The future of short-term bookings
published on October 1, 2003
in Corporate & Incentive Travel magazine
The lead-time has shrunk for short-term bookings as corporate meeting planners get buffeted by tight budgets, SARS scares, and the aftermath of the U.S.-led war on Iraq. Only a few years ago, planners considered a short-term booking to be any meeting planned in less than 40 weeks. These days, a short-term booking can mean less than two weeks notice.
A new buzzword aptly describes the advent of rapid-fire meeting execution — "super short-term." These are the meetings planned with less than 90-days notice. Corporate & Incentive Travel interviewed several lodging industry executives who said that even after the expected economic turnaround, you should not hold out hopes that meeting lead-times will return to "normal." In fact, industry watchers warn super short-term meetings may be here to stay, at least for the foreseeable future. As corporations and their meeting planners continue to respond to changing market forces, the need to speedily plan meetings may continue even after the market snaps back — and this may occur for a variety of reasons. Market forces are the key.
The forces at work
Multiple factors are driving these super short-term bookings. These include historically high hotel vacancy rates, last-minute meeting approvals, and tight budgets. The hotel industry has had unprecedented vacancy rates in the last two years, said Bjorn Hanson, global industry leader of hospitality and leisure for New York City-based corporate advisor PricewaterhouseCoopers. Consider the numbers: Occupancy in U.S. lodgings was at 59.2 percent in 2002, down 1.5 percent from the 2001 occupancy rate of 59.7 percent. The 2001 occupancy rate was down .9 percent from the 2000 occupancy rate of 63.4 percent. In an attempt to boost occupancy, hotels are analyzing the cause of the slump and weighing various influences against each other.
Factors include the economy, poor corporate financials affecting business travel, and meeting planners who have learned to hold out for last-minute deals. Combined, these factors are throwing a wrench into traditional predictions of hotel occupancy. "The lodging industry is still trying to understand how to operate its yield management," observes Hanson. To understand the hotel business these days, you have to understand yield management — one of the rarely-understood factors that helps determine hotel profitability. If you view all available room nights as the hotel's "inventory," yield is the amount of revenue the inventory is able to generate. The hotel wants as much revenue as possible from its inventory, in order to maximizing its revenue — thus the terms of revenue or yield management.
Yield uses numerical calculations to predict how many rooms will be available on a certain date, based on advanced reservations and seasonal trends. The more business expected, the higher the room rate is likely to be. The reality is that the traditional calculations have become iffy.
"In this environment of shorter booking windows, all of this history of using the yield management process, all of the lessons have been betrayed," said Hanson. "How much of it is the economy? How much of it is travel-related concerns? And how much of it is just shorter bookings?" There are other factors encouraging these super short-term bookings. One factor is the substantial decline in the average daily room charge. This key measure that affects profits has dropped for two years in a row, and according to PricewaterhouseCoopers, you'd have to go search back many decades to find such a decline. In part this reflects the pressure on hotels and resorts to conform to market pressures. In some businesses you can afford to hold out for the price you want, and avoid selling your product if the market won't pay a reasonable price. But not in the hotel lodging business.
"Meeting room square footage is being taxed and being depreciated no matter if anyone is meeting in it or not," explained Whit Andrews, research director of the Stamford, CT-based analysts Gartner, Inc. That's why hotels bite the bullet and lower the rates to attract business. These lower room rates appeal to meeting planners whose budgets have been squeezed thin due to the tight economy and lower corporate earnings. Meeting planners have learned they're able to get a sweeter deal if they compress their booking cycle. In some cases, oddly enough, planning has become a profession where last-minute planning is rewarded. "People are just waiting for the right time to book," said the chairman of Washington, DC-based American Hotel & Lodging Association, Michael Handlery. Procrastinating Bosses On the planner's side of the equation, they often have to respond to bosses who suddenly want to call a quick meeting to respond to market forces. These same market forces are determining if, when, and what kind of meetings get booked. some companies. Meeting planners in some cases have delayed meetings until their company releases its sales figures. If sales are strong, they are then move ahead with more ambitious meeting plans. If not, they would have to scale things back.
Not all meetings are well suited for short-term booking. Strategy meetings, client presentations, and product announcements, are likely to get less lead time than a major incentive trip, said Hanson. Lisa Ramsay, meeting planner with Birmingham, AL-based Protective Life Insurance Company, a diversified life insurance and financial services company, said board meetings, council meetings, and planning sessions may also be included in short-term bookings. Meeting size also is a factor. Gatherings booked with little notice tend to be smaller, with 10 to 100 participants, said Handlery,. It's easier to mobilize fewer attendees. Additionally, companies are shying away from large, national product rollouts and are opting, instead, for regional meetings, which can be handled in the short-term, according to Jack Horne, vice president of sales at Chicago-based Hyatt Hotels Corporation. "I think you see a lot of that, where you might have gone to Chicago to hold a national meeting in the past," said Horne.
Finally, the tight labor market may also be a factor. Employees fearful of losing their jobs are probably more tolerant of last-minute travel than in years past, noted Hanson. Market Adjustments To adjust to the rise in super short-term bookings, hoteliers and meeting planners have had to make adjustments in the way they do business. Hotels have tried to improve the way they support customer sales. They're doing this in a number of ways - increasing their sales force, sweetening the deals by offering more freebees, and in some cases, creating self-service, automated RFP and booking tools that cut the cost of selling a room block while improving service to the group customer. Hotels everywhere are augmenting their sales teams to more rapidly serve group sales, said Handlery. At Hyatt, for instance, the company has added to its sales force to respond to the jump in short-term business, said Horne. But Hyatt has also gone a step further, providing 24-hour access to room availability.
Through a partnership with StarCite Online Marketplace, the company can deliver real-time group meeting rates to customers and respond to electronically submitted RFPs within 24 hours. The technology investment seems to be paying off. "We've seen that a dramatic proportion of that StarCite business is 60 days or less," said Horne. Hyatt also started e-mmediatemeetings.com last year, which lets professional meeting planners book meeting space for fewer than 100 people in real-time at any Hyatt hotel. Hyatt provided these solutions to better serve its small meeting constituency, which makes up nearly 70 percent of its meeting business, according to Fred Shea, Hyatt's vice president of sales operations. Just as hotels are pursuing efficiencies, meeting planners have learned to take short cuts and be creative in order to secure their super short-term bookings.
One way of doing this is to give repeat business to industry colleagues who have consistently met the planner's individual needs. "I think having such good strong ties with your hotels, the destination management companies, and your suppliers is crucial," said Ramsay. "They know what you need to get done — and they know how to turn it around." In using the same hotels and suppliers repeatedly, Ramsay said she consistently gets the best rates because "I give them so much business in return." Going back to the same sources also helps Ramsay leverage a favor when a meeting comes in with a particularly tight schedule. She can call the favor because of the strong relationships she's built. Having the meetings close to the home office is one way Ramsay has managed. Meeting closer to home also can make it easier to execute with short notice, said Ramsay. Therefore, many of Ramsay's meetings are often planned in the Birmingham area, where her company is headquartered. "Birmingham is not a gigantic metro city such as Atlanta, New York, or Chicago. We don't offer the variety of things you can do in these cities," said Ramsay. But by keeping the meetings close to home, field staff in outlying areas can meet the people that support them in the home office. Ramsay can also get creative entertaining attendees in Birmingham, such as the Barber Motor Complex, which offers a Porsche driving experience, or the Barber Motorcycle Museum-a great fit for her mostly male groups, she said.
Can planners stop shopping?
Another strategy planners are using to secure their bookings quickly is to simply reduce the amount of shopping they do. Time often will not allow price shopping for planners who may well follow the same RFP procedure they used did when they had a longer lead-time for bookings. Regarding quotations, the business has gone from "get it back to me when you can" to "get it back to me tomorrow." That sometimes eliminates some of the property choices that planners would otherwise have, if they can't wait for an answer. Also, when it comes to super short-term bookings, negotiations tend to be kept to a minimum. Planners have less time to negotiate for different rates on different dates. They're in a position to tell the resort, "Either help me now or I'll have to move on to another property that can." While deal-making certainly still goes on, the emphasis has shifted to just getting the business booked. Even the challenge of planning air arrangements at the last minute can be overcome with a little resourcefulness. Many employers have a policy against too many key employees traveling on the same airplane. So planners may have to resort to using non-direct flights and second-tier airports to get attendees into a destination on time. Crystal Ball Perspectives Now that the efficiencies are in place and meeting planners know they can often get great deals on super short-lead times, what's likely to happen when the economy recovers? Things are unlikely to go back to "normal" right away, according to Hanson. "We're being criticized by the hotels for saying so, but there is a learned behavior that has incurred in the cycle that will have some enduring influence."
Corporate meeting planners have learned to be extra aggressive in a down market to get rates and extras they want, especially if they call at the last minute when hotels are desperate to sell rooms. "I think meeting planners have learned or have a perception that the shorter they book, the greater a deal they might get," commented Richard A. Cimilluca. Cimilluca is a member of International Association of Conference Centers and director of sales and marketing with North Maple Inn, Basking Ridge, NJ. "And to some extent that's true," he admits. Of course there is a risk if a meeting planner tries to book during a peak time, so planners may have to select alternative venues or types of venues.
Hotel rates to rise slowly
If history is any predictor, hotels will be unable to quickly raise their rates when there is an up tick in the economy. The industry has lowered the rates so much that when the economy flourishes next year, hoteliers simply won't be able to just raise the rates in response, according to Handlery. Handlery predicts it will take up to four years following a recovery to get hotel rates back to where they were in the early 2000s. "Our industry has lowered the rates so much, when the economy flourishes next year, you can't just raise the rates," Handlery says. The reason hotel rates can't just shoot up is that companies, having grown accustomed to lower rates, are likely to balk at a rapid rate increase. "Companies have been used to budgeting certain amounts for car rental costs and hotel cost," said Hanson. "Businesses have learned to do with less travel, so I think this will have an enduring effect." If the economy recovers in the coming quarters, PricewaterhouseCoopers predicts that hotel occupancy rates will not peak above 61.6 percent until after 2005-well below the 2000 occupancy rates. Low occupancy is likely to have a cooling effect on hotel rates, which in turn might continue the super short-term group bookings trend. To preserve revenue, hoteliers are likely to change their contracts when they close group deals. Future contracts for smaller meeting or incentive business, for instance, may become increasingly tied to multiple bookings for corporate meeting planners to continue to receive low rates. Advance booking data already reflect this new strategy. "People are confirming multiple meetings and entire calendars for a six- to 12-month period of time, whereas in the recent past they'd contract those one at a time," said Cimilluca. "Although our business is constantly evolving, I do think in the next 12 to 18 months the business will be relatively back to normal," he added. The challenge for planners, post-9/11, appears to be that the lodging industry's definition of what is "normal" has changed — and will probably stay that way, for at least another year.