Marriott and Hilton’s Group Commission Cuts Put Pressure on Industry

As hotel chains have shifted their business models over the last decade, keeping owners happy has become the priority. Slashing group booking commissions for intermediaries saves owners money, so it’s easy to see how the largest U.S. chains will follow the example of Marriott and Hilton in the near future.
— Andrew Sheivachman

Travel agents and meeting planners are becoming the latest group to feel the pressure from hotel industry consolidation.

A decision by Marriott International, with Starwood Hotels in its fold now, to cut group hotel commissions was soon followed by Hilton Worldwide. Marriott has already reduced commissions on North American group hotel bookings to 7 percent, from 10 percent, demonstrating that hotel chains won’t be afraid to put pressure on travel agents and meeting planners in the future (Hilton’s cut will go into effect later this year). It will also likely mean increased costs for corporations and groups that hold events at hotels as agents and planners pass on costs to them as they grapple with the commission cuts from hotels.

“We want to make sure we have [a policy] that is fair and equitable, and we felt this is the right [move],” Brian King, Marriott International’s global officer of digital, distribution, revenue management, and global sales, told Skift. “There was some rumor going around that commissions would be cut to zero, [but that was never an option]… any time a business model shifts, [agents and planners] need to recalibrate their business, but by the same token we’re also encouraging planners to move to a different, [more transparent] planning model.”

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RISING COSTS

Although not everyone agrees that it comes down to ownership issues. Hotels used to have meeting planners on staff to deal with the booking and planning of events; this process has become outsourced to a variety of third-party planners, venue sourcing organizations, and now a variety of online booking sites for small group events.

“The value chain swung from one side to the other, and a focus on cost became much more of a spotlight issue,” said Cindy Estis Green, CEO of Kalibri Labs, a hotel benchmarking firm. “Hotels have been paying more for the same business, there’s been a spike in costs for relatively flat group business.  They’re getting the same business and having to pay double or triple for it.”

In Estis Green’s estimation, tension has been building up in the ecosystem for more than five years.

Kalibri Labs recently released a report crunching the numbers on the costs hotel pay for group business. Its analysis found that larger hotels, which generate the most group business revenue, pay the largest cost as a percentage of group revenue for groups and meetings business.

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“Big hotels write the biggest checks,” said Estis Green.

The commission cuts are related to the cost of customer acquisition for a hotel’s group business; an abundance of factors, from planners and agents to city housing fees and overall technology costs, drive up the cost of a booking for hotels, and this has led the brands to cut costs.

Kalibri Labs suggests that the costs paid out to companies involved in group bookings could double for U.S. hotels by 2022.

Read the full article on Skift