Hilton Worldwide has joined Marriott International in cutting group commission rate, from 10% to 7%, citing the growing cost of distribution.
The two companies have both been pursuing direct booking strategies which have bolstered their loyalty programmes, in addition to adding to their brand stables, as they compete with the third-party distributors.
Hilton Worldwide said: “We recognise the important and integral role group intermediaries play in our meetings and events business, and we are proud to partner with a wide network of travel professionals to create meaningful experiences for our guests. 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.
“In light of growing group distribution costs and the complexity of intermediary services offered, Hilton has revised its base group sales commission rate to 7% [from 10%] for bookings into participating hotels in the US and Canada, effective October 1, 2018. All existing business booked before October 1, 2018, will be honoured at the commission rate previously contracted.
“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.”
At the company’s most-recent results, it described adding over 11 million members to its loyalty programme for a total of over 71 million members at year-end, up nearly 20% on the year. When asked how this related to customer engagement, president & CEO Chris Nassetta told analysts: “We’ve been working very hard on to strategies that have more direct relationships with customers …it is a much more complex and holistic approach, which has to do with making sure what we’re doing with product, what we’re doing with service, what we’re doing with technology, what we’re doing with very specific parts of the Honors programme to drive not only deeper engagement, but more frequent engagement with customers.”
Nassetta said that “close to 95% of customers”, when they became an Honors member, started booking directly.
The beginning of this year saw Marriott International, which is due to be in negotiations with at least one of the big OTAs later this year, cut commission made to group intermediaries in the US and Canada, from 10% to 7%. The company said that the decision would make its business “more sustainable” given that its “group distribution costs are growing faster than our group revenue”.
The group added: “The current business model and environment present significant obstacles to making the investments needed to deliver a world-class experience for customers.” The change came into effect on 31 March.
According to Kalibri Labs, group and meeting business represents 15% of US room nights sold, with hotels paying USD1.3bn in commission payments on USD30bn in group business revenue.
At Marriott’s fourth-quarter results, CEO Arne Sorenson said that he “felt really good” about the group’s ability to drive direct booking throughout the cycle and was due to launch a new revenue management system this year, which the CEO said: “seeks to book the most profitable business, not just the highest revpar business”.
Direct bookings were around 70%, with digital at 26% of total reservations as part of that 70%. The OTAs accounted for 12% in 2017.
Sorenson said: “The more leisure a hotel’s demand base, the higher the third-party contributions are. That could be wholesalers or could be OTAs. In part because of that, the Starwood portfolio had a higher reliance on third-party bookings than the Marriott portfolio did. I think some of that we can address internally with a different approach to some of those platforms.
“As the loyalty programme gets stronger, and as the clarity of the benefits to loyalty members becomes clearer, we feel really good about our ability to drive direct bookings throughout the cycle. Obviously, if you’re positing a deep recessionary environment, which we don’t anticipate any time soon, we’ll fight our way through that. But it’s interesting, we’ve seen great shift towards direct channels in the last few years, even with fairly anaemic demand growth.”
Marriott International was in the process of merging its loyalty programme with Starwood Hotels & Resorts’ following its acquisition. The two schemes are expected to be fully combined in 2019.
The company used its first-quarter results to report that its loyalty programmes reached just shy of 110 million members at year end, with members accounting for over half of the occupied rooms in 2017. Last year saw Marriott International lower the loyalty programmes’ charge-out rate to owners and again this January, with further reductions expected later this year.
HA Perspective [by Katherine Doggrell]: They’re right, you know, distribution IS expensive and, with the book direct programmes having owners twitching for proof to go with their spend, the operators have been careful to point out that results are coming in. And results have led to a certain feeling of strength, which has led to leaning on commissions.
Nassetta was quick to reassure those listening that “everything we’re doing is not about a space race, about spending more money”. And this latest flexing of muscle is proof of their confidence.
The agents have, of course, expressed their objections, with ASTA commenting: “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 and devaluing their relationship with our members.”
In a study looking at use of travel agents by the general traveller, not specifically group business, MMGY’s Portrait of the American Traveler 2017 study found that the planned use of a “traditional travel agent” in the next two years, was at 23%, down slightly from 25% in 2016, flat when considering the margin for error.
Steve Cohen, VP Insights, MMGY, said: “This is good news. We’re not seeing nearly the growth we saw in the past, but the use of agents is staying the same. The desire of the travelling public is to have someone to trust, and they trust human travel agents more.”
In this era of relationships, with AccorHotels offering to put your aged grandparent on a train while you go to work, trust is everything. Hotels, having found few takers for leveraging points, are now leveraging trust. As Facebook has found of late, a game not without risk. But capable of delivering reward.