Events Industry Adapts 1 Year After Marriott Commission Cuts

It's been a year since Marriott decided to lower the rate it pays housing companies for business they bring to its properties. How's that working out for everyone? One of the fears last January when Marriott decreased the commission rate from 10 to 7 percent was that other companies would follow, and that has indeed happened. InterContinental Hotels Group, Hyatt and Hilton have either already mimicked Marriott or will by February 2019. All are publicly traded. Brett J. Sterenson, president of Hotel Lobbyists, says Marriott was likely pleased with the copycatting. "In truth, the day Hilton announced they’d follow suit, Marriott was almost entirely let off the hook," he says. "And IHG's announcement sealed it.  At least in the short term, Marriott is probably very pleased with their decision." Marriott did not respond to repeated requests for comment for this story but did comment last year. Hilton was most forthcoming of the three most recent companies to drop the rate, but didn't stray too far from the others in saying basically that business is business especially for public companies. "We recognize the important and integral role group intermediaries play in the events business, and we are proud to partner with a wide network of travel professionals to create meaningful experiences for our guests," says Frank Passanante, senior vice president of Hilton Worldwide Sales. "At the same time, we also have to balance the needs of all parties, and continually review our sales and distribution strategies to ensure we are offering the best value for our customers, hotels and owners. "From a client point of view, they understand the reasons for this change and recognize our commitment to continue working with them to ensure all guests have the best experience possible. We are in regular discussions with our customers, hotels and owners and do understand the various perspectives. We have the utmost respect for our third-party partners and look forward to continuing working with them to create the best experience for our guests."

New Reality

The clients in this scenario had much more, though less polished, comment. Jeff Lukasak, founder and president of PSE Event Housing, chose a practical view of the forced adaptation. "The reason is because they could—they have the leverage," he says. " The housing companies will just have to figure it out, whether it's being more efficient internally to save costs, and in time reduce headcount. Omni Hotel and Resorts, a private company, has kept the 10-percent rate, but didn't reveal much with its statement from Dan Surette, Omni senior vice present of sales and marketing: “We continuously evaluate our distribution channels and associated costs,” he says. “Through our strong relationships with group intermediaries, we have received positive feedback from them about our position in the marketplace. We value these relationships and see them as an extension of our team. Their knowledge of the industry and the business they bring to our hotels and resorts throughout the year are greatly appreciated." When pressed for why exactly Omni chose to hold the line, Surette says, "Because we felt it was the right decision for our business." Rachel Lunderborg, Global Director, Solutions & Analytics with CWT Meetings & Events, explains what clients can do to mitigate the impact of these commission cuts. After all, like Lukasak says, third-party housing companies can only control how they react to the commission drops. She says control management strategies should get a fresh look. "This includes putting in place preferred agreements with suppliers and focusing on other terms and conditions," she says. "It’s really about negotiating hard over the business terms to make up the difference from the reduction in commission. Organizations have to refocus their volume and spend to those suppliers who have not cut commission. That’s where you can make a difference.” In the meantime, boutique hotels have, in general, held the line. Dream Hotel Group recently announced it would maintain a 12 percent commission through 2019’s first quarter. “The response we received from increasing the group commission was so positive, that extending the 12 percent commission … was a no brainer for our team,” says Jay Stein, chief executive officer of Dream Hotel Group. “As a company, Dream Hotel Group recognizes and values the important role our intermediary partners play in attracting group business to our hotels and we are proud to continue to support and maintain these long-standing partnerships.”

Going Extinct?

Sterenson explains how he's adapted and how the changes have affected his business. "I haven’t changed a thing about the way I operate due to commission reductions. I haven’t burned bridges; I haven’t barked up any flagpoles; I haven’t ruffled any feathers," he says. "I was prepared for it, I redoubled my efforts to grow my business as it was happening, and were I not to have a 5-year old and 3-year old at home, I might truly be sleeping better at night as a result." Sterenson says he made a concerted effort to increase overall group volume, and had he not done so, he thinks he would have felt a hit, particularly because his group make-up is mostly short term. "While many third parties are booking well into the 2020s, my groups are booked and consumed within the same calendar year," he says. "I’ve seen plenty of 7 percent commission checks so far. They’re pretty obvious, too—they don’t end in whole dollars." Shawna Suckow, founder and chairman of SPIN: Senior Planners Industry Network, says she doesn't think the reductions are one-offs. "Just like airlines continued to reduce commissions over time, so will the hotels," she says. "What's scary is that there are very few travel agents around these days. I believe we'll see a sizeable decrease in the number of independent planners and procurement specialists. "Those who will survive are the ones who are savvy enough to recoup lost income by proving their value and justifying increased compensation to the corporations who hire them. The only saving grace, ironically, might be the next recession. As hotels get desperate (again) for business, will they increase commissions? Time will tell." Sterenson has his own thoughts on the future. "I hesitate to predict the direction of commissions—I’d rather not fuel any self-fulfilling prophecies," he says. "But suffice it to say that I’m not concerned that third parties are being made extinct."