Hotels Expect Group Rates to Rise in 2015
The hotel industry is distancing itself from the bygone recession and hoteliers are looking for any way they can to match rates with rises in occupancy. While leisure rates have returned to many markets (and in some cases surpassed past peak levels), group business rates aren’t there yet. Bjorn Hanson, clinical professor for the Preston Robert Tisch Center for Hospitality and Tourism and the NYU School of Professional Studies, found in recent research that while meetings demand in the U.S. is still in a period of recovery, hoteliers should be able to capture higher rates for group business in 2015.
Patterns in Hanson’s research show that fewer attendees are attending meetings compared with periods before the financial crisis, and meetings are shorter. According to Hanson, there are more open evenings after meetings than ever before, a void left by unscheduled banquets.
“We even see this creeping into F&B, with meals being scheduled through the meeting with no breaks,” Hanson said. “The nature of how F&B services have been arranged in hotels these days is showing patterns, and that has had an effect on demand.”
But while the structure of meetings may be changing for some sectors, meetings volume is returning. Overall, group demand is definitely on the rise, according to STR data. As of August, group rooms demand was up .9 percent year over year, and the volume of group rooms sold was up 1.5 million in June alone over June 2013, according to STR.
While leisure demand still leads the industry’s overall demand growth, various reports have shown group business coming back. One of the drivers behind this may be the return of some government business following shutdowns and restricted travel over the past few years.
The Rate Effect
But how does this affect corporate rates for hotels? Corporate and contract rate negotiations in the hotel industry represent nearly 20 percent of all occupied room nights in the U.S. for as much as 30 percent of the U.S. lodging industry’s revenue. And while rates reached through negotiations are increasing every year, Hanson said hotels continue to try to accelerate this growth despite some resistance.
Additionally, meetings sales have been placed on the backburner for some time, according to Hanson. Hotels are now seeing a growing momentum in occupied room nights and are recognizing that momentum as a signal to re-prioritize the meetings side of their business. Hanson is expecting corporate contract rates to go up by the largest margin since NYU began its forecast, with the national average rising 5.5 percent to 6.5 percent in 2015. In 2014, average negotiated rates increased approximately 4.5 percent, while the overall average daily rate for U.S. hotels rose 4.0 percent.
Hanson said meeting planners are also looking at new selling strategies for 2015 and are viewing the meetings business not as filler, but as a floor from which they can base their other business around.
“A 300-room hotel that is booking 100 rooms for meetings can now have a better rate strategy for its remaining 200 rooms because occupancy is high,” Hanson said. “This was less of a viable strategy before. Hotels fill from the bottom of their rate structure up. This is putting pressure on corporate rates, because with higher occupancy, now is the time for hotels to be aggressive.”
Booking Windows Change
This is causing a change in psychology that became prevalent over the last four to five years, where travelers would wait to book a hotel stay until the week or even the day before their arrival in search for lower rates. Now that hotels are no longer hurting for occupancy, the opposite method would be more effective. As larger meetings come back, it’s the nature of the business to have longer booking windows for corporations, and travelers who shop ahead of time can use social media or travel agencies to be notified of changes in rates. Therefore, waiting for rates to go down is not an advisable strategy.
To take advantage of high occupancy, hotels are reversing the trend of including charges for select services and amenities within the negotiated room rates.
Hotels also began charging again for amenities that used to be included free of charge in corporate and contract rates.
In response to these decisions, more buyers are signing deals with upscale select-service and limited-service properties as opposed to upper-upscale and full-service hotels as they search for deals similar to what they were paying in the downturn.
According to Hanson, they have the wrong idea. “From 2009 to 2011, corporate rates didn’t change much, so now the sales side needs to catch up,” he said. “Hotels are now exceeding 2007 occupancy numbers, so even with these increases, buyers need to realize the deal is still really good for them.”