Overall, most centers seem to be holding their own but are starting to see meetings being postponed or cancelled due to corporate fear of deeper economic problems. In addition, the problem of attrition is surfacing for the meetings that are being held.
Fortunately for existing center operators, new supply of conference centers is being greatly restricted due to the tight financial markets. This only serves to make existing centers more valuable, even though capitalization rates on asset transactions are rising. As a practical matter, new development in the near term will be largely focused on academic or government subsidized projects as that type of economic boost will be necessary to achieve the required capital to move a project forward.
To gain a better understanding of the economics of operating a conference center, the following paragraphs summarize the highlights of the 2008 edition of PKF Consulting's Trends in the Conference Center report. The report is produced in cooperation with the International Association of Conference Centers.
The majority of revenue earned by conference centers is sold on a Complete Meeting Package (CMP) basis. Therefore, it is important to analyze total revenue on a per-occupied-room basis (RevPOR), as opposed to just rooms revenue (RevPAR) which is traditionally the primary measure at traditional transient hotels. In 2007, the average RevPOR for the conference centers in our survey sample was $354.27, a 3.1 percent increase over the RevPOR achieved in 2006.
Resort conference centers achieved the highest RevPOR in 2007 at $432.87. For reference purposes, all the resort hotels in PKF's Trends in the Hotel Industry averaged a RevPOR of $413.32 in 2007.
As would be expected, conference business comprises the largest demand segment for conference centers. In 2007, conferences accounted for 70.2 percent of all occupancy room nights, followed by leisure travelers (13.7 percent), individual business travelers (12.5 percent), and other transient guests (3.6 percent).
Business organizations were the largest source of demand for conference centers in 2007 (34.8 percent), followed by academic institutions (31.4 percent). Training and education (51.9 percent) was the dominant purpose for holding a conference, following by management planning (25.6 percent).
Due to the relative low number of true IACC certified conference centers, it is not surprising that conference center managers frequently find full-service hotels as their strongest competitors. Other IACC Conference centers did rank as the number two most significant source of competition, followed by resort hotels.
Like traditional transient hotels, labor related costs are the single largest expense for conference center operators. In 2007, salaries, wages, and employee benefits represented 43.9 percent of total expenses, or 33.8 percent of total revenue. These ratios are comparable to those experienced at transient hotels.
While the majority of employees operate within the food and beverage department, the greatest increases in salaries and wages from 2006 to 2007 were enjoyed by employees in the golf and rooms departments. General Managers benefit from the highest salary levels, followed by Directors and Sales and Market and Controllers. Nearly all conference center employees are offered vacation pay and health insurance.
On average, all conference centers in the survey achieved a 23.0 percent profit margin in 2007. Profit is calculated before deductions for capital reserve, interest, income taxes, depreciation, and amortization. Due to the subsidies received from the owning corporation, corporate conference centers achieved the highest profit margin (32.8 percent) among all types of centers.
True To The Concept
The industry's response to the current difficult headwinds once again will require discipline, courage and commitment to the concept. Should a true recession result from the current stress in the financial system (and the media's unending assertion of disaster), we must do all we can to avoid the pitfalls we hopefully learned from other slowdowns, namely, cutting rates, lowering service levels and deferring capex. Management and owners have the challenge of not overreacting for the long term benefit of the asset. Hopefully, the positive forces at work will counter the negative and we will maintain an overall balance to the market.
Dave Arnold is C.E.O. East of PKF Consulting and is located in the firm's Philadelphia office. He also serves as an industry advisor to the I.A.C.C. Board of Directors. To purchase a copy of 2008 Trends in the Conference Center Industry report, please visit www.pkfc.com/store. This article was published in the November issue of Lodging.
Logos, product and company names mentioned are the property of their respective owners.