The Nightmare of Convention Housing: The Sequel

Starring:
Jim Evans Executive Vice President, Operations, Doubletree Hotels
Dave Scypinski Director, Meeting & Convention Marketing, Hilton Hotels
Christine Pruitt Department Head, Meetings & Expositions, American Chemical Society
Cheryl Nordstedt Associate Executive Director, Management Services, American Academy of Dermatology

Produced with the cooperation of:
Tony Schopp Area Director of Sales, Westin Hotels & Resorts and Chair of the PCMA Housing Committee

In September 1991, Convene ran a cover story dubbed "The Nightmare of Convention Housing." At the time, the pressing issues were accurate group histories and pickup reports, cutoff dates and turnaround time, and convention bureau housing and third-party commissions.

Five years later, despite distribution of a landmark PCMA white paper, citywide housing remains a nightmare. This is the sequel.

"Hardly anyone in the meeting and convention industry has a truly "comprehensive" understanding of the housing situation," said Tony Schopp, area director of sales, Westin Hotels & Resorts, and current chairman of PCMA's Housing Committee. The involvement of six different entities in the process - meeting managers, exhibit managers, hotels, convention bureaus, housing companies, and attendees - means "people should listen six times more than they talk.

"Instead," he added, "it seems as if everyone is talking at the same time."

Members of the PCMA committee believe the failure to see the "big picture" is the single greatest deterrent to finding a solution. "Every group is mired in its own problems and has trouble looking beyond that," noted Peter Hedlund, vice president of sales, Greater Minneapolis Convention & Visitors Association.

"In our case, an inability to pass costs on to clients, because they won?t accept it, or to hotels, because rates are already high, has almost precluded us from defining the difficulties from someone else?s perspective."

During a panel discussion at PCMA's 1996 Summer Conference, Litsa Deck, director of convention services for the National Recreation & Park Association, acknowledged that someone must shoulder the cost burden. "But while cities have traditionally said that housing should not cost associations any money, there's an increasing perception that delegates are absorbing the cost for something that used to be complimentary," she said.

The expectation that room rates cover expenses like housing, registration, and marketing is a "Catch 22," according to Michael Gasta, vice president of sales at the Las Vegas Hilton and another member of the PCMA Housing Committee.

"Meeting managers need to view it from our position and understand the expense reconciliation that occurs in-house," he said. "We need to establish some sort of protocol for pricing and what it covers."

Schopp added, "There really needs to be more negotiating and less demanding. This isn't about a "sellers" or a "buyers" market. We are simply talking about the "best" way for an individual to get a confirmed room reservation - from the combined perspective of the individual, the organization, and the hotel."

The More Things Remain the Same

The PCMA White Paper on Citywide Housing, published in early 1992, identified several specific problems which need to be resolved to improve housing:

• All the rooms reserved in multiple hotel meetings are hardly ever used.
• Reports of room stays are often incomplete and inaccurate because small groups related to the meeting are not included and/or because some individual reservations are not included.
• There is inconsistency in housing bureau services and systems in cities throughout the country.
•  There are few industry standards.
• Many housing systems penalize outlying hotels that experience a disproportionately high percentage of "no shows."
• Many groups cannot receive all contracted incentives because of inaccurate pickup reports.
• Many cities are unable to accurately account for the economic impact of large meetings.
• Many potential attendees are becoming frustrated by the housing process and discouraged from attending at all.

Why Should Hotels Pay Commissions for Third-Party Housing Costs?

(The following article is adapted from a presentation made by Jim Evans, former senior vice president of sales, Hyatt Hotels, at PCMA's 40th Annual Meeting. Evans, a member of the PCMA Board of Directors, is currently executive vice president, operations, Doubletree Hotels.)

While I am certainly aware that hotel housing costs have risen in recent years, I was taken aback when I recently discovered just how much we actually pay third-party housing companies. Not only did this amount far exceed my high-end estimate, but all indicators suggest that these housing costs will continue to rise in the near future.

Let me share with you a few examples: It is estimated that 1996 housing costs at Hyatt Regency Chicago will exceed $2 million - compared to $300,000 in 1993. That is a 650 percent increase in costs over a three-year period! That increase cannot be attributed to a huge surge in citywide conventions, but rather to the fact that more associations are using third-party housing companies. And according to Ty Helms, the hotel's director of sales and marketing, an estimated 60 percent of that total is net cost to the Hyatt.

Two more examples: In the past two years, Grand Hyatt Washington paid more than $1 million to outside housing services. Hyatt's three downtown hotels in San Francisco paid more than a half million dollars to third parties last year alone. In each example, most of that is net operating cost.

By anyone's standards, that is a lot of money ... especially when you consider that 10 to 15 years ago, hotels weren't paying a cent for housing. More frustrating than the cost alone, however, is:

• The fact that hotels are paying for a service that is contracted not by us, but by our customers.
• The fact that hotels must often pay for this service via a commission-based fee structure that has no relevance to the labor or the amount of service provided.

I can certainly understand why associations choose to work with third-party housing bureaus. Frustrated with some convention bureaus that didn't have the resources to adequately handle complicated multihotel housing, associations began working with third-party housing bureaus. With very few exceptions, these companies did a fabulous job. They are extremely efficient, consistently providing excellent service - from accurately tracking blocks to providing post-convention reports.

The benefits they provide associations are clear. What is less clear to me, however, is why hotels are charged the entire bill for a service that is performed essentially for an association and its members.

This isn't to say that hotels don?t want to make it easy for groups to make reservations, but again, our customers are the ones contracting this service. Outsourcing housing vs. working with the local CVB may be a big advantage for an association, but it does not matter to the Marriott, Hilton, or Hyatt whether a third party or the CVB is handling the housing portion of a meeting. The service is "transparent" to us, so why are we asked to pay the bill?

Consider this analogy: If a hotel company hires a consultant from Deloitte and Touche to help it upgrade its computer system and ultimately decides to contract with IBM, it does not forward the consultant?s bill to IBM. The hotel company would pay the bill itself. Likewise, if an association contracts with a third-party housing agency to make the meeting planning process more efficient, it should pay the bill, not pass it on to hotels.

I also don't understand why some companies charge a straight transaction fee for housing, while others charge up to 10 percent commission per reservation. If, for whatever reason, hotels are expected to pay for housing, fees should clearly be transaction-based and not commission-based. Recently, for the purposes of this panel, I conducted an experiment. I personally called two Hyatt hotels and made two reservations. At one of the properties, I made a reservation for four nights at a rate of $300. At the other property, I made a reservation for two nights at a rate of $80.

Guess what? It took me the same amount of time and effort to make each of these reservations. If I were charging a 10 percent commission on these transactions, however, the difference in fees paid would be more than $100. I just cannot comprehend how housing companies can justify charging a $100 difference in fees for the exact same service. Hotels are more than willing to pay commissions to travel agents and other groups that bring us new business, but in many cases we pay housing companies for business our hotels already have or would likely get.

Many people will argue that hotels can simply raise rates to cover housing costs, but that is not always the case. Housing bureaus enter the picture after a contract has been signed and rates established.

The bottom line is that the hotel industry is paying millions of dollars each year to third-party housing companies. Like any other expenditure, we need to justify these costs. With corporate America being held more accountable for return on investment than ever before, hotels' management and owners are closely scrutinizing the value of each and every piece of business. Because third-party housing agencies add cost, we consider it part of the group history when negotiating with associations that outsource housing.

In some cases, the business being negotiated may not be as attractive to us because of the additional housing cost being paid out - especially when it's 10 percent. As many have noted in the current sellers? market, hotels are turning down less profitable business, especially during peak periods. This is something you will see more and more of during the next few years. We are all business partners. It is in our common interest that we all succeed and remain profitable. But rising housing costs are painful for hotels because they decrease what is already a very small profit margin. It is probably safe to say that we will continue to contribute to housing costs; but I can tell you we find it much more palatable when third parties can bring greater value to the transaction.

Points to Ponder

• Why are housing costs so high?
• Why are hotels paying for someone else?s service?
• Why are housing services based on commissions rather than on transactions?
• What happens when hotels can?t raise rates to adequately cover the 10 percent commission?
• In the future, will associations that add a 10 percent housing commission have more difficulty securing availability?

Exorbitant Housing Costs Put "Perceived Value" at Risk

The key to any successful business enterprise is delivering to the customer perceived value for every dollar spent. A growing practice in our industry - the use of third-party organizations to handle housing for groups and associations at a 10 percent per room night fee - puts this important value perception at risk.

Here's an increasingly common scenario: A hotel finalizes a contract with an association or company for a meeting to be held in the future. The rates agreed to are on a net basis, since the hotel has negotiated directly with the association or group.

Two key considerations were part of the hotel's negotiating strategy:

• The economic conditions at the time of negotiations.
• The forecasted demand for the proposed meeting dates.

The hotel needs to make a profit on these rooms. But it has to be careful not to price itself out of the market. So a price judged "fair" by both sides is agreed upon.

Enter, six months later, a housing company that has been contracted to handle the group?s housing for a fee. The hotel is asked by the group to accommodate the housing company's fee, either by taking this fee from the existing quoted rate or by adding it on top of the rate.

Previously unaware that a housing company would be involved, the hotel is now forced to select from one of two options. The first is to lose forecasted revenue from the average rate originally contracted by taking the housing fee out of the existing rate. The second option is to add the housing fee on top of the rate. (This fee can range anywhere from a small, one-time fee to 10 percent of the negotiated rate per room night.)

At first glance, adding the housing fee on top of its quoted rate in order to cover the commission shouldn't be a problem for anyone involved: The hotel gets its desired forecasted revenue on each room, the association reduces some of its costs and most of the headaches associated with handling reservations, and the housing company earns a profit on the reservation transactions. So, everyone's happy, right?

Wrong! Left out of the equation are your members, the attendees. When we leave them out of the negotiating equation, we take our eyes off the prize. They are, after all, the people who will pay - or not pay - whatever rate is agreed upon by the hotel, housing company, and association.

The more they must spend, the higher their expectations. When hotels are forced to add 10 percent on top of a negotiated rate, it becomes increasingly more difficult for everyone - the hotel, the association, and the housing company - to deliver the value the customer expects for the money being spent.

What value has been added to justify a 10 percent increase in rates? Whenever I ask a meeting manager this question, the usual response is that the housing process is smoother than it has ever been - certainly worth every cent that the attendee is paying. My next question is: What is the difference between a housing company that charges a flat, one-time fee (of as little as $4 to $5 per reservation) and a housing company that charges 10 percent per room, per night?

Hotels have always paid a commission to agencies that bring business to the hotel. The difference we?re seeing today with third-party housing companies is that they are demanding commission on business that the hotel has already booked.

And that, pure and simple, translates into higher rates, lower pickups, and lower profit. And the damage isn?t just to the hotel?s bottom line. Ultimately, it hurts your association.

Here's how:

• Less control. When the association's designated hotels offer rates that its attendees are unwilling to pay, they may stay at nondesignated hotels outside the room block. This hurts the planner's ability to earn comps and obtain adequate room blocks for future meetings.
• Attrition penalties. More and more hotel companies are asking associations to share the risk in setting aside room blocks. Attrition damages can run into hundreds of thousands of dollars.
• Weaker negotiating stance. When hotels enjoy a sellers? market and have multiple options on dates, groups with poor pickup histories have little negotiating leverage.

A company should make a fair profit on its services. But we need to examine the sometimes unthinking manner in which costs are passed on to the customer. The housing issue should be guided by the same question we ask of any service we offer our customers: Are we providing perceived value for every dollar spent?

Dave Scypinski is director, meeting and convention marketing, for Hilton Hotels.

Associations Must Control the Housing Process

This industry exists for one purpose: to provide opportunities for those we serve to attend educational sessions and improve their professional skills. While we may consider them "convention attendees," they are, in their own right, experienced business travelers. As such, they have expectations and preferences about the travel arrangements made for them. They also have the power to choose to attend meetings we arrange - or to attend meetings arranged by our competitors.

What does this mean to us as meeting managers and to our hotel and service bureau partners? It means that, to be competitive, we must provide the best hotel accommodations at the best price. If we fail, we will lose attendees. This will impact our meeting budgets. And it will impact the revenue received by our partners.

Despite what some may believe, the American consumer expects to receive fair value for the dollar. Companies are downsizing, budgets are being reduced, and travel requests are being highly scrutinized for their return on investment. To make matters worse, the lack of recent hotel construction has created a sellers? market. Room rates are rising rapidly. The great deals of the early '90s are no longer achievable.

So what are planners to do? First of all, we must make sure that our meetings provide the best educational opportunities. Second, we must make sure that our meetings remain affordable and meet the expectations of our business travelers. As this relates to the housing of our delegates, we must review our histories; reconfirm the rate tolerance levels of our members; and be prepared to prove, with real statistics, the value of our business to hotels.

No matter whether we have attendees make reservations on their own or use convention bureaus or housing service providers, we must retain control over our room blocks. To do that:

• We should know at any given time what the pickup is - overall and within exhibitor-controlled blocks.
• We should have the ability to quickly adjust the block on any one day to enable us to reach peak.
• We should demand that, for multiproperty meetings, we be notified immediately when a property is declared "sold out" to make sure that "sold out" doesn't mean just one night.

We must control our own housing processes. How we fill our room blocks inevitably affects our future negotiations.

In the end, our organizations will pay the real dollar costs for mismanaged room blocks. There is no way we can just turn over control to bureaus or service providers simply because we are understaffed, we are busy with the other arrangements for the meeting, or someone offers to handle it at no cost to our organizations. If we do, and they don't manage it correctly, and our organizations have to pay - we might end up polishing our resumes.

Christine Pruitt is department head, meetings and expositions, for the American Chemical Society (ACS), which runs its own housing for two citywide meetings per year. ACS does so with one full-time staff person assisted by two temporary assistants. The cost, approximately $10 per reservation, is included in the conference registration fee.

A Citywide Housing Marriage of Convenience

Seeking consistent year-to-year service at a "reasonable" cost, the American Academy of Dermatology (AAD) has outsourced its housing to the Washington, D.C., CVA. Here's why.

The PCMA White Paper on Multihotel, Citywide Housing was published in April 1992.

Since that time:

• Convention housing has been a hot topic at every industry meeting and the subject of countless articles in industry publications.
• We have anticipated the creation and witnessed the untimely dissolution of a centralized housing service, Convention Housing Reservation System (CHRS).
• There has been a sharp increase in the number of private housing services, which have aggressively marketed their services to associations.
• Concomitantly, an increasing number of associations have contracted with private housing services to handle their convention housing.
• In conjunction with this trend, there has been a significant increase in the fees that hotels pay out to private housing services.
• A number of convention bureaus have chosen to outsource their housing operations to private housing services.
• Advance deposits, as opposed to guarantees, have become standard in the housing operations of both private housing services and bureaus in major cities.

This represents a great deal of change and movement in a key segment of convention operations and management. Yet the problems and questions faced by the PCMA Task Force on Multihotel, Citywide Housing, when it began its discussions in 1991, remain the same - and mostly unanswered.

• How can we maximize (fill) room blocks?
• How do we reduce the "wash" factor (no-shows and cancellations)?
• How can we provide a user-friendly service to our attendees?
• How can we generate accurate room histories that include both the final pickup and the reservation pattern?
• How can we be assured of consistency of service from year to year in different cities?
• What can we do about exhibitor housing?

For many of us, the proposed CHRS promised the beginning of answers to these questions for our individual associations. Its demise, however, left us back at ground zero. Private housing services have promised to answer all of these questions; their costs, however are significant. And based on pickup reports, the results may not be significantly improved.

Five years' experience with the PCMA white paper's procedures have taught us at the AAD that we can make it work in any city to the mutual advantage of both the academy and the hotel community. However, with the staff time involved, we have continued to wish for the luxury of working with the same housing service year after year in every city. In countless industry seminars and private conversations, we have challenged the private housing services to offer the academy a reservation process that will provide good service which incorporates our housing procedures, is consistent from city to city, and is reasonable in cost.

Service, procedures, and consistency are the easy parts. But we get hung up on what a "reasonable" cost is. Some consider a 10 percent commission on rooms revenue to be reasonable. However, when the 10 percent formula is applied to the actual room night pickup and average rate from our 1996 Annual Meeting, the total comes to $362,000. This does not meet our definition of reasonable, which allows for a cost of doing business with a "reasonable" margin of profit. (Even at 5 percent, the total comes to $181,000.) At the other end of the spectrum, bureaus in most of the major cities now charge their participating hotels a fee which ranges from $6.50 to $11 per reservation. After our 1996 meeting in Washington, D.C., I mentioned to Dan Mobley, president of the Washington, D.C. Convention and Visitors Association (WCVA), how pleased we were with the housing service the bureau had provided. While lamenting the fact that we would soon have to start all over with a new bureau operation and new personnel, I commented that it would save us a lot of effort if we could just take the D.C. housing operation with us. The comment wasn?t as much a criticism of the housing operation in our 1997 location (San Francisco) as an acknowledgment of the great amount of time it would take to teach another bureau staff what our procedures and expectations were and, in turn, learn theirs.

To my surprise, Dan's response was: "Well, let's talk about it." The end result is that the WCVA created a subsidiary corporation, WCVA Services Division (WSD), through which they are offering housing services to the academy's 1997 Annual Meeting in San Francisco. This is as close to housing Nirvana as the academy has come. We are confident in the level of service we will receive, having used the DC housing bureau in 1982, 1988, 1993, and 1996. Working with the same staff people for the third time, we have a mutual knowledge of each other?s procedures and expectations. We will have consistency from one year to the next at a cost that meets our definition of "reasonable."

(Our "reasonable" fee is on a "per-reservation" basis and is $4 higher than the fee assessed against the hotels by the local bureau. With an average four-night stay, this means an additional $1 per night on the room rate. The fee was fully disclosed to the participating hotels prior to rate discussions.)

We had not thought that contracting with WSD to provide housing services in another city would be considered a radical move. However, given the amount of industry attention it has generated, we must have underestimated the interest in and impact of this new partnership. For the AAD, it was just a matter of asking a reasonably priced service provider to work with us on an ongoing basis. This is the same process we employ when securing other convention services, such as audiovisuals, exhibit and drayage services, shuttle buses, and ground operators.

The hotels in San Francisco were introduced to the WSD representatives at our housing meeting, which occurs 11 months before the annual meeting. After a review of our housing policies and procedures by academy staff, WSD representatives discussed and distributed examples for reports and discussed the time frame for turning over lists and deposits, the method of payment for the housing service, and the processing of refunds. The response from the hotels was entirely positive. WSD uses the same software and reporting formats that the San Francisco bureau used prior to outsourcing. Thus the hotels were comfortable with the process. WSD staff contacted each hotel individually and scheduled appointments with those few that had questions about the process.

WSD has also collected information about San Francisco and the participating hotels. When training is complete, we are confident that those interacting with our attendees by phone will be as knowledgeable as registration clerks in any operation. Most importantly, based on call volume reports from last year, WSD will be fully staffed at anticipated peak periods to handle the calls. Housing opens in November, and we are anticipating a smooth process.

There will continue to be a need for bureau-based housing. It has worked well for many groups, which seem to be comfortable moving their housing operations from city to city each year.

How the bureaus provide housing will change. Outsourcing is probably here to stay because it offers bureaus the opportunity to provide housing services on an "as needed" basis without footing the cost for salaries, benefits, and overhead on an ongoing basis. Bureaus will need to take a more active role in determining procedures and supervising the activities, performance, and service levels of their suppliers.

More and more associations will seek the comfort and consistency of contracting with a private housing service. However, this area will see the greatest areas of change, particularly in regard to pricing. The major hotel companies are beginning to publicly decry the cost of doing business with the private services and are becoming much more up front in admitting that the additional cost does, in fact, get tacked on to the room rates. At the PCMA meeting last January, a Hyatt Hotels executive pointed out that the Hyatt Regency Chicago expects to pay more than $2 million to private housing services in 1996. This compares to $300,000 in 1993.

Hotels are in business to make money. As clients, we need them to continue to make a profit. When they don?t, service slips; renovations and upkeep are delayed; and in the worst cases, the doors close permanently. Basic business sense demands that as costs increase, revenues must also increase. If a hotel is going to pay out $2 million in a year to housing services, they will have to make it up in increased room rates.

At the recent American Society of Association Executives convention in Boston, Dave Scypinski, director of meeting and convention marketing, Hilton Hotels, commented that Hilton is looking at full disclosure issues relating to reservation service costs. The guest should know how much he or she is actually paying in room charges, taxes, and the additional cost for the reservation service. A convention bureau chief in the audience noted that the prevalence of hidden costs in room rates is an invitation to a class action suit.

There has never been required accountability for housing service fees. What meeting manager would like to present his or her board of directors a line item budget expense of more than $350,000 for housing services? These fees never appear anyplace as a cost of producing a meeting. But they are real costs, and our members are paying the freight.

Cheryl Nordstedt is associate executive director, management services, at the American Academy of Dermatology.

Consistency of Service at an Affordable Price

"I guess one result of our agreement to work with the American Academy of Dermatology (AAD) at its 1997 convention in San Francisco will be to make everyone take a hard look at the housing issue," acknowledged Dan Mobley, CAE, president of the Washington, D.C. Convention and Visitors Association. But he denied being a housing "crusader."

"Providing a quality housing service at an affordable price represents a revenue opportunity for our organization," he said. "Third parties - at least those that charge 10 percent - are too expensive.

"Cheryl (Nordstedt) has always been concerned about consistency of housing services from year to year. We thought that, with the cooperation of the hotels in another city, we could make it work. And thus far, our experience in San Francisco has been positive."

While final returns won?t be in until AAD's 1997 pickup is analyzed, Mobley is quietly confident. "We aren't marketing our housing service with a ?full-court press," he said. "But we are talking to clients that have used the bureau?s service for their Washington meetings."

The PCMA White Paper Revisited: A Five-Year Report Card

The American Academy of Dermatology used its 1991 Annual Meeting as a field test for the PCMA white paper which was then in progress. Pleased with the results, we have now adopted it as a model for our housing procedures for five annual meetings. These are the basic tenets of the white paper:

• Reservations in Excess of Rooms Contracted

By use of a planned oversell, we have realized an average of 101.1 percent peak-night occupancy in our headquarters hotel(s); 93 percent in our primary, or close-in hotels; and 90.4 percent overall peak-night occupancy.

The percent of oversell is determined mutually by the academy and the individual hotels and is based on our own history. The system is not foolproof, however. In 1995, one of our primary hotels experienced a 25 percent wash on peak night when all of the other similar properties showed 3 percent to 12 percent. Neither the hotel nor the academy could identify a reason for this unusually high wash. But the hotel was quick to respond by cutting our block in 1999 by 25 percent. In an equally quick response, the academy refused the cut in the contracted block and countered with a proposed 25 percent peak-night oversell for that particular property in 1999.

• Identification of Occupied Convention Rooms Reserved Outside the Block

Our success here has been disappointing. With the fingers on one hand, we can count the number of hotels which have cooperated fully in the attempt to identify convention-related rooms which were reserved independently - either by individuals or through travel agent/small group blocks.

• Required Deposits

This has been the easiest sell. Both the bureaus handling our housing and the hotels have been quick to incorporate deposit systems in the housing process. However, in some cities, the manner in which the deposits were transferred to the hotels has been problematic, and there have been too many individual hotels which seemed daunted by the task of crediting deposits to individual room folios.

• Refund for Cancellations up to 72 Hours in Advance of Arrival

Because the anticipated cancellations are incorporated into the planned oversell, there has been little opposition to this procedure. Again, actually getting the refund from a cancellation has been easier in some cities than in others and, once transferred, some hotels have been slow in processing the refunds.

• Accurate Histories

By requiring the bureau, and ultimately the hotels, to provide weekly pickup reports directly to the academy, we have been highly successful in accumulating accurate year-by-year, hotel-by-hotel, and day-by-day histories. In the final week before the major arrival day, the hotels report day-by-day reservation counts to us every other day. We can now predict, with some degree of certainty, not only the percentage of wash to anticipate, but approximately when it will occur. This can provide great comfort to the headquarters hotel reservations manager who is still 10 percent over six days from the major arrival date.

• A Centralized Housing Service

Although a major tenet of the white paper, this has not yet come to fruition. Thus, the academy has, to date, utilized the housing service provided through the bureau in the city in which the Annual Meeting is scheduled. Although there is no criticism of the service provided, it does require a great deal of staff time to interact with a new bureau and/or new housing personnel each year.

This article was published in the 1996 October issue of Convene.