According to a special forecast revision from STR and Tourism Economics, the U.S. hotel industry is projected to report a 51-percent decline in revenue per available room (RevPAR) in 2020. Occupancy for the year is expected to hit an all-time low of 43 percent. The previous low for occupancy was during the financial crisis in 2009 when occupancy was 55 percent.
While these numbers look dismal for hotels, similar forecasts would apply to AV companies, exhibit service contractors, DMOs, exhibitor and attendee participation, conference-organizer revenue, and nearly any other product or service you can link to the live events industry.
The timing of recovery is going to be dependent on consumers and businesses having confidence that our cities and venues are safe again. In the first 90 days of resumed business travel, intimate gatherings are going to recover more quickly than mass gatherings.
From Seller’s to Buyer’s Market
None of us can say that we’ve seen this movie before because it’s never been this global and severe. However, from past experience, any time that there has been a shift from a seller’s to a buyer’s market, those contracts signed during a seller’s market just flat out had to be updated. Hotels or service providers who try to make groups liable for performing according to a contract signed in much better times — and at pricing levels that negatively impact their ability to perform — are not in business for the long-term. Here are some changes that will need to be made.
- Room rates should be adjusted to keep attendees from booking outside the block.
- Room blocks and F&B minimums should be reduced without the threat of attrition penalties.
- Worry less about what your force majeure clause says and more about doing the right thing for the supply chain.
- Partners that help organizers through this difficult time should be rewarded with additional business and referrals.
Help them to help you! Hotels and the entire events supply chain need to understand that we won’t fully recover until we help conference and show organizers regain their top-line attendance and revenue.
Two More Shifts
As hotels consider their plans for re-opening, they are going to need decision makers — empowered by the property/hotel owner — who can adjust existing group contracts. It’s been quite a few years since our last downturn, so early to mid-career hotel sales professionals will need swift training on conducting business in a buyer’s market.
As we work through recovery, commissions and rebates will be another area of change. Look for hotels to run booking promotions and bring commissions back up to 10 percent. They’ll need to make a tough decision on what seems to be the best model in good times and in bad. Also expect hotels to carefully review their practice of prepaying 50 percent of commissions to third parties at the time of booking. It‘s creating an accounting and cash flow nightmare with all of the group cancellations and was a flawed model from the start.
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Many conference organizers want to change their exhibit contract language or attendee cancellation policies to avoid future losses. There will be a time for that later. Right now, you want to give attendees, exhibitors, and sponsors confidence by providing all of the booking flexibility you can.
Remove barriers and accept more risks. In the near-term, keep your early-bird registration deadline, but add that attendees can cancel with a full refund. Monitor and learn from what the travel or cruise line industries are doing to regain consumer confidence.
Dave Lutz, CMP, is managing director of Velvet Chainsaw Consulting.
PCMA has created a COVID-19 resources page to help event professionals find reliable information about the pandemic and to share events industry-related resources to ensure they are prepared now and in the future.