"You get a feeling in the pit of your stomach, a queasy feeling, like, 'Golly, I didn't budget for that,' " confesses one veteran planner, who we'll just call Clipped in Kentucky, because he is in the middle of a pitched attrition battle with a major convention hotel in that state. "Yesterday, I received the master bill for sleeping rooms at the hotel in question," he says, "and at the end of the statement was a single entry of over $6,000 for 'unused rooms in block,' but absolutely no information about how that figure was reached." As of this writing, Clipped is still fighting the charges, and making little progress toward a resolution: "My client swears they will not pay!"
Clipped is facing attrition penalties -- charges that are levied by a meeting facility that seeks to recoup a shortfall caused when a group does not make all the purchases it had contracted from the meeting facility. Most commonly, attrition penalties are assessed on potential profits that would be made on room-nights, food and beverage, and even ancillary purchases, such as minibar snacks. Because attendance is down at many meetings, and because growing numbers of attendees are booking on the Internet and outside negotiated room-blocks, attrition disputes are more common than ever. The trouble is, most planners are not prepared for that moment when a meeting venue comes calling for cash, brandishing a letter from a corporate attorney that reads "breach of contract."
Actually, Clipped may have gotten off easy. These days, lots of groups are likely to find themselves liable for way more than $6,000. One hotel recently sought $500,000 from a group that did not purchase as promised, and lawyers specializing in attrition regularly deal with cases where hundreds of thousands of dollars are at stake.
The uncomfortable truth is this: If you plan meetings as part of your job, you're likely to face attrition penalties at some point in your work. Hospitality veteran Fred Shea, Hyatt Hotels' vice president of sales operations in Chicago, says that one in five meetings end with substantial attrition, according to his informal survey of 70 Hyatt hotels at the end of 2002. "Attrition is on the rise," he says, "and I expect that to continue to be true through 2003." Here's why.
Historical Inaccuracy
Many meetings are stuck with binding housing contracts that are several years old. These contracts were negotiated when the economy was good, and their large room-blocks aren't appropriate for today's environment, where attendance is anemic in almost every sector of the meetings business. To make matters worse, the rates on old contracts are usually too high compared to the deals available in today's buyer's market. This drives attendees to other properties or to the Internet, making it even more difficult to fill a room block. "If you have an old contract, the room block is probably too big, and the room rate is likely too high" to meet contracted numbers, explains Holly Hospel, president of Ahh Hah!, an Indianapolis-based event firm.
Outsized contracts can cost events thousands of dollars. Consider the case of Kim Nicholl-Keane, a meeting manager based in West Chester, PA, who last December handled an event in San Diego for Talley Management. The approximately 600 attendees were to meet for a technical summit in a high-end waterfront hotel in downtown San Diego. But from the beginning, it was clear that things were not right.
Nicholl-Keane was working with a preexisting contract that had been drawn up and signed back in the seller's market of the late '90s. And as is very often the case with legacy contracts, there were problems. "The blocked room rate was very high -- it was two hundred and eight dollars -- and the hotel was selling rooms on the Internet for forty dollars less than that," she recalls. "Also, the room-block was too big." As the event approached, Nicholl-Keane reduced the size of the block, but only by 10 percent, which was the biggest reduction her contact allowed. Shortly thereafter, it became apparent that the group was threatened by huge attrition damages.
"As we were looking at room pickup figures every week, we were getting more and more anxious," Nicholl-Keane remembers. "The room-block was not getting filled, and leadership was getting more and more stressed. They saw themselves dipping into their emergency fund more and more to pay for the shortfall in room pickup."
In the final weeks before her event, Nicholl-Keane and her team sent e-mails to attendees who had not booked in the block, and even made frantic phone calls trying to get attendees to stay at the headquarters hotel. "We stressed that not staying in the conference hotel would hurt the organization. We did the best we could with what we had; we exhausted every option," she laments, "but I knew the numbers in the contract were high from the start."
In the end, this unlucky group was hit with a whopping attrition penalty of $40,000, an unforeseen financial calamity that had a negative effect on the event's already-bruised bottom line. But Nicholl-Keane is gracious about the experience. "The hotel was fair," she says. "It charged us only for its profit, not for all lost revenue, which was something that was not specified in our contract. It also gave us additional slippage to eighty percent of the block, rather than holding us to the ninety-percent figure before the event. It could've been worse."
If a meeting inherits a bad contract with a bloated room-block and high rates, "You should start talking to the hotel about reducing those room-night commitments," says Hospel. "If the hotel takes the long-term view, it will reduce the room-block, and recoup those rooms in the transient market. This concession gives the hotel a chance to book your group for another meeting in the future." However, when it comes to getting the hotels to back off on inflated room rates set back in the booming '90s, don't hold your breath. As Hospel says, "Reducing the room rate is very difficult."
Chips Off the Old Block
The other major reason more meetings are mired in attrition problems these days is that hordes of attendees are booking outside the block, on the Internet. This is chiefly the result of the rise of online retailers that sell hotel rooms at discounted rates as the dates draw near, and it has become a real problem for meeting planners in recent times. The tough economy has pushed many attendees to shave pennies wherever possible, driving them to seek cheap Web rates, where they encounter a wider selection of rooms than ever before. (The Internet accounted for 9 percent of hotel sales in 2002, and will command a 20 percent share in 2005, according to the Sherman, CT-based research firm Pho-CusWright.)
According to SM's January 2003 survey of 86 meeting planners, almost 60 percent of meetings are seeing increasing numbers of attendees booking outside the block on the Internet. "This is an issue of great concern to association and corporate meeting planners," says Ed Griffin, president and CEO of Meeting Professionals International in Dallas. "Even if a meeting has the same number of attendees as in past years, there are usually fewer people in the room-block." Of course, this increases the risk of an attrition penalty.
But as challenging as the current situation with Web rates may be, it won't last forever. By unloading cut-rate rooms online, hotels are eroding the price of their product, which they can't tolerate in the long term. That is why five of the largest chains in the business banded together to form travelweb.com, a jointly owned Internet sales outlet. The new coalition hopes to regain control of the sale of their rooms on the Web. The site goes public this spring.
In fact, meeting planners are winning the war of attrition, despite their ongoing battles with Web rates and room-blocks. Many hotels are relaxing their attrition penalties or even waiving them completely even before planners ask for it. Through the end of this month, InterContinental Hotels and Resorts has a special deal that eliminates all cancellation and attrition fees for meetings scheduled to take place at any of the chain's 44 North American and South American properties in 2003.
"We thought it was a good time to make a statement that we'll do what it takes to stimulate commerce," says Jeff Senior, a vice president at InterContinental. "Planners' reaction to the elimination of attrition clauses has been overwhelmingly positive. Attrition is a source of major frustration and aggravation; it causes a lot of angst and anxiety, and meeting planners will go out of their way to avoid it." So far, InterContinental has booked two large events based on its elimination of those penalties.
Planners who end up missing their room-block numbers are often able to negotiate away some of the attrition penalties they face, but any extra costs are toxic to the tight budgets that characterize today's conferences and conventions. "Let's say you're facing $250,000 in attrition, and you negotiate it down to $70,000. That's still a very significant charge," says Hospel. "A better approach is to plan effectively so you can avoid attrition completely."