Published March 29, 2018
Chances are, you’ve already heard the news: Hilton just announced that they’ll follow Marriott by putting 30% of third-party planning commissions on the chopping block at their U.S. and Canada hotels. For intermediary planners it’s grim but not unexpected news. For the two chains — who own more than 40 brands between the two of them — it’s yet another paradigm-shifting play in an industry both have in large part shaped.
Still, with a move so huge, the potential impact and fallout down the road are tough to gauge. But with Hilton’s latest move showing the potential beginnings of a long-anticipated ripple effect, it’s as good a time as any to step back and take a 360-degree view of the situation from all angles.
Why the Two Giants Cut Hotel Commissions
It’s estimated that 40-60% of group business is intermediated at the point of sourcing and some at many points before execution. A recent report from Kalibri Labs, shows that hotel commissions to intermediaries totaled $1.3 billion on $30 billion in group business revenue in the U.S. last year alone. Total group spend totaled $300 billion, with $140 billion coming from rooms — meaning $160 billion was non commissionable.
For Marriott and Hilton, that’s more of the share than they’re willing to give up. In taking a large percentage of those commissions back, both will likely make moves to create a stronger online avenue for direct bookings.
In January, Marriott made the first move by cutting hotel commissions to intermediaries, ensuring itself a larger slice of the group bookings pie. For some in the industry, it was a move they had already anticipated when Marriott acquired Starwood in 2016, growing its size and, in turn, its capacity to pressure the market. Still, for third-party planners, anticipation didn’t help ease the shock that came in the form of a letter from the chain:
“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. Changing economics in this segment, plus these growing costs, required us to reevaluate our intermediary compensation model. We are introducing a new strategy that will result in a more sustainable way of partnering with intermediaries.”
Meanwhile, Marriott granted a “temporary exemption” to Experient and three other large booking firms. Many see this as a potential move to increase meeting size and strong-arm smaller meetings away from the property.
On Friday, March 23, Hilton sent third-party meeting planners into the weekend by announcing their own cuts. The move will take place on October 1, with only existing meetings booked before that date maintaining the original 10% commission rate.
While it may have cut an equal portion of hotel commission, Hilton cited rising group distribution costs and the increasing complexity of the intermediary planning process — a somewhat different line of reasoning than the explanation from Marriott. As Danny Hughes, senior vice president and commercial director of the Americas at Hilton Worldwide, put it:
“At Hilton, we recognize the important and integral role group intermediaries play in our meetings and events business… At the same time, we also have to balance the needs of all parties, and we therefore continually review our sales and distribution strategies to ensure we are offering the best value for our customers, hotels, and owners.”
Will Other Property Groups Follow Suit?
For others, like MGM Resorts, large commission totals mean large revenue totals — and that’s a pill it’s more than willing to swallow. As MGM CSO Michael Dominguez said in an interview with Meetings and Conventions, “Over the years we’ve lived with this model, and that’s baked into our rates as a cost of doing business. It’s important to look at a more holistic view of business vs. a narrow snapshot… we asked ourselves, ‘What does 3% represent? Is it material to our success? Does it matter in the greater scheme of things?’ And the answer was no.”
Smaller Chains Vie to Steal Business
With Marriott potentially trying to distance itself from hosting smaller groups, other smaller competitors are seeing the cuts as an opportunity to woo some of that business through third-party planners. One competitor, Preferred Hotels (650 properties worldwide) is running a promotional campaign called “We Appreciate You,” giving planners an extra percent in commission for any programs exceeding $100,000 that book before July 31.
Denihan Hospitality — a leading purveyor of boutique hotels in the U.S. — is running their own version called “We Love Our Third-Party Planners.” The program also ups commissions to 11 percent.
So What Does It Mean for Planners?
In the interim, planners can move their bookings away from Hilton and Marriott brands, going with competitors who are still offering standard 10 percent commission rates instead. However, if other chains start to cut hotel commissions, intermediaries could choose to charge clients a larger service fee to compensate or even shy away from relying on commissions altogether.
But chances are, planners won’t avoid Marriott based on their ethical standards. As Brett Sterenson, President of Hotel Lobbyists, recently stated, “Any reputable intermediary is not going to intentionally avoid Marriott… We won’t do it because it is completely self-serving and not in our end users’ best interest — and we would lose business. Avoiding [Marriott] is impossible.”
Predictions From Around the Industry
Third-party planners will consolidate.
“The floodgates are now open for the larger hotel chains operating in North America to lower their commission rates for meetings alongside Marriott and Hilton. At a time when meeting space is limited and expensive, a wider shift will likely lead to a wave of consolidation for third-party meeting planners as they become less profitable.” -Andrew Scheivachman, Skift
Large franchise brands will follow, but spare the big guys.
“Looking ahead, I believe we will see that most large franchise brands will reduce commissions across the board and then have some type of back-end volume bonus for the major third-party planners to reimburse them for lost commission.” -Elaine Macy, Executive Vice President of Global Group Sales, Preferred Hotels
Eventually, all commission will be cut.
I expect [commissions] to go from seven to zero. They’ll couch it in savings to the end-user, for our clients. The story has always been that the hotels didn’t charge more for commissionable rates, but that story is going to change. They’ll say, ‘Now that we don’t pay third-party commissions, we don’t have to pass that cost on to you.” -Bonni Scepkowski, President & Chief Strategy Officer, Stellar Meetings & Events
The future still isn’t clear.
Even with all the predictions, it’s difficult to say what lies in store in the year ahead — but there’s a high probability that more hotels will likely follow suit. Taking that into account, it’s a great time to for properties to improve their direct group booking capability. For planners, it’s time to re-evaluate the services they’re able to offer their clients to make sure they’re providing real value.
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