Getting both parties to agree in meeting business negotiations
It’s official: The hotel-occupancy boom is over. In the first quarter of 2016, total occupancy dropped among U.S. hotels for the first time since the second quarter of 2009, according to industry analyst STR. What’s more, hotel-financing firm CBRE Hotels estimates that U.S. occupancy will continue to decline through 2017.
But while that seems to be an advantage for meeting planners who are negotiating event contracts in the near future, there is an offsetting factor. The discipline of hotel revenue management—i.e., using data and analytics to predict when a hotel’s demand will be stronger or weaker, and adjusting offerings and rates to maximize demand and revenue at all times—allows properties to maintain a strong hand as occupancy softens. In short, hotel companies want their revenue per available room (RevPAR) to keep nudging upward, and revenue managers at the property level and the regional level are tasked with ensuring that.
Technology has allowed for speedy evolution of this discipline. Just a decade ago, revenue management was relatively unheard of.
“A revenue manager typically handled the room volume and set rates, but with very little data at their disposal,” says Michele Chalupa, director of sales and marketing for The Westin Denver International Airport. “But now there’s a ton of data, and the revenue manager’s job is not about simply setting rates.” Instead, the managers seek to layer the right mix of guest segments—leisure travelers, individual business travelers and group business—into the hotel every day to optimize revenue.
Planners must take that into consideration when sending RFPs to potential host properties, because revenue managers are central in deciding the total price for which a meeting could secure a property over certain dates. “Revenue managers have become equal partners with GMs and with sales directors,” Chalupa notes. “We collaborate with each other on a daily basis.”
Revenue Considerations
Upon receiving an RFP for an event, a hotel salesperson presents it to the director of sales and the revenue manager.
“We evaluate if this would be the most profitable possibility for the hotel, given the number of guest rooms, amount of function space required, and the contribution from food and beverage,” Chalupa says.
Lead time is an important factor; the further out the meeting date, the less amenable a property will be to accept an event that can’t produce the desired revenue, because there’s still time for the property to find a more suitable event for those dates. To make those decisions, “we do a lot of research on the historical demand and compression at our property and in our destination for the group’s time frame,” says Kim Dinsmoor, director of sales and marketing for Sheraton New York Times Square Hotel. On the other hand, if groups want to meet within 8 to 12 weeks, planners can likely strike a better deal—if they can find sufficient room inventory and function space in the desired destination.
If a group’s budget isn’t in line with the total revenue the hotel desires over a set of dates, the deal isn’t necessarily dead. The property should proactively suggest adjustments to the program that still fit budget and logistical needs.
Adjustment Areas
1. Event pattern. “Usually the best option for adjustment is date and pattern flexibility,” Dinsmoor says. “For a space-intensive group or one with less than ideal food and beverage spend, shifting a day or two from the original dates could make most of our concerns go away.” Chalupa says that with individual business travel being particularly strong right now, “we can easily fill Tuesday and Wednesday nights at high rates. But any group that can use Sunday night or Thursday night as part of their event is very attractive to us.”
2. Space efficiency. Dinsmoor says it’s important to figure out if the meeting space being requested works for both parties. “Maybe we can accommodate them within their budget by using the general-session room for one or more breakouts each morning and afternoon,” he says. This gives a property the chance to accommodate another group and achieve the target revenue from its event space.
On the flip side, a property can already have a meeting group booked but still dovetail a second group into the remaining event space for one day of overlap. The following day, the first group is gone and the second group can utilize more meeting space. “If a group can alter its session schedule to do that, we can get much more flexible with our pricing,” Chalupa says.
3. Food and beverage spend. Chalupa finds that many events these days are breakout-heavy. Therefore, to offset meeting room rental charges, they need a strong contribution from F&B.
“Our highest profit area is guest rooms, and our next-highest profit center is food and beverage,” Dinsmoor says. “If a group doesn’t occupy enough guest rooms for the amount of function space they desire, or they have a pattern they cannot change, we look at the F&B line to see how we can get more of the total they intend to spend on that.”
Wiggle Room
There is one other factor that can help a group secure guest rooms and meeting space within their budget—even if the event doesn’t quite reach the revenue threshold a property seeks over certain dates.
“My revenue manager knows that, based on the present volume of business from that client or the prospect of future business, sometimes we’ll make some concessions we might not love,” Chalupa says. “We can’t just operate with charts and graphs and a take-it-or-leave-it mentality. There’s a human element and a relationship to consider when we are on the fence about a piece of business. In that respect, revenue management is not entirely a black-and-white discipline.”
Failing to use the analytical data that is available today to make informed decisions is leaving money on the table—literally.
