Corporate transient business defied earlier growth expectations, leaving hoteliers trying to figure out a way to boost that business or replace it.
REPORT FROM THE U.S.—Corporate transient business was a sore spot for the hotel industry during the second quarter, with several president and CEOs pointing out its unexpectedly slow growth during second-quarter earnings calls.
While sources said the issue varies market by market, it is especially acute in areas that rely on the oil and gas industry, and the overall weakness presents a challenge to find ways to either boost that business or make up for it in other ways.
What’s behind it?
Beau Benton, president of LBA Hospitality, said he feels hoteliers should have seen at least some of it coming.
“I don’t think that should come as a big surprise, because physically, on the occupancy side, there’s not a lot more you can do about it,” he said. “I think that’s why you’re seeing maybe the corporate business not meeting expectations from a growth standpoint. That segment of travel is so limited in the days of the week they travel.”
With the middle of the week having the main corporate travel days, he said, those days are running at peak occupancy, leaving little space for growth while leisure transient has more flexibility with all seven days of the week.
Benton said so far the softening has not approached levels seen in 2008 and 2009, when businesses told employees they couldn’t travel as much or were further limited in their locations, booking lower-rate rooms in select service and economy hotels.
Jon Galloway, director of revenue management at The Hotel Group, said some companies are using leverage to minimize the number of hotels they travel to and negotiate rates.
Additional supply has made some markets more competitive, he said, especially with a recent increase in upper-midscale brands that can compete up to upper upscale and down to economy brands.
“It is in several markets where we’re seeing an increase in supply having a definite factor in corporate demand,” he said. “It makes for a more competitive marketplace.”
All bets are off in any oil and gas markets, said Drew Salapka, VP of sales & revenue generation at Hotel Equities. Those areas have seen double-digit decreases in revenue per available room and are operating as if they were back in the recession. Even full-service hotels in those markets are getting aggressive with lowering rates.
On the flip side, markets such as Atlanta or Charleston have strong corporate transient business, Salapka said, noting it’s dangerous to make blanket statements.
“Houston is really hurt, but Dallas is a pretty strong market, and they’re even in the same state,” he said.
Sometimes it’s about restricting the type of desired business, Benton said. Ultimately, the name of the game is driving RevPAR, and in many instances, the only way to do that is through business mix and coaxing the most profitable business into the hotel.
E-commerce offers a way to manage which channels are open and which are closed, he said. Sometimes restrictions on things like length of stay can filter out unwanted business to prevent filling up quickly. For example, a business traveler staying one night during the week could prevent a guest with a longer stay.
“If you had that open, you could have had someone want to stay three to four nights and had that business through the entire week,” Benton said.
A downturn in corporate transient business can be manageable when a company is forward thinking with managing accounts, Galloway said.
“You have to be more proactive in engaging and establishing relationships with some of the smaller accounts,” he said. “They could grow into larger producers for the hotels.”
Elasticity hasn’t changed, said Susan Guimbellot, VP of revenue management and channel strategy at Hospitality Ventures Management Group. Some travelers are still willing to pay existing rates but are taking fewer trips. Hoteliers need to know their corporate transient guests’ situations.
Many managers think they need to immediately discount their rates to stimulate more business on different days of the week, Guimbellot said, but they need to find out whether it’s a matter of price sensitivity or a total cutback in travel. Discounted corporate rates aren’t driving increases in business, she said, so that’s not the right measurement of elasticity for that segment.
Guimbellot said hoteliers must make sure to get enough of their base business. The next year is going to be soft, so hotels will want to get more group business on the books.
Hoteliers in markets that are down need to get creative, Salapka said. It means looking at how people are traveling to those markets and finding out how to capture their business, which requires looking at how the hotel is packaged to guests and who the property can partner with in the community to offer things like entertainment and golf.
“A lot of those operate like you see in a recession,” he said. “You’re pulling out the stops to really understand who is coming to your market and understanding them.”
Stronger group and leisure
Hotel Equities has seen a huge growth in leisure transient and group business, Salapka said. People are still vacationing—which drives up leisure—and brands are giving deeper discounts on weekends to capture those guests. One of the biggest customer markets for group business is youth sports, he said.
“Our group (business) is extremely strong, almost up 20% year over year,” he said.
While the leisure segment has shown good results this year, Benton said the problem with marketing to that segment is it requires a “shotgun-based approach” compared to pinpointing specific business needs for the corporate segment.
“I think the brands this year have really been aggressive in marketing campaigns hitting leisure travelers,” he said.
Leisure transient has been solid for The Hotel Group as well, Galloway said, although that is still dependent on markets.
“One has to be more proactive and compete in rate offerings with the comp set,” Galloway said. “However, (average daily rate) in leisure travel is up more or less across the board.”