Hotel Company CEOs See Meetings Rebound Ahead

Major multibrand hotel company chief executives this month expressed confidence that corporate and association meeting business would rebound fully alongside the economy, despite lasting effects of aggressive cost-cutting by companies during the downturn and the stigmatization of the industry from the so-called AIG effect.

The CEOs of Accor, Choice, Loews, Starwood and Wyndham, speaking during a press briefing at the 2009 New York University International Hospitality Industry Investment Conference in New York earlier this month, said that while group business certainly is down at their properties, they do not expect to see any long-term shifts in the group, transient and leisure travel balance. In fact, several of the leaders said they expected group business to be a growth area when the economy recovers.

"Because group business is so far down, there will be tremendous pent-up demand," said Frits van Paasschen, president and CEO of Starwood Hotels & Resorts Worldwide. "The conventions, product launches and training sessions are such an important part of the business that it will come roaring back."

One segment of that group business—association business—has remained generally strong even during the slump, said Noble Investment Group senior managing principal and CEO Mitesh Shah.

"Association business is likely the most underappreciated class of business we have in our hotels," according to Shah, whose company operates upscale hotels under Marriott, Starwood, Hilton, Hyatt and InterContinental brands. "When times are great, we tend to slow them down considerably and book other kinds of business in their stead, but when times aren't so good, they're the ones who continue to travel."

Group travel recovery, however, will face some obstacles, the CEOs said. Although the industry has made strides in overcoming what has been termed the AIG effect—a negative perception of luxury travel following reaction to the insurance giant holding a high-end incentive meeting shortly after receiving federal bailout money—it continues to affect group business, according to Stephen Joyce, CEO and president of Choice Hotels International.

The general public, Joyce said, still has a skewed view of what happens at most corporate group events.

"Most meetings have people in sessions and educational training pieces, with the delivery of information for the bulk of the day, a couple of meals thrown in and maybe a bad '80s hair band in the evening," Joyce said. "The ritz and glitz of what's being portrayed in the press is totally out of character for those meetings."

The travel industry has been reluctant to reveal what happens during corporate meetings, but the attacks have made it necessary to do so, Joyce said. The industry needs to be more vocal on the value of meetings, he said.

"We are more important to this country than the automobile industry, but the reality is, we don't act like it," Joyce said. "We have to stop being the glee club and start being the football team."

The industry also will have to demonstrate that value to the companies themselves, said Gilles Pelisson, chairman and CEO of Accor Hospitality. As companies incorporate demand management policies during the downturn, particularly the use of videoconferencing and other technologies to cut down on the need for group travel, they could keep such policies in place when the economy rebounds, he said.

"There is the value of the meetings, but people will have changed their habits, and it may be up to us to convince them," Pelisson said. "As companies get cost-conscious, how do we as an industry promote the value of meeting?"

Most of the CEOs said that they did not expect the technology alternatives to cut down on group business in the long term, however. A tough economic period might even heighten the need for meetings within companies, said Eric Danziger, president and CEO of Wyndham Hotel Group.

"Everyone's learning, particularly in tough times, that business is person-to-person connectivity," he said. "Technology is wonderful—Webcasts, Webinars and the partridge in a pear tree—but there is no replacement for people getting together to work, feed off each other and create a culture that ultimately drives businesses and companies."

Starwood's van Paasschen added that the impact of technology sometimes could be overstated in forecasts. "We all thought we were going to paperless offices a few years ago, but it's pretty clear that hasn't happened," he said. "As more people are working remotely and businesses are outsourcing, more businesses will be operating multi-locally, and that will raise the need to get more people out to travel. So, I'm optimistic."

The CEOs were less optimistic about seeing a rise in average daily rates anytime soon, which group travel negotiators have succeeded in pushing downward.

Noble's Shah said the length of the current economic downturn, now in its 18th month and already longer than most recent lodging industry downturns, meant it would take time for hotel companies to bring rates back to the levels reached in 2007.

Noble has seen corporate buyers push rates lower, and they will have the ability to dictate pricing for a while, he said.

"They understand that if they are traveling, they're one of the very few traveling, so they've gotten very aggressive," according to Shah. "That's not going to change until demand starts increasing."

The one factor countering rate drops is the expected slowdown in supply once hotels under construction are completed, the CEOs said. Supply growth is less than in other downturns, Shah said, and van Paasschen added that the peaks reached in 2007 were not that high in real-dollar terms compared with previous cycles.

"We'll go through a long period where supply is going to be constrained," van Paasschen said. "When the economy comes back, there will be a pretty good bounce back in rate."

Rate drops have not been consistent among all hotel tiers, Choice's Joyce said. His company, which operates largely in the mid-price tier, has not lost much ground in rates, he said.

"The higher you go in the segments, the worse the business has become," according to Joyce. "Our folks have tended to hold their rate, and we've made a concerted effort to tell them that lowering rates does not drive demand; it drives lower revenues."

Hotels are seeing one bright side to the lower rates when it comes to meetings, said Jonathan Tisch, chairman and CEO of Loews Hotels and the longtime chairman of the NYU conference. "As the meeting planners are faced with lower rates, they're spending a little more on the meetings themselves," he said. "There's a way to put a little bit of heft back into the meeting."

Originally published June 22, 2009