Jul. 20, 2009 - Struggling with a slump in travel, big-city hotel markets across the nation are taking a page from Orlando's playbook when it comes to pricing hotel rooms.

Most of the nation's top 25 hotel markets are slashing the rates they charge everyday travelers, while the prices paid by large groups and conventioneers have fallen just slightly. As a result of this recession-fighting tactic, groups that used to get discounts on high-end hotel rooms for their annual meetings or trade shows are now paying more than walk-in customers for those same rooms.

It's a phenomenon that's unsustainable, according to one hotel-tracking firm, because convention and corporate-meeting planners historically use a hotel's everyday rates as the starting point for negotiating group discounts. Yet it's also something that Orlando's high-end hotels have been doing for quite a while, in both good times and bad.

"Orlando is unique, because all of the nongroup business is low-rated, as opposed to all the other cities in the country," said Alan Villaverde, general manager of the 891-room Peabody Orlando, which caters mostly to convention and trade-show visitors.

If you include Orlando, 19 of the top 25 U.S. hotel markets tracked by Smith Travel Research are now upside down in terms of their room rates, charging individual, or "transient," travelers less than the groups that book blocks of 10 or more rooms in advance.

"It's certainly being seen more widespread now," said Duane Vinson, a vice president with Smith Travel, which tracks the hotel business. "With the amount of the discounting and price cutting ... we've gotten this flip-flop."

That can help fill rooms temporarily, but it can also drive down group rates further as meeting planners negotiating contracts for months or years down the road look to cut deals based on the hotels' everyday prices.

"If there's a winner in it, it's the consumer," Vinson said. "For the industry, it's definitely not a good thing."

The flip-flop is new to many cities, including New York, Dallas and Washington, D.C. But in Orlando, the annual average transient rate has been less than the average group rate since at least 2005. Exactly why is unclear.

According to the most recent Smith Travel data, Orlando's transient travelers paid an average daily room rate of $142.97 during the first five months of 2009, compared with an average group rate of $180.70. The data tracks the transient and group segments at higher-end properties only, because those are the ones that are willing to break down their data into such detailed information, the tracking company said.

Hotel prices are a complex issue, Villaverde said, because rates can vary based on the hotel itself, the time of year, the state of the economy and other factors.

One of the things that affects Orlando's price structure is the city's heavy dependence on vacation travelers, whom Villaverde describes as "a very price-sensitive segment." Unlike most of the other cities in Smith Travel's top 25 survey -- which doesn't include Las Vegas -- Orlando's head count of transient visitors doesn't include many business travelers, who are generally willing to pay higher rates when they come to town.

"And that distorts the statistic," he said.

According to the Orlando/Orange County Convention & Visitors Bureau, 23.7 million leisure travelers stayed overnight in Orlando last year, compared with 3.5million conventioneers and group-meeting participants.

Still, Orlando convention hotels have found ways to adapt.

Eric Opron, director of sales and marketing for the Walt Disney World Swan and Dolphin Resort, said that, if his hotel does offer transient guests a lower rate than the one a group meeting there has received, the lower rate usually is not good for the entire meeting period. The resort's goal, he said, is to protect the group rate.

"It's incumbent upon the hotel to know what the situation is, and that the integrity of the meeting planner is not compromised by the hotel undercutting them," he said.

The Peabody employs a similar tactic.

"You'll find us offering discounted rates around that group," Villaverde said. "Most convention hotels have that same philosophy."

Smith Travel warned about the dangers of an upside-down rate structure during a meeting with Orlando hoteliers earlier this year.

"This is not sustainable going forward," said Jan Freitag, another Smith Travel vice president. "That interplay needs to be reversed."

But instead of disappearing, the trend has spread. In New York City, the average daily transient rate for high-end hotel rooms was more than $357 in 2007, but through the first five months of this year it was $246 a night -- while groups were paying $273 a night on average.

There are some things the statistics don't take into account. For example, some group travelers find cheaper rates online and book rooms other than the block of reserved units at a designated hotel, yet those group travelers wind up being counted as transient guests. And the statistics are calculated as annual average rates, so they can mask the seasonal highs and lows of a market -- and Orlando's travel market is seasonal.

On the other hand, some leisure guests can wind up being counted as "group travelers" if they come to town as part of a tour package that books more than 10 rooms at a time.

Hotel economics One thing is clear: The global recession has caused a new type of hotel economics to take hold in many of the nation's biggest hotel markets.

"When you're signing a contract for a group, you're guessing that this will be a good deal a year from now," said Scott Smith, a lodging instructor with the University of Central Florida's Rosen College of Hospitality Management. Because of the recession, he said, "The meeting planners right now are losing the gamble."

Sara K. Clarke can be reached at [email protected] or 407-420-5664.

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