By DINESH RAMDE, AP Business Writer Dinesh Ramde, Ap Business Writer – Thu Mar 26, 3:05 pm ET
MILWAUKEE – Hotels companies, long steadfast in requiring business clients to forfeit deposits when they cancel or scale back events, are starting to soften their stance.
Whether businesses are worried about being seen as big spenders in these lean times or they just don’t have enough participants signed up to make an event worth holding, they are finding hotel officials increasingly willing to negotiate on room rates, catering bills and even cancellation penalties.
“Being in the service industry, it’s in our nature to always find a win-win,” said Cassy Scrima, the marketing director at Marcus Hotels and Resorts, which owns the elegant Pfister Hotel in downtown Milwaukee. “We understand the predicament people are in, and as a hotel you want that repeat business to come back to you.”
In good times, hotel companies usually charge a hefty fee when a client wants to cancel an event, said C. Patrick Scholes, an analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va., sometimes as much the event’s full cost. But the tough economy is forcing them to reconsider.
“We’re seeing where people may go to the properties and say they want to cancel, and the companies say, ‘Don’t cancel, we’ll cut you a better deal,’” Scholes said. “Something is better than nothing. Right now hotels have lower bargaining power due to the economy.”
Scholes estimated that bookings for corporate meetings across the country were down 35 percent last month compared with February 2008.
Some hotel companies are offering to eliminate so-called attrition fees, which apply when a client’s meeting draws fewer guests than scheduled. Omni Hotels, the Dallas-based operator of 40 hotels across the U.S, announced last month it would waive the fees for most events booked by June 30 and held by the end of the year.
“We know our clients wanted to hold meetings but were concerned about committing to a certain number of guest rooms,” said Tom Faust, Omni’s vice president of sales. “This incentive lets them know we’re there as a partner helping them overcome their biggest concern.”
Companies across the industry saw revenue fall between 10 percent and 20 percent in late 2008 compared with a year earlier. It’s hard to separate business travel revenue from leisure. But revenue at Manhattan hotels, which draw a particularly large share of their revenue from business travel, fell a record 30 percent in January from a year earlier and appeared to be down 40 percent in February, according to a report the Federal Reserve released this month.
Room rates fell about $7 to a national average of roughly $100 per night between last February and this February, according to Smith Travel Research Inc., while occupancy rates for the month slipped below 50 percent from about 55 percent.
The Pfister, by converting one client’s sit-down dinner for about 600 into five smaller lunches, helped the client save $8,000, Scrima said.
“It’s about finding creative solutions,” she said. “This solution worked out for everyone.”
Other hotel companies have found their own solutions. Hyatt Hotels & Resorts in Chicago will discount the final bill 6 percent for events at its upscale Hyatt resorts or 10 percent at Hyatt hotels. Marriott International Inc., based in Bethesda, Md., is now offering meeting planners a 2 percent discount plus twice the promotional reward points.
The cost of a large-scale event varies based on location, time of year and number of attendees. A typical 1,000-person conference for three nights costs between $1 million and $1.5 million, for example. Depending how much notice planners give, cancellation fees run between 10 percent and 100 percent of the event’s full cost.
A hefty enough penalty can convince planners to conduct the event even with low attendance, said Robert LaFleur, an analyst with the Susquehanna Financial Group in Stamford, Conn.
“It might make more sense to pay the full amount and hold the event than to do nothing and still take a financial hit,” he said.
But forcing clients into such a position can make them angry. So hotels like the Mandalay Bay in Las Vegas are now offering clients the option of moving an event to a less busy season or applying whatever penalty they pay toward a future booking, said hotel executive Richard Harper.
“Every negotiation is with an eye toward future business with that customer,” said Harper, the Mandalay Bay’s vice president of sales and marketing. “So we’ll be flexible. We’re not going to turn our back on a customer just because of the economic downturn.”
Most hotel companies declined to give specific numbers about the cancellations they’re seeing or their bookings for the future.
“I’m sure you’ll see a lot more of these new incentives,” said Scholes, the analyst. “I would expect, since Omni and Marriott are offering these deals, the others are sure to follow.”
Some hotels are offering savings by other means, such as modifying menus, which can cut costs substantially and is usually easy because food typically isn’t purchased until just before an event.
“You can go with chicken instead of steak, not do an open bar, do a buffet instead of a served lunch,” said LaFleur, the analyst. “You can knock 20 to 30 percent off the cost that way.”
The industry’s new flexibility may also be good for event planners looking to lock in favorable deals down the line. Katie Callahan-Giobbi, the chief business architect for Meeting Professionals International, a Dallas-based organization that represents event planners and conference venues, said planners looking at 2010 and beyond should be just as aggressive as those renegotiating events this year.
“The way things are going, I would get on the phone and start negotiating a deal right now,” she said. “Everyone’s in a mood to negotiate, whether for this year or 2012 or 2015.”
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