How to negotiate anything in times of soaring oil prices.
It's official: Oil prices passed the "insanity" mark right around the start of the summer. Now, the price of everything that depends on fuel at some point in the supply chain (airline tickets, food and beverage, and, well, pretty much everything) is skyrocketing faster than planners can catch their breath. Hoteliers, destination management companies, transportation providers, and other suppliers are feeling the effect of high oil prices as well (edging past the $140 a barrel mark at press time.) Everyone in the meetings industry is looking for a break, even a small one, to help reduce the final bill.
A closer look at the trends shows the importance of negotiations in meeting planning. The airlines have successfully raised rates nine times so far this year, and industry leaders say fares need to rise another 20 percent to offset the crippling fuel costs. Most major airlines have also announced capacity cuts in the double digits for the fourth quarter, and that translates into fewer options and fuller flights for flyers. The cost of filling up an ocean tanker has risen 87 percent in the past year, leading to higher costs for consumer goods. Gas prices are up almost 38 percent from a year ago, averaging over $4 a gallon nationwide. For every penny hike in the price of gas, consumers pay an extra $1 billion a year. One bright spot for planners: The steady increase in hotel rates seems to be leveling off, as leisure demand drops and corporate travel weakens, according to the latest monthly statistics on average rates by Smith Travel Research, which showed ADR growth in May dropped to its lowest level in at least three years with a rise of just 3.7 percent year over year.
Crunch Time
Even F&B costs have been indirectly affected by high fuel costs. Transportation expenses are skyrocketing for shipping food items, and more farmers are diverting cropland to crops intended for ethanol productionalso driving up prices. If you haven't seen costs rise significantly yet, it was because suppliers were hoping to ride out increases without having to pass them on to customers, but the industry can't wait any longer, says Darlene Baldearena, vice president of Circa Destination Management Co., the in-house DMC of The RK Group, the Texas-based behemoth of full-service catering and event logistics. Though concerns over fuel prices have been high for at least six months, oil prices have hit the San Antonio market even harder in just the past 45 days.
"Everyone held out as long as they possibly could," Baldearena says. "I'm proud that they didn't hear the news [of higher fuel costs] and pop prices up."
Eighteen months ago, the industry thought fuel surcharges would be short-lived and that oil would never break $100 a barrel. Planners protested every little charge or rate hike, but now reality has set in. "It's here to stay," she says.
Baldearena says she has seen new charges such as a refill fee of a few dollars for chips and salsa at local restaurants and F&B minimums with every meal.
"We're just beginning to see that from vendors. It trickles down. I didn't think about the impact [of high fuel costs] all the way through, but it all makes sense," she says.
Planners know that the cost of food has gone upeven chicken. Menus are pared down. Concerns about service levels going down are well-founded, so don't assume properties will maintain quality if they are pushed for a lower bill. "So asking questions like how many servers for a meal will you be scheduling is important for the flow the program," says Belinda Halcombe-Rasmussen, president of the Oregon chapter of Meeting Professionals International, and owner of Cutting Edge Planning Meeting & Events.
Explore alternatives that might lower your total F&B costs. Sure, a complete meeting package (CMP) rate may look high if you haven't used a conference center before, but dig deeper into what services are included to assess its full value. Even if you decide a conference center is not right for your group, you can use the CMP as a negotiation starting point. In fact, in an effort to lure more meetings groups, many hotel chains are offering attractive packages that feature CMP-type amenities. For instance, 20 participating Marriott Hotels and Resorts properties are promising free continental breakfast, discounts on audiovisual and F&B costs, double reward points, upgrades, and earned rooms for qualifying groups.
Other creative ways to lower your F&B costs include checking with the kitchen to see what other groups at the hotel are eating that day. If the menu options fit for your group, you may be able to score a discount with the chef. Consultant Corbin Ball suggests negotiating an F&B cap on price increases if you are booking far in advance, and consolidating all of your F&B needs with as few providers as possible (for example, eliminating off-site dining venues) to leverage a lower overall cost. Use non-perishable items, such as canned soda and packaged bags of chips, which can be reused or returned to the supplier for a refund. Track what your attendees are eating, and how much food is left over, to make a more accurate projection for future events.
Getting From Here to there
For transportation services, where the impact of high fuel costs can be seen most directly, Baldearena is recommending clients schedule fewer pick-up locations to lower the number of coaches they need.
"It's a greener message: It saves the environment and your budget," Baldearena says.
She has also negotiated a fuel surcharge formula to be used as oil prices rise. If gas prices fall below $3.50 a gallon, the surcharge is 12 percent; at $4 a gallon for fuel, the surcharge is 15 percent; and at $5 fuel, the surcharge is 19 percent. The company has also asked for a six-month fixed surcharge rate from transportation vendors to protect clients from an unbudgeted charge if fuel spikes.
Discounts and negotiated fixed surcharges are passed directly to clients, Baldearena says, but value-added amenities, such as chilled water for attendees during transfers, still come from Circa.
Halcombe-Rasmussen says area meeting planners are increasingly choosing to organize regional meetings, instead of large national assemblies, and choosing destinations accessible to attendees via alternative transportation such as Amtrak. And planners are paying more attention to the details.
"We do a lot more these days using internal office staff instead of contract labor, and we pass those savings on to customers," says Baldearena. "For smaller groups, this has a huge impact."
Hotels are also becoming more open to getting more involved in group transportation. Those same Marriott Hotels and Resorts properties that are offering CMP-like amenities are also including this in the package$500 in gas cards to distribute to attendees in $25 increments for events with a minimum of 25 room nights.
The Hyatt Regency McCormick Place is offering a Gas Saver Package for guests that includes a $25 gas card and complimentary parking for one car per room, with a minimum two-night stay. The hotel also offers shuttle service to city attractions.
Guests staying six or more nights at Nisbet Plantation on the tiny Caribbean island of Nevis qualify for a free airport transfer to and from St. Kitts airport, a $275 value. As an additional bonus, guests can enjoy a 20 percent discount off all car rentals.
Rooms for Negotiation
Many properties seem to be looking for ways to overcome a growing reluctance among leisure travelers to travel due to high fuel costs. And that can be good news for meeting groups. For example, some resorts in Hawaii are now beginning to offer all-inclusive pricing as an incentive as leisure travel dwindles, says Michael Murray, vice president of sales and marketing for corporate meetings and incentives at the Hawaii Visitors and Convention Bureau.
Here's how to take advantage of this situation: Be flexible. This is a no-brainer. If your event can be held on a range of dates, or in more than one destination, then you're more likely to score a great deal on rates. Perhaps a luxury property in a second-tier city is better for your top earners than a standard resort halfway around the world. Look for creative and cost-effective ways to make the event special for attendees. Instead of individual spa treatments, consider offering a poolside yoga class to encourage relaxation. Allow attendees to mix their own personalized Scotch whisky blends for a unique take-home gift that can be combined with your F&B tab. And instead of a formal sit-down dinner, consider a relaxed yet upscale beach barbeque under the stars that both fosters networking and stays under budget.
Even if you are locked in on when and where to have your event, showing some flexibility on other budget items, such as transportation or food and beverage, can help to reduce final costs.
Know your group's value. If your organization hasn't been tracking meetings-related expenditures, begin doing so immediately. Three years of data, on both meetings and transient expenditures, can help you leverage better deals. Concentrate on the chains at which you do the most business, and promise them even more if they give you a better group rate. Seal the deal by showing you have control over employee purchasing behavior.
There's not much you can do about the rash of new airline charges, higher ticket prices, or fuel surcharges for limo services, but show your boss that you're going the extra mile by negotiating ancillary charges or for free value-adds. Push suppliers for more flexibility on attrition fees, a later cut-off date, and room upgrades. Ask for luxury treatment for your VIP guests, a special treat for a meeting break, discounts at resort shops, free use of the business center and airport lounge services, or any other value-adds that you can quantify to show you are working to score the best deal for your organization.
Negotiate for the long-term. This likely won't be the last event your company plans, so aim for multi-meeting contracts where you can promise suppliers future business in exchange for a lower room rate or more flexible terms. Work with a chain's national sales office to convince properties that you'll be a repeat customer.
Conventional Wisdom
Despite the soaring costs, Baldearena says she has seen zero drop-off in conventions. "The numbers remain strong; people are still traveling," she says.
"The market definitely has switched back to a buyer's market. Planners are less tolerant with attrition clauses," Halcombe-Rasmussen says.
Working together, both suppliers and planners will be relying on open communication during negotiations to create deals acceptable to all. "The success will be in the relationships and partnerships with the facilities and vendors," says Halcombe-Rasmussen.
Jennifer Green, assistant vice president for the Louisiana Credit Union League, agrees, saying that any way suppliers can decrease other costs that an attendee incurs beyond their transportation expenses can make attendance more likely at a convention or association meeting.
"Our attendees have a set amount for their training budgets and from this budget, they have to pay for the meeting registration, hotel room, meals, parking, mileage, etc. So things like discounted room rates, discounted parking, etc. are a great idea for direct benefits to our attendees," she says.
If a property can offer to help reduce costs for the organizers, attendees also benefit, she adds. Deals on F&B, meeting space charges, and other discounts are passed on to attendees through lower registration fees. Even discounts that the hotel can secure with local vendors, such as nearby parking garages, can help attendees, Green says.
Sometimes, the association can give a little extra break to attendees who have higher transportation costs. "We do offer a standard 'distance learner' discount for our programsthe registration fee is a little less expensive for people who have to drive in from a long distanceso this is one way we help decrease the financial burden of driving in," Green says.
And necessity is the mother of invention in negotiations. "We haven't done this, but it might be a good idea for an audiovisual provider to offer a free teleconference service with any other paid AV services, so that people who could not come to the meeting could participate via telephone," she says.
TWO THINGS TO REMEMBER
When the negotiating gets tough, always keep these two goals in mind:
Play Nice
The supplier is not your enemy. Maybe they aren't your best friends, but they do have the same goal that you have: to do business. In these economic doldrums, it's no time to play coy. Be upfront about what you need and what you'd like to haveand aim for a deal in between. Be honest with the sales representative about what is important to your attendees and what isn't really necessary.
Build Relationships
While it's sometimes difficult to build personal relationships with sales reps due to high turnover or changing job descriptions, it's important to put a premium on loyalty. It's not always about the cheapest rate; it's also about who is willing to partner with you to make sure you have space and services when you require them.
NEGOTIATION CHECKLIST
Common negotiation points for meetings and events:
• Guest room rates
• Reward points
• Exchange rates
• Discounts at on-site shops and restaurants
• Activity fees, such as greens fees
• Earned airline tickets and upgrades in service
• Resort fees
• Meeting space charges
• Attrition allotments and cancellation clauses
• Cut-off dates
• Upgrades/suites/VIP treatment
• Parking fees
• Audiovisual packages
• Food & beverage packages
• Transportation services
• On-site staff support
• Business center services
Originally published Aug. 1, 2008
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