their site.

Worried they’ll discover a similar scenario, many planners are compelled to check the Internet incessantly, on the prowl for rates lower than what they negotiated. The American Academy of Pediatrics’ Donna Karl scours the Internet several times for every one of her 147 meetings held annually. She browses her contracted properties and others in the vicinity, to make sure her group rate remains competitive. “We compare rooming lists even if I’m not up against attrition, because I want to know the value of my business,” she says.

The more things change...
Hoteliers, meanwhile, are asking what the fuss is all about. “For as long as I’ve been in the business, we’ve always had rates cheaper than the group rate,” says David Scypinski, senior vice president of industry relations for Starwood Hotels & Resorts in White Plains, N.Y. “Hotels have to do this just like airlines.”

Hoteliers often use the airline comparison because both the seat and the bed are perishable commodities. If a room goes unsold, that revenue is lost forever. As a result, hotels have a strong incentive to price the room to sell.

Moreover, Scypinski and others contend that a room sold as part of a block and one sold during a fire sale are two different products. A meeting-related sleeping room has costs built into it that a mere sleeping room doesn’t, such as labor for meeting room setup, shuttle service and other extras. “I don’t believe we’ve been unfair in setting pricing anywhere along the line,” Scypinski says.

The hotel stance perhaps is most bluntly articulated by Valerie Ferguson, regional vice president and managing director of the Loews Philadelphia Hotel. “Our industry is bleeding,” she says. “We’re not in a profitable position, riding on the backs of associations.”

Fred Shea, vice president of sales operations for Hyatt Hotels Corp. in Chicago, predicts there will be “some cleanup” of rates being offered on the Web, but says it is in the best interests of both parties for the hotel to sell guest rooms even if they’re cheaper than the group rate. When a hotel sells out, he notes, planners are not held liable for attrition, even if they fall short of the room block.

On the other hand, undercutting the meeting rate has some obvious disadvantages for the property, which effectively cuts into its own revenue by allowing bargain-hunting attendees to book cheaper rates. According to Bruce Harris, by offering 13 different rates for his meeting, the hotel lowered its average room rate by $32.

Amanda Rushing warns hoteliers of the impact on future meeting blocks. By releasing cheaper rooms, she says, the hotel is doing its part to drive attendees away from the block, potentially forcing her to reduce future blocks.

“It could mean less guaranteed business for the hotel,” says Rushing. “Instead of blocking 2,500 rooms, maybe we’d block 1,500. We’ll say to attendees, ‘You’re on your own.’”

Searching for solutions
For all the complaints, frayed nerves and bruised egos, the problem of attendees booking cheaper rates at contracted hotels is solvable, say a number of sources who spoke with M&C.

Sharpen the clause. Work the contract, says Donella Evoniuk, director of the National Educational Computing Conference for the Washington, D.C.-based International Society for Technology in Education. Evoniuk includes contract clauses addressing cheaper rates at her hotels, giving her the legal backing to request that a lower rate be pulled from the Internet. Exempt from this are government and corporate transient rates and special discounts given to high-volume entities such as the American Association of Retired Persons and the Automobile Club of America.

Rushing has added language to her contracts that requires hotels to black out her dates on the Internet. She also is communicating more often with her national sales offices about the importance of supporting the rate she negotiated. “If you’re not helping us build the block, how can you hold us accountable?” she asks.

Cross-check the housing list. Another clause coming into increasing (though labor-intensive) use allows planners to cross-check the hotel’s housing list with their own rooming list to capture any attendees who booked around the block. This ploy initially was met with resistance on the part of many hoteliers, who claimed that revealing rooming lists invaded the privacy of guests. Today, most properties give in on the issue.

“It’s proof of damages,” asserts Harris. “Any hotel that refuses to share lists can’t collect attrition. If they do collect, it’s because of a lack of awareness on the planner’s part.”

Beware of big cities. Many say Chicago, Las Vegas, Orlando and other tier-one cities are among the most troublesome for planners trying to fill a block or track their attendees. The more hotel rooms there are to choose from, the more competitive the rate, and the more likely attendees will bypass the contracted room block altogether and head for their own hotel picks.

Although she has a total room block of 22,000, Evoniuk avoids top-tier destinations. After a meeting in Chicago, where she lost about 15 percent of attendees to alternative hotels, Evoniuk says she “hasn’t been interested” in New York City or San Francisco, where a repeat performance would likely occur, and she has no plans to return to Chicago, preferring instead second-tier cities such as San Diego and Seattle.

Book a tiny block. Christopher Gribbs, managing director of conventions and meetings for the American Institute of Architects in Washington, D.C., says he considers the rooms he blocks a service rather than an obligation. His citywide conventions bring in 18,000, and yet he doesn’t block more than 3,000 on peak night.

“I don’t care where they stay, because I don’t have a financial interest in it,” says Gribbs, who keeps close track of history through registration and exhibitor sales.

Just say no. Eric McNulty, managing director of conferences for Harvard Business School Publishing in Boston, has taken that tactic a step further: He doesn’t book any guest rooms, other than a handful for staff and speakers. “We used to get blocks for 60 percent of the attendees,” says McNulty. But with each passing year, the number of blocked rooms dwindled as more attendees went on their own. “I got tired of paying attrition,” he says, referring to charges that got as high as $20,000.

Today, McNulty, who runs between eight and 10 conferences a year for 100 to 150 people, does not hold rooms for attendees. “Unless we’re in a place with very few options to stay,” he says, “people seem to be happier on their own.”

But by going without a room block, or with a drastically reduced one, McNulty does make some sacrifices. He admits that his negotiated rate is higher than it would be if he were blocking more rooms, and he sometimes has to pay for meeting space. He also knows he risks getting bumped if a group wielding more clout comes along, though he has contractually prepared for it by adding a clause stipulating that if he gets bumped, he can cancel his meeting without penalty.

McNulty stands by his method: “Whatever I am giving away by having a smaller block, I am saving by lowering my risk of attrition,” he says. While in the past he might have saved money on the room rate by blocking more rooms, too often he was handing that money right back to the hotel in the form of attrition payments.

Another upside: By no longer serving as a rooms reservationist, McNulty feels he now can focus on the content and marketing of an event. “I am trying to get out of the housing business,” he says. “The hotels are better at selling rooms than I am.”

CUTTING THE BLOCK?
BEWARE OF BACKLASH
The growing tactic of reducing room blocks to avoid attrition penalties has its consequences, warns Fred Shea, vice president of sales operations for Chicago-based Hyatt Hotels Corp. Hoteliers assign meeting space based on room block size, he notes. Planners who reduce the block significantly might find they have to give up some meeting space for the duration of the event.

“You can’t have 1,000 rooms one year, and a year later say, ‘Now I need 800 rooms, but I still need the same meeting space,’” says Shea.

Furthermore, booking fewer rooms really doesn’t solve the problem, says Bruce Harris, president and CEO of Twinsburg, Ohio-based Conferon. The planner might have lowered the risk of attrition, but the attendee still has no incentive to stay within the block, and the meeting looks less valuable to a city. Harris says it also might cost a group the ability to book space at a convention center, many of which have rules requiring a minimum room block.

“At the end of the day, the attrition fix is so simple it’s scary, but its implementation is difficult,” says David Scypinski, senior vice president of industry relations for White Plains, N.Y.-based Starwood Hotels & Resorts. “The association has to figure out a way to lasso people into the official block. The only way that’s going to happen is with a lot of pressure.”

Scypinski and a few others have suggested charging higher registration fees for attendees who book outside the block, but the idea hasn’t caught on with planners who are struggling to maintain attendance numbers and even build participation in the face of members’ dwindling travel budgets.

“We’re doing a big push to recruit new members, including students and those from third-world countries,” says Bob Hope, CMP, managing director of housing, registration and travel services for the Radiological Society of North America in Oak Brook, Ill. “I certainly wouldn’t penalize those who scrape up whatever they can to get here.”

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SPREADING THE WORD
Better communication is one tactic some planners are turning to, in hopes it will help them fill room blocks. They’re making a concerted effort to explain why room blocks exist and what the consequences are for the association if they go empty.

“I’m looking at how to educate members, help them understand what attrition does to our association,” says Robyn Kriegel, CAE, executive director of the American Society for Parenteral and Enteral Nutrition in Silver Spring, Md. “If the cost of our meeting space goes up, it might not affect prices this year, but it will next year.”

Aggressive marketing is a preferred method for Amanda Rushing, CMP, director of conventions and exhibitions for the National Association of Elementary School Principals in Alexandria, Va. She plans to open her meeting’s Web site earlier and publish more information about hotel reservations in newsletters and magazines read by her educator members. She also has considered offering lower hotel rates for those who book early.

Others are trying to better understand the booking habits of their participants. Bob Hope, CMP, managing director of housing, registration and travel services for the Radiological Society of North America in Oak Brook, Ill., surveyed the 7,000 attendees who booked outside his block to learn where and why they were reserving in alternative properties. “The problem is multidimensional, but many said their preferred hotel and cheaper rates were not available,” he says.

For an upcoming meeting, Christine Lyons, CMP, manager of convention services for the National Park and Recreation Association in Ashburn, Va., has created a loyalty program. Participants who book within the block will receive a coupon booklet, created with the help of the St. Louis Convention and Visitors Commission. “One of the big coupons is a discount off next year’s registration fees,” she says. “It’s an incentive and a reward.”

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FRIEND OR FOE?
The Internet has created an every-man-for-himself mentality when it comes to booking guest rooms. Bargain-hungry attendees routinely turn to online sources such as Hotels.com, Travelocity and Expedia hoping to get a rate cheaper than the negotiated group rate. Meeting planners gripe that discounted Internet rates undermine their ability to fill their room blocks; hoteliers say they their hands and rooms are tied.

Ever since the early days of travel Web sites, properties have sold third parties rooms at a flat rate. Agreements typically lock hotels in to a certain number of rooms at a set price. These deals initially seemed like a simple means of dumping distressed inventory, agree most hoteliers.

But once those rooms are handed to a third-party site, control is handed over as well. Tom Botts, director of distribution strategy and operations for Starwood Hotels & Resorts, points out there are times when the hotel has sold all of its rooms, but the third party is holding out. “They can charge whatever they want,” he says.

Hoteliers have come around to the fact that such agreements, while offering instant gratification for salespeople, aren’t far-sighted. “In our rush to get to the Internet, we created some partnerships that were good in one context but not in areas like the group or the corporate market,” says Andrew Rubinacci, the Atlanta-based director of distribution planning for InterContinental Hotels Group.

Some believe the rock-bottom rates are already less attractive, as the Internet vendors have gotten greedy about their profit margins. “If you look at Hotels.com and their filings with Wall Street, their average margin is 32 percent,” says Botts. “The airline industry has successfully reduced commissions to nothing. We in the hotel industry have done the opposite.”

Hotel companies are desperately trying to regain control of pricing and inventory. Several partnerships have been christened as a result. InterContinental has entered into agreements with Travelocity, Expedia and Travelweb, which are now directly linked to the hotel firm’s central reservations system. Each hotel decides the amount of inventory and the room price that will be made available to each Web site.

Several chains also have announced price guarantees. For example, Starwood will undercut by 10 percent any rate found on a third-party site. The company also has a flexible arrangement with Expedia, allowing the hotel firm to control the price and inventory of rooms sold on the site. “We can flex our rates up and down. We have a set markup. I can tell them when and when not to sell,” says Botts.

As for Hilton Hotels Corp., its properties now are able to price their own rooms but are required to offer those rates consistently across all Internet channels, including branded and third-party Web sites. Hilton also has partnered with Expedia, which lets the two have access to each other’s central reservations systems, thus allowing on-the-spot management of prices and inventory by participating hotels.

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CREATIVE PARTNERSHIPS
Imagine bringing “tens of thousands” of attendees to a city without signing a single hotel contract. That scenario was in the planning stages at press time for a mammoth meeting in Orange County, Fla. The simple reasoning: “They don’t want to be liable for attrition,” says William C. Peeper, president of the Orlando/Orange County Convention & Visitors Bureau. “This is a planner who is saying there’s too much financial exposure.”

Yet, the host organization does have contracts in place that set aside rooms at major hotels enough to cover about 30 percent of the expected attendance. The twist here is who signed the deals: A third-party housing bureau has accepted full liability for the blocks. Nowhere on these contracts is the name of the meeting planner or the association mentioned.

In another instance in Orlando home to 110,000 hotel rooms Peeper has worked out a unique relationship with Lauren Kramer-Whelan, director of meetings for the American Academy of OtolaryngologyHead and Neck Surgery Foundation in Alexandria, Va. “We had been holding her traditional block,” says Peeper, “and when she got to the contracting stage, she told us, ‘This is crazy. I am exposing my association to these attrition clauses when I can’t control my people.’”

Instead of reserving her usual 4,000 rooms, Kramer-Whelan is setting aside just 2,800. The bureau will act as a clearinghouse for the rest of the rooms, which will be set aside on an as-needed and as-available basis. Through a modification of an online leisure-travel booking tool, attendees will be able to choose whether to stay within the block and receive amenities like shuttle service or at an economy property.

Kramer-Whelan hopes this will attract budget-conscious attendees she would have otherwise lost, while still providing accurate attendance data.

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BLOCK BUSTERS

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