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Resorts do some wrangling

By Denny Collins, courtesy Scottsdale CVB

For resorts, the past 18 months have been the worst of times.

“2009 was probably the most challenging year in my career,” said David Tyler, who has been in hotel sales for 20 years, most of them with the Naples Beach Hotel and Golf Club in Naples, Fla. “The aftermath of 9/11 was bad, but I think 2009 beat that by far, not for our hotel, but for the industry as a whole.”

Tyler’s take on the industry is backed by Smith Travel Research of Hendersonville, Tenn., which reported that national demand for hotel rooms last year fell below the dip that occurred immediately after Sept. 11, 2001.

In 2009, the United States lodging industry experienced the greatest annual decline in revenue since 1932, according to PKF Hospitality Research in Atlanta.

Economy creates buyers’ market
On the flip side, the down economy and an oversupply of hotel rooms have created the best of times for meeting planners who are in search of deals at resort properties.

“Suddenly the world was my oyster,” said Jennifer Lord Crouse, director of meetings and services for the American Seed Trade Association, who recently found herself doing site inspections at resorts in San Diego, a market her group usually can’t afford. Crouse was able to book the association’s winter meeting at the Scottsdale Fairmont in Scottsdale, Ariz., located in a market that had in the past been too expensive for the group in the winter, Scottsdale’s demand season.

Crouse booked the Scottsdale Fairmont through a rate guarantee program developed last year by the Scottsdale Convention and Visitors Bureau to help resorts and hotels there fill their rooms.

As the economic freefall of late 2008 sent the meetings industry reeling, resorts took more of a beating after news stories reported that insurance giant and government bailout recipient AIG had held meetings at high-end resorts.

Fearing their meetings would be viewed as an unnecessary extravagance, many companies cancelled their meetings, and inquiries fell off; in turn, resorts scrambled to recover, offering deals and generous concessions.

“I think it all started with Omni hotels last year giving a ‘no attrition’ offer and then everyone started offering big deals. It was sort of a panic mode,” said Sheri Thomas, director of sales and marketing for Meritage Resort in Napa, Calif.

Rates lowest in five years
Since then, resorts and hotels at all levels have lowered rates and sweetened deals with incentives, many offering prices that haven’t been seen in years.

“Our rates are as low as they’ve been in five years,” said Thomas.

What some resorts have found, though, is that price isn’t all that matters. The Hilton Chicago/Indian Lakes Resort outside Chicago in Bloomingdale, Ill., was surprised when its barebones meeting package — $119 per person for lodging, a meeting room and a break — failed to pique meeting planners’ interest.

“We thought it would go like crazy, but it hasn’t taken off,” said Michael Hooper, general manager. The lack of enthusiasm showed Hooper that even in a down economy, low prices aren’t always perceived in a positive way. “It is not all price,” he said.

Discounting room rates too aggressively can lead to perception problems, too, said John Branciforte, director of sales and marketing for the Cheyenne Mountain Resort in Colorado Springs, Colo.

“If you are a five-diamond resort where rooms were $450 a night and now they can book the same room for $100, what does that tell the client?” he said. “‘Well, I’ve been overpaying.’”

In contrast, by adding value — for example, hosting a welcome reception, comping rooms for staff or speakers or adding a fourth course to a meal — resorts say they are helping planners save money, a savings that is perceived as a positive because the group is getting an enhanced experience, resort operators say.

List of concessions can be long
In many cases, it is the planner who is asking for extras and discounts, said Thomas. “The list of concessions is sometimes as long as the agenda.”

From group transportation to golf instruction, the Hilton Chicago/Lakes has been “more willing to add value in,” said Hooper. “We haven’t changed our pricing. What we have tried to do is offer add-ons — giving them value without totally discounting the price.”

Greg Champion, chief operating officer for Benchmark Hospitality, agrees that resorts prefer adding value to discounting rate, but points out that a meeting planner’s budget can make a room rate discount crucial to booking a meeting.

Among the properties Benchmark manages are about a dozen resorts around the country, many of which incorporate IACC conference centers.

“If I told you today that we hadn’t been discounting, I’d be lying. Yes, there is a certain amount of discounting. In this environment, the bottom line rules,” said Champion. “From a sales standpoint, you have to understand the motivation of the meeting planner. Is it the bottom line, or are there some value extras we can provide to make it a stellar experience?”

In providing those extras, Benchmark properties consider who is at the receiving end.

“We don’t do it for a one-time piece of business that we’ll never see again,” said Champion. “The business we are in is relationship building, in good times and in bad times.”

Like shoppers, meeting planners want to get designer merchandise for bargain prices, said Thomas. “They want to be able to flash the label, but they also want everyone to know the discount they got.”

Broadening their markets
Resorts are also targeting different market segments, broadening their scope to include the association and SMERF (social, military, education, religious and fraternal) segments that, with discounted rates, can now consider resorts.

“This resort was quite successful in the SMERF market a few years ago, and it has gone back to that,” said Chicago Hilton Lakes’ Hooper.

At Benchmark-managed properties, there’s been a 30 percent to 40 percent increase in weddings booked.

“We’re seeing segments that weren’t our bread and butter in the past. There is a fair amount of government business going on,” said Champion.

Even before the economy took its fall, Meritage had started to shift its sale focus.

“We have changed our market shift to take in more associations at the lower rates,” said Thomas. In terms of corporate business, “we really focused on the companies that were working pretty strong, like bioscience and pharmaceutical, and those in the resort’s backyard, because we realized companies were going to stay closer to home.”

Meritage’s sales staff has also focused on small private companies that are doing well and that don’t face the same scrutiny as public companies.

The Naples Beach Hotel and Golf Club is doing the same, said Tyler, appealing to private companies that share the same values as the privately owned and operated resort.

At Cheyenne Mountain, which has primarily targeted corporate business in the past, “we’ve had to change with the world,” said Branciforte. “We’re pursuing more SMERF and association business —that’s a trend we started three or four years ago.”

And, although corporate business is still dominant, “you can’t be beholden to any one segment,” he said. “You’ve got to be looking at the business from many angles.”

Resorts have not only begun looking at different markets, they’ve also found themselves facing different competition.

For example, four-diamond properties are seeing five-diamond properties pursue their business.

“Every market segment is stealing from the one below,” said Thomas.

“A planner will say, ‘I have a once-in-a-lifetime chance to go to the Broadmoor or to the Ritz-Carlton Naples for the same price or below. Guess where I am going to go?’” said Champion.

Although much has been said about AIG, the insurance company’s extravagant meetings were are not the sole cause of the downturn in resort meeting business.

Like residential housing, the hotel industry has been overbuilt. “In Napa in the last year or so, 500 new rooms have opened,” said Thomas.

The oversupply situation is not expected to ease until 2011. This year, 100 new hotels will open in major U.S. cities, including 46 in New York and 30 in Houston, according to Smith Travel Research. That number does not include openings in the suburbs surrounding major cities.
As the economy slowed and businesses cut back on all travel, the dearth of individual business travelers has meant availability midweek in many cities, which has also decreased group demand for resorts.

Industry experts agree that the current dynamic won’t last forever, as companies eventually put their sales forces and other individual business travelers on the road again.

“Initially, what will really help the resorts is when the individual business traveler starts to travel again,” said David Gabri, president and CEO of Associated Luxury Hotels International (ALHI), a national sales network that represents more than 125 four- and five-diamond properties, including just over 80 U.S. resorts.

“They have a lot more inventory for that business and when the market begins to tighten … they will look more to resorts.”

Construction on new properties has slowed in some areas; work also has even stopped or failed to begin on some proposed projects, including new hotels in Colorado Springs and a proposed downtown hotel in Lexington, Ky.

A number of resorts have run into financial problems, including Amelia Island Plantation, which has filed for bankruptcy and is in reorganization, and one-year-old InterContinental Montelucia Resort and Spa in Scottsdale, which is in the hands of its lenders. Both are members of ALHI.

About $25 billion of distressed debt is in the hotel sector, which includes loans that are delinquent and loans that are in foreclosure or being restructured by lenders.

Resort sales staff have seen promise in early 2010, although none declare that the tough times are over. In the past year, they’ve seen flickers of promise that failed to ignite.

Early signs of recovery?
Thomas, in Napa, does not believe that consumer confidence has returned but is seeing some early signs that the economy might be moving again. “The RFPs are starting to come back, and our sales people are starting to be busier.”

In suburban Chicago, Hooper has also seen some promise, although he’s not forgotten similar upticks last year that failed to be sustained.

“For the first 12 to 13 days of January we had a few pleasant surprises in terms of new inquiries and in terms of business that had put off signing in December that went ahead and booked. It is a pretty good start, and we’ll see if it sustains itself.”

At Associated Luxury Hotels, where a national sales office coordinates bookings, the most recent quarter brought double-digit increases in the number of RFPs.

ALHI has booked more future business into it membership than in any quarter, said Gabri. The organization is so busy it has added sales staff.

At Cheyenne Mountain, an assertive sales effort has given the property more rooms “on the books for the coming year than in the last three or four,” said Branciforte. It is at 73 percent of its booking goal for the year.

“At the end of last year and the first of this year, we’re starting to see a pent-up demand for people who haven’t met for a year or so, who are saying ‘no matter how tough it is we need to work on our training, we need to plan our business strategies for the future.’”

Gabri sees the market tightening, although there are tremendous values for some windows, particularly in 2010, with the market tightening in 2011 and beyond.

“I see this thing changing. Prices and values are not going to get better.” Rates have hit bottom and are on the way up, Gabri believes.

Resorts aren’t as likely to lock in current rates for future years, “The planner needs to be realistic. In 2012 they should not expect the same levels of significant discount on short-term business,” he said.

Are changes here to stay?
There’s no doubt the approach of many sales teams have been altered by the buyers’ market.

“We’re doing a better job of listening to our customer instead of selling them what we want to sell,” said Champion.

“I don’t want to use the term ‘back to basics,” but we really are going back to relationships,” said Thomas.

Whether resorts’ willingness to work with planners will  continue as the economy improves and meeting business picks up remains to be seen.

“From other business cycles that I recall, most operators were fairly quick to return to the status quo,” said Champion.

“The pendulum swings awfully hard,” said Branciforte. “But just because it has been a buyers’ market, it doesn’t mean we take it out on their hide. I’ve told friends who are planners, we have to be consistent in the good, the bad and the ugly times and play as aggressively in the good times as the bad times.”

Champion points out that relationships become key.

With solid relationships “in the good times you get the business and in the bad times you get the business because you do the right thing.”