REPORT FROM THE U.S.—As government business continues to erode, hotel company executives are finding they must fight even harder to retain this critical segment of business.
During the company’s second-quarter earnings conference call last month, Marriott International’s President and CEO Arne Sorenson said his company’s business in Washington, D.C.—Ground Zero for government travel—saw declines during the quarter. Revenue per available room at company-operated hotels in downtown Washington fell by 1% while RevPAR at suburban hotels fell by 5%.
The dropoff in business at Marriott hotels in Washington was so severe in fact, that excluding the greater D.C. market, company-operated RevPAR would have been 6.5%, rather than the 5.3% it ended up being.
Sorenson said he expects government groups will represent just 2% of the company’s overall business during 2013. During the second quarter, government groups were 5% of Marriott’s business.
With the size of the government group pie shrinking, hoteliers are employing a number of different strategies to try to court government demand.
Going after local government groups has proven to be one solution hoteliers have employed.
Larry Magor, managing director of the 1,001-room Omni Dallas Hotel in Texas, said his convention center hotel focuses on trying to attain local government business because the sourcing tends to be a little less complicated. Magor said he views government business as “fill-in” business for his property.
“We try to aggressively go after it in need periods,” he said.
Mike Fegley, VP of global sales, Americas, for InterContinental Hotels Group, agreed government group business is in decline across the industry. He said IHG saw an immediate impact of groups canceling once the sequester took hold.
Still, he said local government group average daily rate has been up every month of 2013.
“Hopefully, we’re still getting a bigger piece of a smaller pie,” Fegley said. “This is business we really like and seek.”
Fegley said IHG tries to be as visible as possible within the government market in order to keep the company’s brands top of mind with decision makers.
IHG’s operation of hotels on U.S. military installations certainly has increased the company’s government visibility. Plans called for IHG to operate a total of 15,000 rooms on 42 bases. /Article/8536/Army-taps-Lend-Lease-IHG-for-privatization
“There’s no question about it, we’re a leader there with our Army program,” Fegley said. “We do an awful lot of business there.”
Bang for the buck
Sandy Taylor, director of worldwide sales for corporate, government and travel agency programs at Best Western International, said government travelers want to get as much value for their money as possible.
“Government travelers are looking to maximize their travel dollar—more so than the corporate traveler—so value-added amenities are more important now than ever before,” which includes complimentary high speed Internet access that Best Western offers, she said in an email.
Taylor also said government travelers are extending their trips.
“The government traveler is now having to give thought to accomplishing as much as possible in fewer trips, but staying longer,” she said.
There’s a definite delineation between government group and transient, Taylor said. Groups and meetings business has “stalled for the time being” with “unnecessary” meetings being shelved.
“Transient, on the other hand, has slowed but not stopped,” Taylor said. “The government is learning to ‘travel smarter.’”
Sorenson also noted the differentiation between the two segments of business. “Where possible, hotels compensated for the group shortfalls by growing more transient business,” he said, during the company’s earnings call.
Best Western’s Taylor said the uncertainty surrounding government business will remain in 2014 and expects that sequestration will remain effect through 2015.
Sorenson also said the government malaise will continue for some time. “I wouldn’t expect an overnight change in the dynamic of government demand broadly.”
Said IHG’s Fegley: “The hotel industry is very healthy right now, but there are still too many empty rooms out there.”