Issues That Impact Our Clients Recently, I had the privilege of serving on a panel for the Convention Liaison Council as the future of meetings was discussed. Preparing for this session required that I combine not only the lessons we are learning from Conferon’s practical experiences and those of PlanSoft, but also the information provided by industry leaders. This is truly a time of change! As we look around, there continues to be significant hotel consolidation. Chains that we have used for years have been acquired and are now “brands” of other bigger chains. Good examples are Westin and Sheraton whose names now represent “brands” of hotels within the Starwood Hotels chain. Renaissance is a brand or specific category of hotel belonging to Marriott. These are just a few! There are a number of reasons why the industry is being re-flagged and a presentation to Conferon’s management team by Hyatt’s Senior Vice President & General Counsel, Peter Connolly, provided excellent insight. As Mr. Connolly explained, in order for chains to expand, they need to either build new properties or buy existing ones. The decision to build is one that is directly related to how much room revenue the hotel can reasonably expect to generate versus the cost of building. Obviously, the more a hotel costs to build, the higher a room rate must be in order to cover that cost. Most of the hotels that are 10 years old or older, are being purchased for more than it cost to build them. The exact opposite is true of hotels that are more recent. These transactions, therefore, make good business sense to owners of older properties who have seen more than their fair share of lean years. Interestingly enough, we have never before seen a period where chains have grown so much, yet the number of new properties on the market comprise such a small percentage of that growth. In a sense, this is growth in chains without a commensurate growth in market capacity. This may benefit all of us if demand shrinks in the next few years because there won't be a huge surplus in unused rooms. When will new construction be as attractive as purchasing existing hotels? According to Connolly, the cost to buy existing hotels is increasing at 16% per year, while the cost to build new hotels increases at 8% per year. Barring any extreme economic occurrences, it will be 2004 before new building becomes the preferred method of expansion. This is not to say that new builds aren't occurring. In fact, in markets where an affordable or desirable hotel doesn't exist, building is still the answer. From the planner's standpoint, there are pros and cons to this re-flagging business strategy. Yes, we now have fewer contacts calling us for our business, but now these representatives have the impossible task of learning all the hotels that they have acquired. Can any of us imagine having to learn the salient points about 100 or 200 hotels and then try to keep up as more hotels are added each week? We all know how valuable that knowledge is in the sales process and too often we notice it lacking. From a negotiating standpoint, consolidation is the pits. Now you can have three finalists for your business all being represented by the same contact. How do they remain impartial and is it conceivable that the prices and concessions that one property is offering won't be shared with the other “sister” hotels? I don't know the answer, but I do know that consolidation and the current (although fading) seller's market has changed the game. Hotels are going to have to work harder than ever to maintain relationships with their customers, and chain national offices are going to be forced to find ways of making their Reps more knowledgeable. In the end, the customer stands a chance of being ‘lost’ in the expansion wave. The good news is that clients have always defined this market, and hotel sales teams will be forced to restructure in order to provide high quality information while maintaining personal relationships. Consolidation is here to stay and all components of the marketplace will need to adjust. If you are not wild about the service you are getting now, with the pendulum starting its move back towards a buyers market, you won't have to wait long for a positive change. Bruce Harris President - Conferon