01 JUNE 2017
Guests who book outside of the group block around corporate events and meetings might find better rates, but this causes headaches for hoteliers and meeting planners.
REPORT FROM THE U.S.—A long-standing problem for both hotel operators and meeting planners is the tendency of some meeting attendees to book their rooms outside of the event’s negotiated room block. Hotels can lose revenues if the attendees book elsewhere, and meeting planners risk running afoul of the room commitments in their contracts, possibly leading to financial penalties.
A 2015 study by Tourism Economics showed 34% of group room nights in the U.S. are booked outside of events’ contracted room blocks. The percentage of rooms booked outside of the meeting blocks differs by several factors, including type, size and length of the event. The percentage of rooms booked outside of the block rises to 45% for citywide conventions, and in general the larger the event, the higher percentage of room nights booked outside of the block.
“It’s an issue that comes up a lot, and at times it can be advantageous to us from a revenue perspective,” said Andy Finn, VP of group sales for Benchmark Hospitality. “However, where it is a huge issue is during citywide conventions in major, high-demand cities like Chicago or Las Vegas. There probably isn’t a citywide convention that takes place in a major city, or even a secondary city, that doesn’t have some rooms go around the block.”
Research from STR, the parent company of Hotel News Now, shows some hotel operators are compounding the problem with their revenue management decisions. During 2016 in eight of the top 25 markets in the U.S., transient average daily rates were lower than group ADRs. New York topped the list, where transient rates were on average $21 lower than group rates. In these cases, savvy attendees can check rates and cancel their rooms in the block and rebook at lower rates directly or through third-party distribution channels.
“In many of these cases, the group rate was negotiated 12, 18 or 24 months ago, and at the time hoteliers felt okay about their business,” said Jan Freitag, SVP of lodging insights at STR. “But as the check-in dates for meetings get closer, some hoteliers get skittish, and while they know they have a group base, they’re not comfortable with overall occupancy projections, so to drum up demand they open up cheaper (distribution) channels.”
There are financial advantages for hotel operators who can encourage meeting planners to fulfill their room contracts. During a first-quarter earnings call with stock analysts, executives from Sunstone Hotel Investors said groups on average filled 89% of their room blocks during the period, exceeding an internal forecast of 85%.
“Groups not only showed up in larger numbers, they increased their out-of-room spend,” said CEO John Arabia. “Group banquet and audio-visual revenue for group room increased 9.4% in the first quarter driven in part by the impact by a more favorable calendar, but also by the increase in corporate group business.”
Reasons to jump the block
Other factors can cause attendees to book outside of their meeting blocks.
“Lower rates are especially an issue when attendees are paying for their own rooms as opposed to their companies paying,” said Matthew Marcial, VP of education and events for Meeting Professionals International. “Loyalty benefits are another factor, especially if the attendee’s preferred hotel brand isn’t in the group block. Another issue is when a company has a corporate travel policy that requires employees to book through an internal system or a designated travel agent.”
Booking snafus can happen when someone other than a meeting professional is planning the event, said Finn of Benchmark.
“We see this more often with (social, military, education, religious and fraternal) groups,” he said. “Perhaps, the organizers didn’t get their mailings out on time and, as a result, have trouble reaching their room pick-up requirements.
“And in times of an economic downturn, the issue for attendees is, ‘I’ve got to wait until the last minute to see if my boss is going to let me register for this conference. And some attendees in higher income brackets just don’t want to stay at the host hotel and are willing to pay $50 or more a night to stay elsewhere,” he added.
Solutions for planners and hotels
Marcial of Meeting Professionals International said some meeting planners are taking steps to reduce their liability caused by attendees booking around their block.
“A lot of our members are becoming more conservative in negotiating their room commitments,” he said. “While at one time they would contract for nearly 100% of the attendees they expect, they might now only agree to 50% to 75% of what they expect, and it’s the attendees’ problem if the block gets sold out.”
Planners are also exerting leverage to convince attendees to use the event’s designated platform to book their rooms.
“In some cases, planners are imposing penalties on attendees who don’t book within the block but who have registered for the event. The attendee pays a premium for registration, giving the planner protection against any penalties they might face if the block isn’t filled,” Marcial said.
Hotel operators are also seeking solutions that protect their bottom lines and shield meeting planners as much as possible from having to pay attrition fees for not fulfilling their room contract obligations.
“In a high-demand market, hotels should include in their contracts that after the cut-off date for the room block, rooms revert to (best available rate) based on availability,” Finn said. “If I’m looking at 95% occupancy at the group’s cut-off dates, no meeting professional in their right mind would expect me to sell the remaining 5% to their group at the group rate when I can be getting $50 or $100 more from transient business travel or leisure.”
Both meeting planners and hotel executives agree the key to minimizing the problem is maintaining an open line of communication between hotel staff and meeting planners.
“The more you can understand the needs of the group and the more they understand your expectations, the better off you both will be,” said Drew Salapka, VP of sales and revenue generation for Hotel Equities. “Transparency and clear channels of communication will minimize—but never eliminate—problems. When you have a strong relationship with someone, it’s always easier to approach him or her and say, ‘we have an issue.’”
Finn said it is important to communicate with planners well before room booking cut-off dates to provide them with updates on levels of booking.
“We have internal cut-off date meetings so we know ahead of time if a group isn’t picking up its contracted room block,” Finn said. “In a case like that, we can call them 45 to 50 days out from the deadline to see if we can work together to solve the issue.”