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When Marriott announced its industry-first move plan to reduce commission payouts for third- party group bookings in January, many in the events industry wondered whether other hoteliers would follow suit. That question was answered on Friday when Hilton, the second-largest hotel brand in the world based on revenue, announced a similar 3-percent cut to the industry’s traditional 10-percent commission structure. The new 7-percent rate will be effective on Oct. 1. All business booked before will be honored at the previously contracted rate.
Danny Hughes, senior vice president and commercial director, Americas at Hilton, told PCMA that the move aims to balance the needs the many players involved in booking and hosting meetings and events. “It’s important to keep in mind that many of our hotels are not owned by us,” Hughes said. “They are independent hotel owners that range from large corporations right down to families. This commission cut will allow our owners to reinvest in products, services, and digital innovations that will drive more happy guests and more meetings to our hotels.”
With Hilton matching Marriott’s move, third-party agents will face more challenges finding properties with friendlier commission structures. At the end of 2017, the two companies managed or owned nearly 30 percent of the total U.S. hotel-room inventory, and many of those properties are designed to accommodate groups. In fact, more than half of the names on Cvent’s Top 100 Meeting Hotels in the United States are affiliated with Hilton or Marriott.
Who’s Next?
Will more dominoes fall across the hotel industry? In early March, Chris Cahill, CEO of AccorHotels’ luxury brands, told participants at the company’s Global Meeting Exchange in Montreal, that there are no plans for a commission cut at its properties. Cahill and other hoteliers that aim to resist changes to commission payouts may be able to attract those unhappy with the new business model.
“There will be some clients that will put their relationships with third parties ahead of any hotel chain,” Dave Lutz, CMP, the managing director at Velvet Chainsaw Consulting told Convene after Marriott made its announcement. “There will be certain CEOs of associations and corporations who will say that they are happy with the commission structure and the fact that they don’t have to hire an employee for the work. They’ll do what they can to preserve the business model.”
However, preserving that model will be tough if the math behind a study from hotel analytics firm Kalibri Labs and PwC proves accurate. In the recently released “U.S. Groups & Meetings: The Economics and Complexity of Intermediation” report, data forecasts that the hotel industry’s total costs for third-party intermediaries could climb to $10 billion by 2022 — a sizable increase from the $3.4 –$4 billion paid in 2017. “In order to make [the meetings ecosystem] more efficient,” Cindy Estis Green, CEO and co-founder of Kalibri Labs, told Business Travel News, “all of the players in the food chain may have to give a little to make it work better.”
Those players may have different opinions of who should be paid what, but Hughes believes that they all share the same objective. “For both our hotel owners and group intermediaries, the guest experience is at the heart of it all — we all share the best interest of our guests,” Hughes said. “Whatever aspect of hotel operations we are evaluating, our laser focus is always on the guest experience.”
What do you think the future holds for the meetings and events ecosystem? How will the business model continue to change? Go to PCMA’s Catalyst forum to discuss with your colleagues in the industry.