Pendulum Swings Back For the Lodging Industry

Nearly one-third of meeting planners reported being assessed attrition fees when the Convention Industry Council embarked on Project Attrition in 2003, up from a scant 4 percent in 1998.

The alarming surge was attributed to the depressed post-Sept. 11 business travel environment, an economic recession and the phenomenon of attendees going outside the room block to book cheaper rooms over the Internet.

Two years later, attrition has lost its urgency as an industry-wide problem. For one thing, meeting planners realize that Internet booking is here to stay. For another, they've become more sophisticated about negotiating favorable room-block contracts, demanding audits to get credit for guests, and educating show attendees and exhibitors about the importance of booking inside the block.

"The immediate problem we were facing has minimized quite a bit," said Mary Power, CIC president and CEO. "I don't think it's as drastic a problem as it was."

The market's natural ebb and flow is doing its part too. Hotel occupancy levels and room rates are on the rise. Consequently, room-block rates are now often lower than rates available elsewhere, even through discount Internet sites. With rooms scarce in some cities, attendees and exhibitors sometimes have no choice other than to book within the block.

The situation is quite different than the one meeting planners faced just a few years ago, when their room-block rates were significantly higher than the prevailing market rate. At the same time, hotels were more apt to enforce attrition clauses because it was harder for them to fill rooms.

But last year, the lodging industry began to recover. Smith Travel Research forecast a jump in lodging demand of 4 percent this year, which should help to fuel rate increases. Hotel revenue per available room is expected to increase by 7 percent this year, slightly below last year's 7.7-percent rate.

"The industry will do well this year. There's been a lack of new supply. At the same time, the business traveler is returning in full force," said Jan Freitag, director of client services for Smith Travel Research.

JP Morgan Chase analysts forecast that April hotel rates in key business travel destinations will be an average of 20 percent higher this year than in April 2003. New York topped the list with a 29-percent projected increase, while rates in Atlanta and Los Angeles are expected to jump by more than 20 percent.

Conferon Global Services President Bruce Harris said wise meeting planners should have negotiated favorable rates for future blocks when hotels had excess inventory and were hungry for business. In addition, they should have made sure to block a sufficient number of rooms as the economy started its upward climb.

"For those that had the wisdom to protect their rate and space, they're doing all right," said Harris, who has more than three decades' experience helping planners deal with housing issues. "For those that didn't, they're putting their associations at risk."

Unfortunately, some planners have done the opposite and cut their blocks, because they were worried about being stuck with hefty attrition fees should attendees and exhibitors fail to occupy rooms in sufficient numbers. Hotels typically impose attrition fees if an organizer fails to deliver 90 percent of the agreed-upon block. In one case detailed in the Project Attrition report, a small association received a bill for $200,000 when more than half of its members booked outside the block one year.

"A lot of people's solutions were just cutting the block," said Power. "Now people are having the reverse problem. You need to be very careful not to slash the block."

Power got a taste of the hotel industry's regained health while recently trying to arrange for a CIC board meeting. "I had to go to 10 hotels to get a block of 12 rooms," she said.

While no show managers could be located who would admit to cutting their blocks, Harris said he's heard of that occurring with several planners. Consequently, instead of filling less than 90 percent of the agreed-upon block, suddenly they might exceed the block by as much as 40 percent. And attendees and exhibitors aren't usually too happy when they have to stay "out by the airport," Harris added.

Besides being miffed about staying in distant hotels, attendees could also decide not to make the trip at all. "Because rooms are more scarce, if you overly reduce the room block, you leave a good chance of not being able to take care of the attendees that don't make their reservations early," said Laura Beckum, vice president, sales for Wyndham Jade Convention Services.

Instead of cutting blocks to make sure clients don't end up paying attrition fees, Beckum said Wyndham Jade now makes extra efforts to fill the rooms. "We call the big exhibitors and ask if we can help them make their reservations," she said.

Another solution is heavy monitoring. Harris said Conferon provides its clients with continual pace reports. Six months out, if it appears that space is running out, Conferon will encourage its client to negotiate for more space. "We've been letting them know as early as possible if they're going past trends," he said.

The Produce Marketing Assn. has come up with another solution. The producer of the Tradeshow Week 200-ranked PMA Fresh Summit Intl. Convention & Exposition has eliminated attrition clauses from its room-block contracts.

"We try to sign all contracts without attrition clauses. So far, the hotels have gone for it," said Patti Shanks, the association's meeting and events planner.

Part of the reason that hotels are agreeable, she said, is because the association has a history of delivering on its projected numbers, and rotates through the same cities. "We try to block according to history, and we're pretty much right on target. That allows them to feel a little more comfortable," she said.

But for groups whose room-block contracts do contain attrition clauses, the issue still bears watching. "I worry about attrition with every client, every day," Beckum said. However, she added, "It's just not the overpowering, looming fear it used to be."