Hilton Follows Marriott's Lead on Commission Cuts

 Danny Hughes, Hilton's senior vice president and commercial director for the Americas

Danny Hughes, Hilton's senior vice president and commercial director for the Americas

Two months following Marriott International's announcement that it would reduce group-intermediary commission rates to 7 percentHilton has announced it will do the same. Hilton is providing third parties with more notice than its competitor, however. Group business booked by intermediaries at participating hotels in the U.S. or Canada on or after Oct. 1, 2018, will be subject to Hilton's new base commission rate of 7 percent. Business booked before then will be honored at the commission rate previously contracted.

That Hilton refers in its statement to "participating hotels" indicates the change isn't mandatory for all properties. "We're changing our guidelines on the commission rate," explained Danny Hughes, Hilton's senior vice president and commercial director for the Americas. "But I can tell you that, like so many programs we have, we anticipate a huge amount of participation in this. It's a discussion point we've been having with owners for a long, long time now. I'm confident it will be very high participation."

The decision is a result of growing group-distribution costs and the complexity of intermediary services offered, according to Hughes. "This is truly something that is good for everybody," Hughes continued. "Whilst the move might be initially met with some frustration, the one thing we all share - whether it be the hotel, whether it be us as the brand, whether it be the third-party meeting planners - the one thing we are all totally aligned on is that we thrive when great meetings happen in our hotels. And that's what this is going to help facilitate. It's going to allow owners to actually make investments in both the physical product and in new innovations that are coming along, and of course, great, great service - and hopefully that's going to mean more and more meetings, which is good for everybody. That's really the crux of why we're doing this."

When asked about exemptions or delayed timelines for certain large third-party intermediaries, a Hilton spokesperson reiterated that the updated group-commission rate structure applies to all new group business in the U.S. and Canada booked on or after Oct. 1. "Like any company, Hilton has strategic partnerships and agreements with certain organizations, the details of which are confidential," the spokesperson added.

According to Hughes, Hilton felt this was the right time to address the problem of rising distribution costs and attempt to strike a balance. "It's a complicated ecosystem," he noted, and referred to a recent study from Kalibri Labs, titled "U.S. Groups & Meetings: The Economics and Complexity of Intermediation." "There are some interesting findings - there are more acquisition costs that have been creeping in. It's not just the third-party commissions now, there are channel costs, there are housing-bureau fees, there are reservation fees, there are loyalty-planner points and attendee-loyalty points. You've got all these extra acquisition costs, as well as the proportion of business that's going through third parties. It's been growing rapidly, and if the trajectory remains the same, it will soon be 60 percent of the business going into hotels that is intermediated. And all of these things have costs.

"Ultimately, it's a competitive world," Hughes continued. "We need to provide incredible facilities in our hotels to actually attract meeting planners. And that takes investment."

Hughes does not, however, want to discourage independent planners from booking Hilton. "We value the third parties," he said. "They provide a valuable service that's an integral part of the operation, and nothing about what we're doing is trying to decrease the amount of third parties or their business that comes through. We do think the costs need to be rebalanced a little bit. But we absolutely value them, and will continue to extend a hand of friendship and cooperation to the third parties."

Following Marriott's announcement, there has been a good deal of talk about whether the commission model itself is unsustainable and will remain. Hilton's future plans regarding commissions are unclear. "We certainly analyze all the time our distribution strategies and costs and are constantly reevaluating them," explained Hughes. "There's been a lot of thought put into this, and we felt that this is the time to redress the balance of the costs, and this is the appropriate and fair new commission level. How that will change over time, I don't know. We certainly have not planned right now to make any further cuts or changes."

Hughes wants independent planners to know that Hilton has every desire to continue working with them. While Marriott last month canceled a meeting with Meeting Planners Unite founder David Bruce, citing antitrust concerns, Hughes said he wouldn't eliminate out of hand any discussion possibilities if asked. "I can tell you that every request to meet we look at on its own individual merits and see if it's appropriate," he said, "and we'll certainly apply that same openness to any request to meet, from any party. (David Bruce also discussed the matter today with M&C.)

"We respect the place that third-party planners have in the industry," Hughes added. "And we'll continue to do so. We think it's an important range of services. I truly believe the more we can work together to have more great meeting facilities, the more we all truly benefit."

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