In a recent reunion planning class, I posed a question to the group, “What are hotels selling?” Hearing many answers related to service, amenities, and meeting space, I challenged the class to consider a different answer, “Time”. Hotels are selling time. They can’t sell September 20th rooms on September 21st. They must take advantage of the weeks and months leading up to the 20th to sell as many rooms as possible at the right rate. If a planner says they are going to need 75 rooms in a 100-room hotel. The hotel sales effort focuses on getting business other times of the year because those 75 rooms are anticipated to be filled each night. It all sounds great on paper but then only 37 rooms are utilized because life happens, and now, so does attrition.
The Events Industry Council defines attrition as, “The difference between the actual number of sleeping rooms, food and beverage, or revenue realized, and the number agreed to in the facility’s contract. Usually, a percentage or actual shortfall limit is allowed before damages are assessed.” It is basically the difference between the number of hotel rooms you said you will need, and the number you actually used. It comes into play when there is a significant difference between what is contracted and what is utilized. From a hotel perspective, one or two rooms not utilized is manageable, thirty or forty however, are not. They need to make up the revenue somehow and the easiest way to do that is to get it from you.
Attrition is the one contract clause that divides our industry. Planners often refuse to include it. Hoteliers need it. Love it or hate it, the attrition clause is not going away. The question is, how does a reunion ever move forward when there is so much angst? How do we find common ground where both parties feel their interests are protected and supported? The answers follow but first some history.
Attrition was first included in contracts due to a dispute back in the 1990’s. The International Women’s Bowling Conference booked a host hotel for an upcoming event. Rates and the room block were agreed to. Between contract signing and the event, attendees were either invited by other local hotels to stay with them at a different rate or searched for and secured accommodations elsewhere. Fast forward to the conference, the rooms expected at the host hotel did not materialize. There was little time for the hotel sales team to shift gears and find ways to make up the lost revenue from the group rooms left empty. IWBC and the host hotel ended up in court. What resulted was an industry shift to include a clause in contracts to stating what will happen if a planner does not use the rooms they contracted for. Remember hotels are selling time.
For years, many reunion planners have said, “If there is an attrition clause in the contract, I am going somewhere else.” Their logic was to avoid potential damages. It makes sense. Why sign a contract that forces an organization to pay additional fees? However, signing a contract that has no mention of attrition at all does not necessarily get a planner out of paying it. If you agreed to buy rooms and, in the end, didn’t need them, the hotel has every right to demand payment to cover the difference. Hospitality contracts experts and industry attorneys agree, there must be language in the contract to state what happens if the rooms contracted for are not utilized. It is not the presence of the clause but the language that planners should work to negotiate. Hotel contracts cover two things. First, what is supposed to happen (what you agreed to, ie getting a banquet room on Friday at 5:30pm). Second, what happens when things don’t go according to plan. The attrition clause states what is going to happen when you don’t utilize all of the rooms you said you would in the contract. As stated earlier, hospitality industry attorneys we have spoken to state, removing the clause will increase planner vulnerability because there is no specific contract language to guide contract signers as to what should happen next.
Many hotel contracts are templated forms where reunion planner contact information and reunion dates are merged into the existing document. The “fine print” rarely changes. The attrition clause will include something like: “Group agrees to pay, as liquidated damages, the difference between ninety percent (90%) of the Anticipated Room Revenue and the Group’s actual usage based upon lost room revenue. The amount will be posted as a charge to the Group master account, plus applicable taxes and service charges.” Stated more plainly if the hotel was expecting revenue of $25,000 for guest rooms and only received $12,000, the planner would be on the hook for an additional $10,500. This is calculated by 90% of $25,000 (the anticipated room revenue) or $22,500, less the $12,000 in room revenue the reunion generated. No wonder reunion planners want to go somewhere else!
There are a few considerations to reduce vulnerabilities when it comes to attrition. Know your group. Keep good reunion history. Contract realistic blocks. Negotiate the attrition clause language.
Know your group means just that. Reunion planners that have been planning for a while have a general idea of who will attend the reunion and the factors that can change attendance numbers. Location, price, ease of getting there, and event date all play a role. If most of your attendees live on the east coast, will a reunion east of the Mississippi River be better attended than one west of the Rocky Mountains? Knowing your reunion association members and how they decide to attend is a critical part of the reunion planning process. If a reunion normally takes place in September, will attendance go down if the reunion moves to November? Probably, so it is important for your room block to reflect the decrease in the initial contract.
Keeping a good, detailed reunion history is critical. In addition to where and when the reunion was held, it should include, by year, the number of attendees, rooms blocked, and rooms utilized. We often see reunion planners with a long list of past events dating back 15 years. Many reunion organizations do not keep track of anything else. If you keep track of attendance, number of rooms contracted and how many rooms were utilized, trends will begin to emerge. Perhaps you will see consistently higher numbers when reunions are held in September, or when they are on the east coast. Watch for the trends. Planners sometimes fall into the trap of securing larger blocks because everyone said they were going to be there when the upcoming reunion was discussed initially. TRUST THE DATA and Reunion HISTORY over good intentions. If the data shows an original block was for 50 rooms was routinely contracted and 35 were consistently picked up, then back off to 38. Staying conservative in the initial request significantly reduces attrition vulnerabilities. Again, watch for the trends!
The most important part of attrition is being comfortable about the clause language. It needs to be FAIR. There has been a trend in the last 6 years to waive attrition damages. If the hotel waives their interest in seeking attrition damages, then that becomes the language of the attrition clause. If the hotel wants 100% of the revenue of the rooms you did not use, push back. Let them know 100% is too high. Propose a different amount. Be sure the clause states you get credit for all reservations connected with the reunion regardless of if they are within the block or not. Maybe some attendees are arriving early or staying on after the reunion is over. Perhaps one of your attendees booked through Expedia. You should request credit for the reservation even though they did not book through proper channels. The updated clause would read something like this: “The Hotel will credit the Group with all reservations connected to the event regardless of dates of stay or booking method. Should the room nights actually used by the Group be less than 80% of the Total Room Nights, Group agrees to pay, as liquidated damages and not as a penalty, the difference between 80% of the Total Room Nights and Group’s actual usage of rooms, multiplied by the average group room rate of $109.” The reunion planner then needs to get to 80% of the room block in order to not worry about attrition. If the total room nights is 130, then 80% of that is 104 room nights. If the reunion only generates 97 room nights, the reunion will be on the hook for the revenue for only 7 room nights at a rate of $109 or just $763. If there were NO attrition clause, the hotel would be within their right to demand $2,834. This amount is calculated by 130-104=26. 26X$109=$2,834. It is the amount of lost anticipated revenue.
What if this is your first reunion?
Let your CVB and hotel partners know this is the first if its kind event and there is no history to fall back on. Be conservative in your initial room block. If 50 couples have said they will attend, block 35 rooms. Request language in the contract that allows you to adjust the block once without penalty prior to the reunion. Select a date close enough to the reunion that attendees would have registered already but far enough out from the start date to allow the hotel sales team to resell any rooms you wish to release. For example, if your reunion is in the end of June, request an adjustment to your room block in the beginning of April. The new room block number is what will be used for calculation in the attrition clause. IE Group is allowed to adjust the original room block one time on or before April 2nd. Attrition will be calculated using the new block established on or before April 2nd.
When I learned planners moved to another location just because of the attrition clause, the initial response is, “Why?”. If you have found the perfect hotel with the right dates and rates, why go somewhere else? When you know your group, the historic data, establish realistic room blocks and draft fair clause language, why start over? Book the hotel and enjoy your reunion!!
