Hotel Attrition – what you need to know
Hotel Attrition – BEFORE contract is signed
The best way to address attrition problems is to do it before a contract is signed. When negotiating a contract, here are some approaches you may want to consider.
Ask for no attrition clause at all. Hotels are more amenable to this than might be thought. You just have to ask. However, it is not just enough to have no attrition clause – the clause must state that there will be no penalties for attrition.
If the hotel insists on an attrition clause, ask for a larger percentage. If they offer 10% ask for 20%. If they offer 20% ask for 30%, etc. Sometimes a “tiered” cut off approach works well (90, 60, 30 days prior to arrival) with allowable attrition percentages for each tier (10%, 10%, 5%).
Make sure that there is “last room sold” phrasing in the clause. This is sometimes referred to as a “resell” clause. Essentially what this phrase means is that any attrition penalties that are incurred will only be applied if the hotel is not sold out. For example, if you exceed your allowed attrition by 10% on a 100-room block, you would be responsible for 10 rooms. However, if the hotel had only five empty rooms on the nights in question, they have successfully re-sold five of your rooms; you should not pay any penalty for those rooms.
Get verbiage in the contract that states rooms will be credited to your room block no matter what method was used to make the reservation and no matter what rate was quoted for that reservation. Reservations are made in all kinds of ways including some that extend beyond your stated method of reservations. For example, you may have a $150 rate for your group. Attendees are told to call in to the hotel and give them your group code or go to a website and enter the group code. Once that code is entered, that is how your group pick-up is tracked. However, it is not at all unusual for attendees to book rooms outside the block. Maybe they found a lower rate on the internet or maybe they bought a low-priced tour package. It really doesn’t matter… If they are in the hotel for your conference and they didn’t make a reservation using your prescribed procedure, your organization will not get credit for the room.
If the contract has a F&B minimum, make sure that minimum is tied to the attrition clause. If you only pick-up 80% of your block (as allowed by attrition clause), then your F&B minimum should be automatically reduced to 80% of the original number. After all, if your contract calls for 100 attendees and there are only 80, should the minimum remain the same as it was when 100 attendees were expected? Are they each going to consume 25% more F&B? Are you willing to pay for it?
Most penalty clauses call for liquidated damages roughly equal to the total amount of revenue outlined in the contract including F&B, rooms, and meeting room charges. In some cases, they call for “anticipated revenue”. These types of charges could include spa charges, golf fees, shopping, internet usage, phone, and a host of other charges. If you see “anticipated revenue” penalties, this should set off a red flag during negotiations. In many cases, these charges are wishful thinking on the hotel’s part and can be removed upon request. However, if the property is a smaller high-profile resort, and especially if it is in a remote location, the property can make a case for those charges. At the very least, any kind of anticipated revenue clause should clearly outline what is included.
The term “liquidated damages” is a bit of a misnomer and inserted into these clauses for legal reasons. It provides cover for charging the total revenue outlined in the contract. The reality is that any penalties of this type should call for “lost profit” as opposed to “lost revenue”. Hotels make most of their money on rooms – not F&B. For every dollar spent on rooms, as much as 75% could be classified as profit. In F&B the opposite is true – a successful F&B operation might generate a 25% profit on every dollar spent. As an example, if you know that you are going to exceed allowable attrition seven days in advance – and the hotel knows it, they are only going to order food inventory supplies to service actual attendance – not what was expected in the original contract or up to allowed attrition levels. Therefore, if you are paying for lost F&B revenue, you are not only paying for lost profit – you are paying for food inventories that were never ordered in the first place. When negotiating attrition clauses, you should always ask to have any references to revenue in penalty clauses changed to profit. It is a tough negotiation but not unreasonable, and a hotel that really wants your business may very well go with it.
When negotiating an attrition clause, regardless of all the items listed above, ask that any attrition penalties due be applied to the final master account invoice.
Hotel Attrition – AFTER contract is signed
If you are facing attrition penalties after a contract is signed, your options are much narrower. But, there are a few things you can do.
If you have a last sell clause in your contract, make the hotel confirm occupancies on the nights in question. They can do this with an internal flash report or occupancy report. Last sell means just that – your rooms will be the last rooms sold. So, if the hotel had 10 empty rooms on a given night and you exceed attrition by 10 rooms, you will be responsible for all 10. If they only had eight empty rooms, then you are responsible for eight. Also, verify that there are no other groups in house over the same dates that have a last sell clause in their contract and are also facing attrition penalties. If this turns out to be the case, find out how the hotel is handling that situation. They should not be collecting from more than one group on a last sell basis if they only had 20 empty rooms but group attrition equal to 30. They should only collect for 20, and you need to know what number of rooms is being allocated to each group.
This one is fairly complex and a lot more time consuming. If you picked up 200 rooms on a given night but had 250 people register for your conference and pick-up credentials at your registration desk, then they obviously are staying somewhere. This is the time to ask the hotel to match their in-house guest list against your registration list. The odds are good that you will find some attendees staying in-house that made reservations outside the block and did not use the reservation method and group code you distributed. Any such rooms that are found should be credited to your block no matter how the reservation was made.
This tactic won’t alleviate the penalty, but it can make your life easier. Most organizations have a good idea about any attrition penalties 30 days in advance. These penalties can be applied to the upcoming conference any number of ways. Say you have $15,000 in attrition penalties. Tell the hotel you are aware of the penalties and would like to upgrade your F&B functions by $15,000. Maybe it’s another course, lobster instead of fish, or just better wines. Or maybe you’d like to upgrade everyone to suites – it doesn’t matter – just spend it at the hotel during the conference. Not only will this make your attendees happy but the $15,000 will show up as a budget overage as opposed to a penalty on your master account. Experience teaches that most planners would rather explain an overage than a penalty. The hotel is going to get the money anyway so why not make the most of it? Don’t expect it to work every time, but it is certainly worth trying.
Ask the hotel to apply any penalties to a future meeting. Hotels always want to rebook business and to maintain client relationships. You will have to pay the penalties as outlined in the contract but the hotel may be willing to consider those penalties (or a portion thereof) as a cash deposit on a future meeting if it is booked within a certain period of time – usually a year. If you are willing to sign a contract immediately, the penalty may be waived entirely. In rare cases with chain properties, they may make some type of allowance as long as you book something into a chain affiliated property.
Simply offer to settle with the hotel. Some organizations do not have the budgets or financial means to support large scale attrition penalties. Be truthful with the hotel and let them know what you can afford to pay. You might be surprised at the result. Hotels are generally not interested in taking legal action unless they feel they have no other option and the amount involved is substantial.
If you know you are going to be in an attrition penalty situation, take it upon yourself to try and resell the rooms. It is not easy to do, but it can be done. You might have to do it at a substantial discount but, if successful, it will help mitigate your loss. Let other divisions in your organization know about your situation. Use your business contacts and your membership in any professional organizations to spread the word. Make sure the hotel knows you are trying to help resell the rooms, especially if you don’t have a resell clause.
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