ORLANDO, Florida (Reuters) - The storm buffeting the U.S. economy threatens to swamp the $175 billion corporate meetings industry as companies seek to cut back on expenditure by reducing the number of conferences they hold.
By organizing fewer big meetings in distant cities, companies can save millions on airline seats, conference hall bookings, hotel rooms and a range of smaller items.
But those savings -- while smart for the companies -- are provoking a crisis in the industry that provides the services.
“I’ve been in this business 40 years and I’ve never seen anything like this before,” said Kevin Maguire, president of the National Business Travel Association.
“I call it the DDE for ‘devastating domino effect’,” said Maguire. It is having an impact from cab drivers and florists to restaurants and street vendors, he said.
Tammi Runzler, vice president of convention sales and services at the Orlando Convention and Visitors Bureau, compared the situation to the weeks after the attacks of September 11, 2001, when fear of air travel gripped much of the business world.
A total of 64 percent of companies globally will reduce spending on meetings next year, a figure that has doubled since August, according to research by Meeting Professionals International, the world’s largest organization for meeting executives.
A separate survey, by Maguire’s National Business Travel Association, presented a more mixed picture. It showed that about 38 percent of U.S. companies will maintain their meeting budgets next year, with the remainder about equally split between those planning to cut their budgets and those increasing them.
Companies that are increasing spending on meetings understand that during an economic slump training conferences and sales meetings are even more important, Maguire said.
To make matters worse, many companies have slashed their meetings budget based on the experiences of insurance company AIG, said Meeting Professionals International President Bruce MacMillan.
AIG ran into a storm of negative publicity in October, when it flew top independent brokers and some of its executives to California for a lavish week-long retreat shortly after it received an $85 billion government bailout. Brokers had earned the trip based on their sales prior to the bailout.
The situation was made worse by media coverage of a conference in November for 150 of AIG’s top independent brokers at the Pointe Hilton Squaw Peak Resort in Phoenix.
In the hotel industry, such cancellations were known as “AIG syndrome,” said Barry Brown, director of sales and marketing at the landmark Hotel del Coronado in San Diego.
Among other signs of a downturn in corporate meetings, new business leads are down 21 percent from 2007 at the Orlando Convention and Visitors Bureau, according to said Tammi Runzler, vice president of convention sales and services.
Business is down 15 to 20 percent at Baskow & Associates, one of the leading destination management companies in Las Vegas. The company provides services for corporate events such as transportation to entertainment.
“Bad news is breeding more bad news. When companies see other companies stop spending, they stop spending,” said Jaki Baskow, whose 32-year-old company employs 28 people.
New Orleans, on the other hand, has seen a 10 percent increase in business for 2008 over last year and expects to see a 7.5 percent increase next year, said Stephen Perry, president of the city’s Metropolitan Convention and Visitors Bureau.
That’s because 75 percent of his business is with large conventions held by national associations and only 25 percent is from the more volatile corporate sector.
On a national basis, however, the consequences of the meeting downturn could be severe.
Employees paid by the hour, such as bellboys and busboys will be hit hardest by the slump, said Bob Gilbert, president of the Hospitality Sales and Marketing Association International.
“We’re also starting to see salary freezes for hotel executives,” he said.
And even hotel owners are now being hit by a combination of declining occupancy and falling average daily room rates, said Robert Mandelbaum, director of research information services at PKF Hospitality Research.
That in turn will lead to layoffs among hotel staff.
Even so, some cities could benefit. Kansas City expects an uptick in 2009 business as it is perceived as an affordable destination, said Bill Bohde, vice president of convention sales and services at the Kansas City Convention and Visitors Bureau.
And corporate meetings will always be needed.
“Smart companies will still hold meetings,” Baskow said. “Instead of lobster, they might serve chicken.”
Reporting by John Buchanan; Editing by Matthew Bigg and Eddie Evans