by Richard Albrecht
During our May 2023 Town Hall, Lisa shared that close to 750 hotel contracts were executed by the Hotel Industry Relations team in Q1 2023. This is an incredible achievement! It has been a steep uphill climb as the team contends with ever-changing market dynamics, so we asked the HIRM team to share their insights on what it’s like negotiating contracts in today’s environment. Here’s what they had to say…
First, those who have been in the meetings and events industry for a long time, you know that it’s cyclical. Every few years the industry shifts from a buyer’s market to a seller’s market back to a buyer’s market and so on. In our business, hotels are the sellers and the buyers are both onPeak and our clients. In the buyer’s markets of 2002 and 2008, hotels were much more inclined to negotiate (and in many instances, re-negotiate) Our clients often reaped big benefits in the form of lower rates, more generous concessions, and more lenient contractual terms. Today, however, we continue to be in a strong seller’s market and we’re really feeling the impact during contract negotiations.
Rate Escalators
In nearly every city, hotels are currently presenting much higher escalators than previously. An escalator is the yearly percentage by which a rate increases over the previous year. In some cases, say a contract for 2026, we’re not yet at the point of confirming the actual rate so instead we take the most recent year’s rate, let’s say 2022’s, and then negotiate the escalator that’ll be used to determine the 2026 rate. Negotiating an escalator provides more flexibility to adjust to changing market dynamics as opposed to confirming a rate 4 years out. It doesn’t mean that the rate will actually increase by the negotiated escalator, but it does mean that the hotel can’t increase the rate higher than the escalator.
The norm is 3% but some hotels are now presenting double-digit escalators, which can be eye-popping. Let’s take that 2026 contract as an example: 2022 was the most recent year the event was in that city and that hotel’s 2022 rate was $249. For 2026, the hotel wants a 6% escalator over the 2022 rate, which means that the 2026 rate could be as high as $314, quite the jump in just 4 years. A higher rate = more commission revenue for us but if the rate is too high, we could risk the hotel underselling it or it being outside an attendee’s budget. The HIRMs have to constantly balance this aspect during their rate benchmark analysis.
Limited Availability
Leisure travel continues to grow and is still having an impact on destinations all over the country. Some destinations, like Las Vegas, have a mix of leisure and convention travelers and hotels are doing their best to keep both occupancy and ADR (average daily rate) high. Hotels are filling up with leisure travelers which means that group room blocks are getting smaller and room rates are getting higher. Some hotels are even opting out of city-wide group blocks entirely, declining to work with us and instead banking on the compression caused by our group so they are able to yield higher rates.
Resort/Destination Fees
A few years back, resort fees became the norm in cities like Las Vegas and can include Wi-Fi, fitness center access, and use of the hotel’s pool. Well, now other cities are getting in on the fun. Many urban destinations in New York and California are implementing “destination fees” on top of the room rate. The HIRMs do their best to negotiate lower fees or make them optional for our exhibitors and attendees but in more and more destinations, these fees are here to stay.
Force Majeure
Simply put, Force Majeure refers to unforeseeable circumstances that prevent someone from fulfilling a contract. For your reading pleasure, here’s how Force Majeure might be addressed in one of our contracts:
“The performance of this Contract by either Party is subject to acts of God, war, threats or acts of terrorism, epidemic or outbreaks of disease, government regulation (including travel restrictions), disaster, fire, strikes, civil disorder, insurrection, curtailment of transportation facilities, disruption of necessary supplies, materials, or utilities, or other similar cause beyond the control of the Parties making it inadvisable, illegal, commercially impracticable, or impossible to hold the Convention or to make the Hotel available for use. This Contract may be terminated without penalty for any one or more of such reasons by written notice from one Party to the other.”
The conditions which define a Force Majeure event have always evolved over time, but not like they have as a result of the pandemic. Our clients are seeking broader definitions while hotels are seeking more narrow definitions. Since it’s still fresh in our minds, let’s take epidemics as an example: many of our hotel contracts simply listed “epidemic or outbreak of disease” as qualified Force Majeure events. However, hotels are now seeking to define them more narrowly in 2 ways: (1) they specify the entity that can declare a pandemic or epidemic (like the WHO or CDC) and (2) they stipulate that these conditions must prevent a certain percentage of attendees from travelling. For example, a hotel might require that a Force Majeure event must be declared by the CDC and that at least 40% of attendees must be prevented from travelling.
And not only that – the concept of “commercially impracticable” vs. “impossible” has been the subject of countless grueling discussions with hotels and clients regarding the definition of each term and which term benefits which party.
Then, to wrap things up, we asked the team these 2 questions:
Are there destinations (or hotels) that are easy to work with?
Boston, Chicago, Dallas, New York, Orlando, and San Antonio are at the top the list of destinations that our HIRMs consider “easy to work with”. These cities, and their hotels, value convention business in general but they particularly value their partnership with onPeak, working with us to make it a win/win for all. The win/win of the partnership starts at the contracting level, but it extends to inventory management, rooming lists, and post cut-off activity. We do an exceptional job maximizing inventory, delivering timely reports and rooming lists, and keeping our hotel partners informed. This makes the next round of contract negotiations much less cumbersome because hotels remember how well we perform.
Are there destinations (or hotels) that are difficult to work with?
Whereas the team referred to destinations in general when talking about where it’s easy to work, when asked about where it’s difficult, it was all about hotels – Marriotts in particular. As a whole, it feels proportionally much more challenging to negotiate a Marriott contract than in previous years. It seems like every contract has a new clause or that provisions previously agreed upon have been removed, and these changes rarely benefit the client. Audit clauses are also becoming challenging, with more and more Marriotts only crediting audited room nights up to the contracted block.
In general, though, more and more hotels are scrutinizing contractual language and making edits to previously agreed upon clauses. More time is needed to review each contract and they often require legal evaluation (either by the hotels or by our clients). This increases the overall turnaround time, which then requires us to adjust our own internal timelines to meet client deadlines.
But, as we’ve seen time and time again, there’s no challenge our HIRMs cannot overcome! They’re a group of highly skilled and creative negotiators, always focused on executing a fair and balanced contract. Next time you see one, shake their hand and give them a pat on the back!
onPeak HIRM Team Members
- Jason Gross (Director)
- Jaime Benjamin
- Patrick Groves
- Megan Lennon
- Jane Malloy
- Brian Schend
- Angela Vazquez
- Deb Wilson
- Nancy Cowie
