Trend Watch 2006

As the door begins to swing shut on 2005, anticipation is building for what lies ahead. Several developments that occurred over the past year will play a pivotal role in positioning the meetings and events industry in 2006. What will the next 12 months bring? Expect rising costs across the board, a shift in available air lift, new hotel products and emerging destinations.
Here’s a look at how the events of 2005, as played out in a variety of realms affecting planners, will have an impact on the new year.

Higher rates await. Fourth-quarter 2005 wrapped up on a high note for the hotel industry, signaling a strong sellers’ market the strongest since 2000. Average room rates are up 9 percent and occupancy levels are hovering around 70 percent, scaling even higher in the luxury segment. While a number of new full-service convention properties are in the pipeline, they will not begin to materialize before year-end 2007, and they won’t add enough rooms to change the playing field.
    “The industry is on pace for record profit growth in both 2006 and 2007, as the new supply forecasted to come online will not be significant,” says Patrick Ford, president of Portsmouth, N.H.-based Lodging Econometrics. The upshot? Meeting planners can expect to pay higher room rates and fight harder to find the space they need.

Revamps rule. There is a silver lining to 2005’s sellers’ market an unprecedented variety of accommodations and services for 2006. Flush with cash from an uptick in business, hotel chains in 2005 embarked on $4.5 billion in property renovations, particularly in the full-service, upper-level lodging segment, according to New York City-based hospitality consultant PricewaterhouseCoopers. That’s good news for planners, who will get more for their room dollar, including freshened rooms, expanded meeting space and added amenities.
    This infusion of capital will continue. Hilton, for example, currently has 65 hotels undergoing significant renovations. “We have invested an enormous amount of our efforts and resources on returning our brand to its preeminence,” says Bill Brooks, vice president of product development for the Beverly Hills, Calif.-based chain. Indeed, between 2003 and 2006, the brand will have invested $900 million in capital infusion aimed squarely at maintaining brand prominence.

Limited service goes upscale. This segment is not the bare-bones product it was in the 1980s. Today, limited-service properties are angling to lure travelers with good meeting space and amenities such as free breakfast, technology and workout facilities, along with a superior room product. And in a strategic expansion shift, such properties are moving away from suburban markets and into major urban centers. As a sign of the growing strength of this refocused segment, several new brands have debuted.
    In October, White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide launched “aloft,” a brand conceived along the principles of its W hotels (loftlike space, playful design), to be developed in urban markets. Starwood says the first aloft properties will break ground in early 2006 and open in early 2007. Early sites will include Cherry Creek (Colo.), Lexington (Mass.), Tucson (Ariz.) and near to airports in Philadelphia and San Francisco. The goal is to establish 500 aloft hotels worldwide by 2012. 
    Also in October, newly established Atlanta-based NYLO Hotels, founded by John Russell, the former vice chairman of New York City-based Cendant Corp.’s travel division, announced it was ready to bring its product to market. NYLO properties will feature 135 to 158 rooms, with rates ranging from $115 to $135 per night, along with technology-loaded meeting facilities, a 24-hour restaurant, a business center and a library. The company says several sites are under consideration, and it expects to break ground by first-quarter 2006 on one property and have four more under construction during the year. (For more information, see “Lofty Ambitions,” page 16.)
    Meanwhile, Hilton Garden Inn expects to open 45 properties each year from 2006 through 2008. This is a welcome development for planners looking to place meetings in markets with tight space and high room rates, like New York City, where the 367-room Hilton Garden Inn Times Square opened in October, with another set to debut in the city’s Tribeca neighborhood in 2006.
    AmeriSuites, which in January 2005 was acquired by Chicago-based Global Hyatt Corp., was relaunched in October as Hyatt Place, giving the chain a significant stake in the growing upper-scale limited-service segment. Hyatt will spend $175 million in the next year renovating all 143 AmeriSuites and will open 50 to 60 more properties in the next several years.
    Last month, Silver Springs, Md.-based Choice Hotels International broke ground on its first Cambria Suites property, in Boise, Idaho. Hotels in this brand will have from 100 to 150 rooms, 1,000 square feet of meeting space, fitness and business centers, and a 24-hour convenience store. Choice has 14 more Cambria Suites properties in the pipeline.
    

Union strength. Labor made big gains in 2005. New York City-based Unite HERE and hotel groups in Los Angeles, San Francisco and Washington, D.C., were deadlocked for months in contract talks that addressed a number of issues, from health care to conflict resolution. At the hotels where agreements finally were reached, the union now holds a critical trump card a provision that contracts will be up for renewal in 2006. The implication? Unionized hotels in 17 cities, including Boston, Chicago, Los Angeles and Toronto, now will have contracts expiring at the same time, giving workers impressive clout. 
    “Even if you are operating a nonunion hotel or you are a planner slated to do business in a nonunion hotel, it is going to be a big issue for everybody,” says Mike Beardsley, senior vice president of sales, North America, for Washington, D.C.-based Marriott International. “Planners are going to have to pay attention to labor, because it could well affect where they go.”

Emerging destinations. In 2005, American hotel companies made significant expansion into China and South America.
    Ed Fuller, president and managing director of international lodging for Marriott, notes that demand for China still is defining itself as far as the meetings market is concerned. “Both corporations and associations now are in what I call the education phase of coming to China, tentatively putting a toe into the country,” he says. “But everyone agrees that eventually they will have to come.”  
    “As more sectors in China open to Western companies, and as more U.S. travelers visit China, hotel companies will be eager to provide the services expected from Westerners,” notes Erin Ennis, vice president of the Washington, D.C.-based U.S.-China Business Council.
    Indeed, a number of major chains already are proving how bullish they are about the world’s most populous country.
    " Accor Hotels & Resorts will open two Sofitel properties this month in Nanjing, the first with 278 rooms and the second with 190. Accor, a French company, will have 35 hotels in China, most under the Sofitel flag, by the end of 2006.
    " Hilton International will open four hotels here, including the 300-room Conrad Beijing, in time for the 2008 Olympics.
    " Hyatt Hotels & Resorts will open approximately 3,000 guest rooms in China by mid-2008 in cities such as Beijing, Guangzhou and Shanghai.
    " InterContinental Hotels & Resorts in July opened the 332-room InterContinental Financial Street Beijing.  The company expects to operate 125 hotels in China by 2008, up from 45 now.
    " Kempinski Hotels, a German-owned chain, next year plans to open two 400-room hotels, in Changchun and Qingdao. By 2008, the company expects to be managing 15 properties in China.
    " Marriott has 30 properties in China, with 10 more coming online by the end of 2006, for a total room count of approximately 15,000 guest rooms. 
    " Le Méridien Hotels & Resorts opened its first property in China, the 327-room Le Méridien She Shan Shanghai, in November. In the first half of 2006, the chain will open a second, the 770-room Le Royal Méridien Shanghai. 
    " Starwood Hotels & Resorts has 19 hotels in China, with 10 in Shanghai and others in Haikou Island, Urumqi and Xiamen. By year-end 2008, the chain will have another 14 Chinese properties open and operating across its Sheraton, St. Regis and Westin brands, including seven more hotels in Shanghai.
    “If you are not getting your slice of the [China] pie in the next five years, it is because you did not begin planning now,” Dr. Lalia Rach, associate dean of New York University’s tourism school, told attendees at the 2005 M&C/BiZBash Meeting and Event Style Show in New York City in October. “Ignore China, and it will be to your detriment.”
    Another up-and-coming destination is South America, where expansion by American hotel chains continues, particularly in the gateway cities of Buenos Aires, Argentina; Santiago de Chile, Chile; and São Paolo, Brazil. 
    According to Carlos Baruki, area director of sales and marketing, Latin America, for InterContinental Hotels & Resorts, U.S. travel to the region increased 30 percent in 2005 over 2000 levels. To date, InterContinental has 59 properties in South America, up from 37 five years ago.

Soaring airfares. The transportation sector rode its share of the economic roller coaster in 2005. While business travelers took to the air in increasing numbers, soaring fuel prices pushed more legacy carriers into dire financial straits and forced others to cut routes and staff while increasing ticket prices. Their loss was the low-cost carriers’ gain. JetBlue Airways, Southwest Airlines and others expanded into new markets and increased the lift on established routes. 
    According to American Express Business Travel’s 2006 Global Business Travel Forecast, domestic short-haul economy fares will rise by 5 to 8 percent in the coming year, while international business-class fares will go up by 2 to 6 percent and possibly higher if demand remains strong.

Market Watch

Mike Beardsley

Where is business rebounding, and where will planners still find the space they want at attractive rates? Mike Beardsley, senior vice president of sales, North America, for Washington, D.C.-based Marriott International, gives his insights for the coming year.

Tight vs. roomy. “New York City is on fire. Hawaii and the coastal resorts of Southern California are doing really well. Chicago is stronger than we expected. On the other hand, you can can get into Detroit any time you want. The middle of the country is always the last to rebound. There will still be plenty of opportunity for planners in those markets.

How to get in. “We are seeing people moving down as rates go up. New York City is a perfect example. Rates at the Marriott Marquis are $500 a night, and space is tight. Planners are moving to the new Courtyard; the rates are $250-$300, and they get to be in the destination they want.”

Filling gaps. “The best way to get into the hotel you want is to ask the salesperson what holes they are looking to fill. Be flexible; you’ll get in where you want to be, and you’ll get a better rate.” -- C.A.S.

Reconfigured airlift. In October, with the U.S. government about to implement new bankruptcy laws, Delta Air Lines and Northwest Airlines filed for Chapter 11 protection, joining United and US Airways (the latter has since swallowed up American West).  
    Earlier in the year, American Airlines discontinued its group program, as did Delta, and America West is expected to follow suit.
    In late October, Delta announced it was absorbing its low-cost carrier, Song, by May 2006. About 50 Delta planes will be reconfigured to incorporate Song’s current amenities, such as on-demand video channels and MP3 programmers; a 26-seat business class also will be added to the new planes, in what is seen as an attempt by the airline to successfully emerge from bankruptcy with a more upbeat level of domestic service.
    In light of these and other developments, industry insiders say trends for the near future are clear. 
    " Early booking will be imperative. With the airlines constantly looking at what routes prove profitable, expect reduced lift in certain markets, such as Cincinnati, Cleveland and Memphis. Meeting planners will find they have fewer seats to pursue and less time to secure them. “Planners used to first book the hotel and then worry about air travel, but increasingly it is the other way around,” says Yvonne Long, senior vice president of Atlanta-based Air Fulfillment Services, a management company for group air travel. 
    " Low-cost will continue to thrive. While their costs will increase as their fleets age, low-cost carriers already are finding inventive ways to remain a bargain. JetBlue last fall took delivery of the first of its new fuel-efficient Embraer 190 aircraft, while Southwest Airlines, anticipating rising fuel costs, took a gamble and hedged its oil prices. This means these two carriers will likely be able to offer lower fares while others struggle to compete.
    “We always are looking to develop products that better serve the meetings market from an ease-of-use and efficiency standpoint,” says Noreen Courtney-Wilds, director of corporate sales at New York City-based JetBlue. She sites the carrier’s CompanyBlue software as one example: The program allows corporate travelers to book their own tickets while also providing their travel management departments with comprehensive reporting to track the bookings.