Early this year, Marriott International announced that it would reduce commissions on group bookings from 10% to 7% for all its US and Canada properties.
In a letter sent out to travel partners, the hotels giant stated that “changing economics” and “growing costs” have forced it to evaluate its intermediary compensation model.
“Marriott’s group distribution costs are growing faster than our group revenue; these costs are limiting our ability to invest in meeting products, experiences, and innovation,” the letter read.
Since then, Hilton Worldwide followed suit with a similar announcement. The group called the decision a “review [of] our sales and distribution strategies”.
“This change, whilst easing operations costs associated with group revenue, will allow our owners, over time, to make further investment in products and offerings that enhance the guest experience,” said Danny Hughes, senior vice president and commercial director of the Americas at Hilton Worldwide, in a statement.
As a reponse, travel industry leaders have pushed back on the cuts, and have cited the move as a “devaluing of the relationship between hotels and agencies”.
“At a time when consumer usage of travel agents and advisors is on the rise and awareness of the irreplaceable role that agents play in the travel industry is growing, it is disappointing to see supplier partners moving in the opposite direction,” said Zane Kerby, president and CEO, American Society of Travel Agents (ASTA), in a statement.
Admist the hubbub in North America, will the cut on meetings commissions inevitably trickle to Asia?
“I understand that hotel groups have to look at cost of distribution and therefore, comissions are always going to be under scrutiny,” said Nigel Gaunt, founder and president at Incentive, Conference & Event Society Asia Pacific (ICESAP).
“My expectation is that [Asia hotels] will continue to pay comission to agencies that seem to be adding value to the transaction.”
According to research by Kalibiri Labs, the cost of customer acquisition in the meetings ecosystem has risen dramatically over the last five years. This means that the total cost forked out by hotels for each booking—including tech and commissions—can scale up to 35% of the price of booking.
At the moment, many agencies are raking in hefty commissions for referring clients to property partners without providing value-added services to the project.
“They simply are in there to come in to create a connection between the hotel and client, they take their commission and leave. And I don’t think that’s a long-term relationship that deserves commission,” Gaunt said.
Despite that, Gaunt predicted that agencies are here to stay in Asia. But the cuts could force agencies to provide creative services to assist in projects. “In other words, their business model will move to a fee-based rather than a commission-based model,” he said.
He added that agencies’ position will not be threatened because hotels don’t want to have to build up a whole army of people to service internally. “They much prefer to get a good quality agency to provide all the lead-up work, and then they carry out the project on-site,” he said.