Trepidation by meeting planners and suppliers over the prospects of a weakening economy is building. While analysts predict little negative impact on the supply side, should the nation slip into the recession, meeting planners need to be prepared for change in their work patterns and tough budget decisions.
"In our forecasts, the first and second quarters of the year are always the weakest," said Bjorn Hanson, hospitality consultant at PricewaterhouseCoopers." So, during this period, we'll find plenty of information about how terrible things are. But the third and fourth quarters of 2008 will be only a little weaker than last year, which will make people wonder why they were so negative."
The consensus is that the hotel industry should weather an economic downturn well. "Like recessions in the past, there may be slowdown in demand, which will create a decline in occupancy," said Robert Mandelbaum, director of research information services for PKF Hospitality Research, in Atlanta. But he noted that the credit crunch plaguing the home market is having no effect on hotels. Further, inflation, combined with a general shortage of hotel rooms in desirable markets, will keep room rates from slipping.
"Of course, that also will increase the cost of meetings," Mandelbaum said, which could spell trouble for meeting planners whose organizations and budgets could suffer from the soft economy. In hard times, he said, groups tend to shrink in attendance. PKF forecasts hotel occupancy to slip slightly to 62.6 percent this year but room rates to continue to grow by 5.6 percent. Rates have climbed every year since 2003, and only a small deceleration is projected over the coming years by PKF.
Despite the prospects of businesses reducing travel budgets, "We haven't seen much of it," noted PwC's Hanson. He indicated that even drive-in meetings, which might be expected to suffer in attendance from high gas prices, won't be severely impacted because prospective attendees have already gotten used to $3-per-gallon and higher prices.
Hanson anticipates that by the third quarter, the economic stimulus package passed by Congress will begin to have an effect, gas prices will have stabilized, and the cost of credit will continue to fall.
Further, he and others see little or no impact on incentive trips, because of the continued imperative to drive sales with rewards amid hard times. Also, meeting planners themselves, whether inhouse or independent, should be protected to the extent that their expertise helps organizations find economies of scale in their meetings spend, he said.
Worrisome Signs
The major service-sector index, by the Institute for Supply Management (ISM), which includes restaurants, travel, banking, construction, and retail, and which accounts for about two-thirds of the U.S. economyfell in January, its first decline since the terrorist attacks of 2001.
Despite rosy predictions from industry analysts, meeting planners and suppliers are worried. The 1,643 meeting and event professionals and suppliers recently surveyed in the FutureWatch study, conducted by Meeting Professionals International and sponsored by American Express, were generally upbeat about increasing attendance and budgets in 2008. But when survey-takers were asked about the most serious concerns among all external factors facing the industry, leading the list was the economy and recession, followed by the price of gas and oil and the rising costs of holding meetings. By comparison, last year's version of FutureWatch had terrorism and the war in Iraq as the greatest concerns of planners and suppliers; this year, these issues ranked just 10th.
"This could show up for some companies as a consolidation of a bunch of small events into a few larger events," said Christina Wilkes, practice leader for meetings with American Express Business Travel, in New York. "Or, we might even see the reverse: a large meeting being broken up into smaller regional gatherings, to not have a big meeting too prominent on the radar."
Wilkes noted that pressure on meetings budgets will continue; American Express anticipates room rates to rise by 10 percent this year, virtually double the PKF prediction.
Withering Attendance?
Fueling the recession talk has been the collapse of the housing market and the related tightening of credit.
To the extent that people reduce spendingwhether for personal goods or for attendance at meetingscompanies and the events they hope to stage could be affected.
Then, there's rising unemployment. The number of people out of work rose in December and January to 5 percent, a two-year high. While that is relatively low by historical standards, laid-off employees won't be attending corporate meetings and may lack the discretionary funds to attend voluntary association gatherings or trade shows.
"In general, we will likely see slight declines in the robust growth we have experienced in the last few years for attendance, number of exhibitors, square footage, and revenue," said Skip Cox, president of Exhibit Surveys, a trade show consulting firm in Red
Bank, NJ, of prospects for the exhibition industry.
"I think attendance will be one of the more vulnerable areas of growth for trade shows and events," Cox said. "But as long as the downturn in attendance isn't large and isn't sustained, it shouldn't affect the industry too much long-term, since revenue primarily comes from space sales and ancillary sources, such as promotional and sponsorship opportunities."
Even with this caveat, Cox sees strength in the expo industry. The importance of exhibitions and corporate events as marketing tools will continue to grow, he said, as companies move toward more customer-facing and lead-generating marketing campaigns.
Originally published February 25, 2008