Group Pricing Survey Results: Rate Trends Will Get Worse Before They Get Better
By Adam Maclennan (PKF)
PKF Hospitality Research released their updated forecasts covering the domestic lodging industry in late August 2009. Per these estimates, Revenue per Available Room (“RevPAR”) in the United States is expected to decline 18.5 percent this year, and another 2.7 percent in 2010. These estimates come from our understanding of the historical relationship of lodging industry performance relative to changes in the economy. The current estimates from Moody’s economy.com call for a level of economic expansion in 2010 that should result in a 1.6 percent increase in lodging demand which, in turn, should lead to a slight increase in average daily rates by the fourth quarter of 2010.
To answer this question, we surveyed hotel General Managers and Directors of Sales across the United States to better understand market expectations for group meeting demand and pricing for the months and years ahead.
Please estimate the percentage change in quoted group rate for the following periods compared to those for the same period 12 months prior. Please use the minus sign (-) to indicate a drop in group room rate and write the number in the box provided. For example, if the overall average group rate you realized in the summer of 2008 was $100, and the overall average group rate you think you will achieve this summer is $90, your answer in the first box would be -10.
Similar to our current forecast for the industry as a whole, survey participants are of the opinion that the largest year-over-year declines in group room rates would be realized in the Fall of 2009, when group rates are expected to be 12.7 percent lower than during the comparable period in 2008. This is slightly worse than expectations for this past summer, when rates were expected to be 12.1 percent lower than during the summer of 2008. As indicated in Table 1, lower rates are expected to persist through the Fall of 2010, after which managers believe they will be able to achieve slight increases in room rates from group meeting planners and attendees.
It is clear that savvy meeting planners are leveraging the abundance of available space and the shorter booking lead times in their negotiations with property management. The persistent shift in bargaining power in the favor of the customer through the end of 2010 is consistent with our outlook for the overall industry given the assumed gradual strengthening of the economy.
Please rank the following factors in your pricing decision when quoting a group rate. (Rank in order of importance to you with 1 being the most important).
Overwhelmingly, the answer from the survey participants was that pricing decisions were based primarily on the volume of unsold inventory for the dates in question. Interestingly, the second and third most important factors influencing the rate quoting decision were customer driven: maintaining good relationships with existing clients and factoring in what the client is willing to pay. The often-heard mantra of “My competitors are forcing me to cut my room rates” came in a close fourth, followed by what the prospect paid the last time they had a meeting at the venue under consideration.
Estimate the current level of price sensitivity, relative to past behavior for the Association, Corporate and SMERF segments.
On a scale of 1 to 100, where a rating of 50 indicates no change in the level of price-sensitivity, a rating above (below) 50 suggests increased (diminished) levels of price-sensitivity; the responses from the survey participants were very consistent. All group demand sources have become much more cost conscious, particularly within the Corporate segment. The perception of the Association and SMERF categories were generally comparable.
Please rank each of the following group segments in the order that you expect them to recover.
Similar to what has been observed in past industry cycles, survey participants anticipate that Corporate groups will be the first to recover as the national economy begins to expand, followed by Association and SMERF-related organizations. Based on the results of the most recent PKF Hospitality Research Hotel Horizons® forecasts, signs of increased interest should begin to surface by mid-2010.
Overall, General Managers and Sales managers faced with increased levels of empty rooms, shorter lead times for events and an increasingly price sensitive consumer are simply trying to cut their losses and hold on to what they have. In these bad times, preserving occupancy while maintaining and building existing relationships is the key. Sales managers are looking beyond 2010 for a true recovery and hoping that relationships with clients will reap benefits in the long term.
Adam Maclennan is a Senior Consultant with PKF Consulting based in the Firm’s Atlanta office.
Note: The make up of the survey panel is described in the following charts