There is a hotel negotiation in your future. No reason to panic, but can you tackle it with the finesse of a seasoned professional?
“The temptation is to focus on hotel rates,” said industry guru Joan Eisenstodt, president of Eisenstodt Associates in Washington, D.C. “But when planners focus on the room rate, they are focusing badly. Good planners focus on the total cost, not just on the cost of a guest room.”
Take Las Vegas. Room rates are among the lowest of any major meetings destination in the country. But air transportation costs are high. An unwary planner could see the total event budget balloon even as the guest room spend is lower than it might be in San Francisco, Boston, Chicago or other major destinations. Hotel spend is only part of the budget picture.
More Than Room Rate
The same logic applies to the hotel spend itself. Room rates are only part of the picture.
Hotel sales departments like to talk room rates because room rates are easy to quantify. But what the hotel really cares about is the total revenue stream from your event, said Tyra Hilliard, Ph.D., president of Hilliard Associates and assistant professor of business and hospitality at the College of Coastal Georgia in Brunswick, Ga.
“Planners have to remember that hotels are in business to make a profit,” Hilliard said. “Hotels are going to be looking at other revenue streams, especially if they have to reduce room rates. As we move to a buyer’s market, we are going to be finding a lot more resort fees, energy surcharges and other fees and a lot more resistance to negotiating those ancillary charges out. Hotels scatter those charges throughout their contracts.”
As a planner, your first responsibility is to read every word of every contract, or at least hire an expert, she added.
“A single word can make a huge difference in your final spend,” Hilliard said.
Take the difference between “buyer’s market” and “seller’s market.” During the Great Recession, hotels slashed rates, dropped fees and piled on value-adds like free breakfast. By 2015, demand was outstripping supply and rates soared, fees jumped, and value-adds evaporated. And hotel construction was accelerating.
Some industry analysts have pegged 2017 and 2018 as a new buyer’s market. STR and Tourism Economics predict declines in occupancy for both years as new construction outpaces demand. Bjorn Hanson, Ph.D., clinical professor at the New York University School of Professional Studies, predicts a shift in the balance of negotiating power from hotels to planners as occupancy continues to slide from its 2015 high.
Smart planners look at supply and demand on a more local basis.
Yes, there has been a 19.4 percent increase in room inventory compared to a year ago, said Terri Woodin, vice president, marketing and global meeting services for Meeting Sites Resource. But 65 percent of that new construction is in limited-service properties—Courtyards, Hampton Inns, Garden Inns—in downtown areas.
“We have much more inventory for a citywide event that is using a convention center,” Woodin said. “But we still have limited meeting space inventory. If you are a meeting for 1,000 or more, you will have to expand your booking window if you want a top 25 city in 2016. And you may have to accept a second- or third-tier city to find meeting room space.”
Planners with smaller events enjoy more flexibility, especially if they are headed for markets affected by the oil crash, such as Houston, or coastal areas affected by Zika. They have more negotiating power and can expect better rates and more concessions than they could get in top-tier cities.
Use Revenue Management
Robyn Mietkiewicz, senior director, global meeting services, for Meeting Sites Resource, sees another strength in professional negotiators. They come to the table armed and dangerous—with information.
“Know your spend—by category, by hotel, by chain,” advised Mietkiewicz. “Know your spend for sleeping rooms, for food and beverage, audiovisual, spa, golf, spouses. Be armed with complete information about the overall revenue you are bringing to the hotel, including any sponsored events that you aren’t paying for directly. Having all of those details at your fingertips is your leverage during the negotiation process.”
Contracts are tricky. What isn’t included can be as important as what is in them.
Take resort fees and surcharges. If they are not mentioned in the contract, the hotel can add whatever it wants to the final bill. The solution is a clause that prohibits any fees or surcharges not explicitly included in the contract.
Attrition is another sticky issue. Hotels may try to calculate attrition damages by gross revenues lost, sometimes even basing calculations on rack rates or prevailing transient rates. The appropriate method is based on lost profits using group rates.
The typical gross profit on group rates is around 77 percent, Mietkiewicz said, although she will accept 80 percent or 85 percent if the hotel can justify the higher profit margin. And damages should be based on cumulative room pickup for the event, not on a night-per-night basis. If the hotel sales team doesn’t know the details, the planner must.
“As planners, we want to be good partners so that everyone—you, your client, your attendees, your hotel—goes into the event happy,” she said. “Negotiating like a pro is all about education on both sides of the table.”