• Screw turns on commissions

Marriott International is to cut commissions on group bookings, angering travel agents, after commenting that distribution costs were rising faster than revenue.

The decision was made as Ryanair offered customers 10% cashback to book accommodation on Ryanair Rooms, as is looks to become ‘the Amazon of travel’.

At Marriott International, which is due to be in negotiations with at least one of the big OTAs later this year, the group is to 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 is due to take effect from 31 March.

At the company’s most-recent earnings call, president & CEO Arne Sorenson told analysts that: group demand remained cautious, although “we’ve seen few cancellations, little attrition, and our funnel of new but unsigned group bookings is improving”.

Sorenson said that 2018 group revenue booking pace for full-service hotels in North America was up nearly 2% and that, assuming continued cautious corporate demand, the company expected 2018 North American revpar would be flat to up 2% largely driven by room rates and slightly stronger in full service than in select service.

The American Society of Travel Agents President and CEO Zane Kerby said: “A 30% cut in intermediary compensation diminishes the value of the role agents’ play.

“We plan to discuss this change with Marriott, our agency and consortia members and other stakeholders with an eye toward ensuring positive business outcomes for all involved.We are disappointed in the signal that a cut of this magnitude sends to the broader agency community.”

The decision was not the first time Marriott International has raised the ire of travel agents. In 2015  it protested that a media campaign pushing direct bookings was “to create awareness of direct channel benefits”. The comments came after accusations from travel agents that the campaign was “not only disparaging to travel agents, but also misleading”.

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 Ryanair, the group has launched Ryanair Travel Credit, a new incentive that gives customers who book accommodation with Ryanair Rooms 10% back in credit to spend on flights. Any customer with a “MyRyanair” account who makes a booking on Ryanair Rooms will earn 10% back in credit, redeemable directly against flight purchases on ryanair.com.

Ryanair recently upgraded to the Ryanair Rooms website, part of what it described as “its journey to becoming the ‘Amazon of Travel’”.

Announcing the deal, Ryanair’s Kenny Jacobs, said: “This is a huge benefit to our customers who will see the same hotels and accommodation in Ryanair Rooms as they will in other popular booking sites, but with the major difference being the 10 per cent “money back” they will receive to spend directly on flights when they book.

“With our accommodation providers, offering customers over 1.2 million rooms to choose from, ranging from five-star hotels to hostels and B&Bs, and now the chance to earn Travel Credit towards flight purchases, there has never been a better time to book with Ryanair Rooms.”

Ryanair launched Ryanair Rooms in October 2016 to market hotels, hostels, B&Bs, homestays and villas during and after the booking process. It would not be drawn on how many rooms it sold, telling us: “Ryanair Rooms is proving very popular, especially with the launch of Travel Credit giving customers 10% back on flights, but we don’t disclose commercially sensitive figures”.

As of the company’s 2017 annual report, the currently had contracts with five providers (Hotels.com, Hotelopia.com, HRS.com, Evivo and Hostelsclub) to market hotels during and after the booking process.

The group also used its results to comment that in September 2016, Ryanair.com became the world’s most visited airline website with over 45 million visits in one month alone.

HA Perspective [by Katherine Doggrell]: When Marriott International took over Starwood Hotels & Resorts, Sorenson described the main motivation for the deal as scale. At the last earnings call, the CEO said that hotels continued to benefit from synergies associated with the Starwood acquisition, “including OTA and procurement savings, revenue management improvements, benchmarking initiatives, savings on maintenance agreements, and insurance savings”.

It turns out that being the largest hotel company in the world affords some negotiation advantages and the travel agents who have huffed and puffed are largely blowing into the wind. What matters for them now is whether the agents can persuade the other hotel companies not to follow suit. And best not to think about the likes of TUI and its plans to employ Blockchain to cut out the middle men if they want to sleep at night.

For the smaller operators, the fight is likely to remain at the direct booking level, where loyalty programmes are being used as an attempt to persuade customers to make lucrative repeat bookings. Ryanair has taken note of this fetish for discounts in its latest marketing effort, but given the advantageous price of its flights, savings are not likely to be too remarkable. And, as they exist in the future, they don’t fit into the ‘instant delight’ realm of loyalty which hotels are being told to embrace.

The ‘who is paying for all this discounting’ question is one which is being answered by Marriott International, which has told owners that the cost of its loyalty bookings are falling, with a 10 basis points reduction in its centralised charge-out rate last year and another 10 basis point drop this year.

The intermediaries must be able to offer more to the process than a few extra random leisure travellers to prove their worth to hotels. For customers, the value remains with the discounter.

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