News for the Hospitality Executive
The AIG Effect: Companies Cutting, Scaling Back
to Appear Financially Responsible in Hard Times
|By Sandi Cain, Orange County Business Journal Staff
January, 27, 2009
New York-based American International Group Inc., which made headlines
by accepting a $90 billion bailout from the federal government, drew the
ire of many when it hosted a $443,000 incentive meeting at the St. Regis
Monarch Beach in Dana Point shortly after receiving the cash infusion.
One large Southern California law firm canceled all its 2009 meetings—about 50 in all. St. Regis—guilty of nothing more than booking meetings business at the resort — had other cancellations after the AIG news broke.
Another hotel executive said that AIG “cast a pall over any luxury-branded properties.”
Kathryn Jurgensen, president of Premier Meetings in Irvine, whose business primarily is for incentive and client appreciation programs, said she’d be unlikely to use a luxury resort at any price in the current economic environment because of the unfavorable perception.
“There’s a low confidence level,” said Mark Lorimer, partner at the Eventive Group in Long Beach who handles special events for the corporate and nonprofit markets. “It’s those AIG stories that sent us into a tailspin.”
It isn’t all AIG fallout that’s causing a pullback, as meetings and conventions are often places budgeting companies look to save a few dollars.
“The focus on return on investment is heightened,” said Robert Donahue, director of groups and conventions for the Disneyland Resort. “That’s a trend we hear loud and clear from clients.”
Companies that are still holding meetings are downsizing, holding them on off days to get better rates and asking about low-cost activities to supplement business programs. In Irvine, director of tourism for the Irvine Chamber of Commerce and Visitors Bureau Jennifer McLaughlin said she’s had requests from corporate planners for discounts at golf courses and restaurants and queries about low-cost outdoor activities.
“Golf, spas and shopping have gone by the wayside,” McLaughlin said.
Some companies are turning to technology for meetings.
In a National Business Travel Association November survey, 75% of respondents reported an increase in the use of teleconferencing and 57% reported using more videoconferencing since the economy turned sour. Only 14% reported an increase in the use of the more expensive telepresence technology, which is more detailed than videoconferencing and allows users to make virtual eye contact and zoom in on almost life-sized objects.
Despite the flap over AIG, incentive programs haven’t gone away, said Nance Trevithick, director of group and incentive sales at Resort at Pelican Hill, because companies need to reward top performers.
Such programs are likely to be scaled back. Jurgensen said it’s important to take a second look at where adjustments might be needed instead of canceling meetings.
“This is the time they can’t let it go,” she said. “We’re just back where we were in the late ’80s and early ’90s where perception is huge and spending has to look smart.”
Hotels that fill their space with corporate meetings have had a harder time getting people to sign contracts. In addition, they’re seeing shorter and less costly programs, shorter lead times, lower attendance and requests for free services to control costs. A few have moved meetings set for the first quarter to later in the year.
Instead of offering short-term room rate cuts, hotels are getting creative with meetings packages and promotions that include free coffee breaks or hosted receptions, free parking and other amenities.
“You have to be careful not to compromise your product,” said George Lysak, director of sales and marketing at the Balboa Bay Club & Resort.
Hotel programs that donate a portion of the meeting proceeds to a charity of the group’s choice help silence critics of upper end hotels. There’s even some blurring between leisure and business markets as hoteliers add leisure-oriented amenities and perks to meetings packages.
“The demand for packages has increased,” said Leah Harrison, director of sales at the Hilton Irvine.
Thomas Smalley, general manager of the Wyndham Orange County at the Performing Arts Center in Costa Mesa, said being creative with packages is one way to make sure area hotels are still attractive for local meetings.
“As business leaders, we need to do something significantly different than we did last year to stimulate the local economy,” he said.
High-end properties are going after groups they haven’t targeted before to make up for lost corporate business. Conversely, some non-corporate groups are testing the waters at resorts they might not have approached before as an attendance-building tool.
“We’re getting calls from clients we never thought would call us,” said George Munz, director of sales and marketing at the Ritz-Carlton Laguna Niguel in Dana Point.
Other OC companies haven’t abandoned business meetings, but are moving ahead with caution.
Marcia Willett, senior director of corporate events for Santa Ana-based Ingram Micro Inc., said caution for meetings’ budgets and travel is standard procedure at Ingram.
“We always want to make sure there’s good return on investment,” Willett said.
ThalesRaytheonSystems Co. in Fullerton, a joint venture of Mass.-based Raytheon Co. and France’s Thales Group, hasn’t instituted any cutbacks because defense companies so far have been spared the worst of the recession fallout. As a result, all systems are go for the company’s quarterly and semi-annual meetings, said Ree Taylor, manager of customer relations, including one that will bring 28 people here from the Middle East in March.
“As an international company, we love face-to-face meetings,” Taylor said. “They’ve improved communication, efficiency, trust and productivity on both sides of the Atlantic.”
The company evaluates all meetings twice a year and is seeking more ways to leverage companywide buying power with suppliers.
But the defense industry is a bit of an anomaly.
Gary Sherwin, president and chief executive officer of the Newport Beach Conference & Visitors Bureau, said the number of meetings in the city began to decline last fall. Now even companies that need to have meetings and have the budgets are holding off because they are uncertain about the future.
“They don’t want to be obligated financially,” Sherwin said. As a result,
“thousands of room nights in tentative bookings are in limbo,” he said.
Laguna Beach CA
Phone: (949) 497-2680
Fax: (949) 606-8447
Cell (949) 292-3279