State of the Industry: Negotiations Tougher

When it comes to negotiating contracts, meeting planners believe their jobs will get more difficult over the next year. By substantial margins, planners who participated in a semiannual state of the industry survey by SM's sister publication MeetingNews say that terms in all nine categories measured will become less negotiable.

Planners expect the least negotiable item to be what is, unfortunately for them, the costliest part of most meetings: sleeping rooms. Nearly half of planners expect room rates will become less negotiable over the next year, while only 10 percent expect rates to become more negotiable. The remainder expect no change.

Planners felt almost as negatively about cancellation, guest room attrition, and air travel; they felt somewhat less negatively about food-and-beverage pricing/attrition, meeting space rental, and audio-visual services. Only with regard to destination management services is there some disagreement by planners as to whether it will be tougher to haggle.

Also unfortunately for planners, industry experts predict that reality will conform to their negative expectations. In announcing that the U.S. hotel industry enjoyed its most profitable year ever in 2005 as measured in non-inflation-adjusted dollars—$22.6 billion—Randy Smith, CEO of Smith Travel Research, recently said, "The U.S. hotel industry is firing on all cylinders . . . and for the next two years we expect further excellent results."

Smith attributed the boom to increased demand of three percent this year, primarily from group and transient business travelers, combined with a relatively tepid increase in room inventory—1.2 percent versus a historical average of 2.1 percent annually.

Mike Burns, vice president of the Cleveland-central region for meetings-management giant Conferon, predicts that the seller's market will continue at least through next year. "Typically, a strong seller's market lasts 18 to 36 months before going back the other way," says Burns. "So I think we're in the middle of it right now."

While planners believe that guest room rates, more than anything else, will become less negotiable over the next year, they also consider those rates to be among the most negotiable items at present—a seeming contradiction given the current seller's market. Burns offers this explanation: "Room rates are always negotiable—you're just starting at a higher rate."

In addition to higher prices, hotels and other suppliers can likely take a tougher stance with planners on other terms and still win business. For example, a few years ago hotels frequently gave their better group customers one comp guest room for every 40 paid rooms; that ratio is most often one to 50 today. Further, the allowance for room-block attrition is often coming down to 10 percent, from the usual 20 percent of the recent past.

The final insult: Corporate planners who wisely negotiated preferred-supplier agreements with hotels two or three years ago may find themselves with great terms but no availability. "What looked good then doesn't look good now," says David Scypinski, senior VP of industry relations for Starwood Hotels & Resorts. "It's hard for them to find dates now because competing business looks better."