Meetings Stigma Impacts Conference Centers. By Dave Arnold ~ CEO East of Colliers PKF Consulting USA Wednesday, 28th July 2010

All segments of the lodging industry struggled in 2009, however, the combined impact of the economic recession and the demonizing of corporate meetings resulted in an even more dramatic fall off in performance for North American conference centers.

According to the recently released Trends® in the Conference Center Industry report prepared by Colliers PKF Consulting USA, the average center in the survey sample reported a decline in net operating income¹ of 43.5 percent in 2009. This compares to an average hotel income decline of 35.4 percent for the nation as a whole.

During economic recessions it is not uncommon to see associations and corporations cut their meetings budget. However, never before have we seen the stigma attached to organizations that attempted to hold valuable training and planning conferences. With the average conference center occupancy level falling below 50 percent, the negative impact is obvious.

Revenue Down

Since the majority of conference center guests stay as part of a package plan, total conference center revenue is typically measured on a dollar-per-occupied-room basis (POR). In 2009, the centers in the Trends® survey sample reported a 9.2 percent decline in total revenue POR. Executive and resort conference centers, the two property types most dependent on business organizations as the source for their meetings, suffered the greatest declines in total revenue POR. On the other hand, total revenue POR at College/University centers declined just 2.4 percent. This shows the relative stability of educational institutions during the economic recession.

In 2008, conference demand accounted for 72.2 percent of the rooms occupied at the centers in our survey. In 2009, this ratio dropped to 63.9 percent, meaning that conference centers relied on transient business to fill over one-third of its rooms last year.

To combat the deterioration in conference demand, centers turned to local organizations for business. Local based conference attendees increased 2.4 percent in 2009. Conversely, guests attending conferences of a national scope declined 1.9 percent. The greater dependence on locally based business contributed to the decline in rooms occupied.

Expense Control

Like all hotel managers, conference center operators have historically responded to declines in revenue by cutting costs. Such was the case in 2009. On average, undistributed operating expenses declined 10.4 percent during the year. This is comparable to the cost savings achieved at comparable transient hotels.

Because of the high level of service offered by conference centers, labor related expenditures are the greatest operating expense. Therefore, it is not surprising that salaries and benefits were cut in 2009 in an effort to control costs. On average, base salaries were reduced by 7.3 percent in 2009. Given the fall off in conference center revenues and profits it is not surprising that incentive pay declined by an average of 65.1 percent as well.

Despite management’s best efforts to control costs, the average center in the Trends® survey reported a 43.5 percent decline in the bottom-line in 2009. Resort centers suffered the most (-55.1%), while corporate centers’ profits fell less precipitously (-33.5%).

Looking Towards 2010

Consistent with historical recovery patterns, conference center managers expect occupancy levels to rise, but room and package rates to lag. On average, the managers in the survey budgeted for a 4.8 percent increase in occupancy in 2010.

On the other hand, their expectations for CMP rate movement are a minimal increase of just 0.5 percent. It is still a buyers market in the short term. This is good news for meeting planners, but still presents challenges for property owners and operators.



 

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Dave Arnold is CEO East of Colliers PKF Consulting USA. He is located in the firm’s Philadelphia office. Copies of the 2010 Trends® in the Conference Center Industry report are available for purchase and immediate download at www.pkfc.com/store, or by calling 866-842-8754.

¹Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.