Kevin Maguire, former director of travel for intercollegiate athletics at the University of Texas at Austin, for the past few years has spoken out on the negative effects of hotel event pricing—when room rates double, triple or increase even more during citywide events—on corporate travel procurement as well as the hotel industry itself. What follows is a summary of his recent comments on the matter to Travel Procurement senior editor Michael B. Baker.
More than ever, our industry is starting to see the long-term effects of event pricing. Events are relocating from one city to another. People are fed up with higher prices, and hotels are starting to think a little harder.
We're starting to see pretty animated discussions among like entities: schools that have sports programs, corporations like Nascar with sports connections and FIFA, which has world soccer. We're all starting to have discussions collectively on how we can address this from a buyer standpoint. In some cases, there's organizational pushback with games relocated to other cities or even discussion of pulling out of a city permanently.
Because of absurdly high hotel prices, Austin hotels lost to San Antonio 60 percent of their bookings during the November 2013 Formula One race. High hotel prices also recently appear to have cost Austin the state high school basketball playoffs, which had been in the Texas capital since the 1920s but appear to be headed to San Antonio in 2015.
Corporations are feeling the same pinch. There are situations in a city where there's a big event and rates are exceedingly high, or there's no space available. This causes corporations to rethink space for their meeting.
Convention and visitors bureaus receive funds from hotel taxes. The more you spend, the more the tax is, and they're interested in an immediate return. When they don't have those hotel rooms, however, the CVBs are going to hotels and saying, "Let's talk about this." City governments are saying, "Let's talk about this." There's even talk of regulations around it.
In every situation, it will take some kind of move of an event—a music festival, a musical tour—on a permanent basis before hotels can take action.
Event planners share some of the blame, with overestimates on attendance resulting in an overinflation in rates. Here in Austin, at the South by Southwest music festival, planners made plans for a huge number of rooms but ended up with a 30 percent attrition rate. During this year's Super Bowl at New Jersey's MetLife Stadium, New York hotels found themselves forced to slash rates close to the game as rooms went unfilled.
Some organizations now even say that they won't reserve hotel room blocks or guarantee attendance, which also has made hotels step back.
Part of it is that savvy travelers are finding ways around paying these inflated prices. Automated rate-shopping tools let them monitor and rebook when rates come down closer to the event, not to mention the growing popularity of such hotel alternatives as Airbnb.
Some hoteliers are starting to get it. During the 2012 Olympic Games in London, hotels followed a model in which they left a certain percentage of their rooms available for corporate negotiated rates and agreed to keep rate increases at bay. We're seeing hotels in Brazil do a similar thing for the upcoming Summer Olympics. The plan makes sense—it keeps prices reasonable, and more people are willing to come and pay the rate—but it only works if you can get hotels to buy into it.
The question is: Who can take the lead on this? It's hard for organizations like the Global Business Travel Association or Association of Corporate Travel Executives to do it, as they have to be wary of stepping on suppliers' toes, but if buyers don't say enough is enough, this overinflation of supplier pricing for events will continue in the marketplace.
At the same time, fed-up organizations and groups will leave these cities for communities with more reasonable hotel pricing.
This report originally appeared in the August 2014 edition of Travel Procurement.