Bjorn Hanson, PhD, is a clinical professor at the New York University School of Professional Studies, Jonathan M. Tisch Center for Hospitality and Tourism. He is a well-respected hospitality and travel researcher, known for his industry forecasts.
Prior to joining NYU, he held the position of global industry leader, hospitality and leisure, at PricewaterhouseCoopers LLP.
Here, he weighs in on Marriott's commission cut.
Q. Why do you think Marriott International decided to cut commissions paid to third-party meeting planners from 10 percent to 7 percent for all of its hotels in the U.S. and Canada now?
2017 ended with the highest U.S. occupancy since 1984, almost 66, percent. Average Daily Rate (ADR) [charged per room] increased only about 2 percent, just the rate of inflation. In past cycles when occupancy was high it would have been typical to see ADR increase between 5 and 7 percent. The challenge for the lodging industry is not occupancy, it is ADR. Lodging companies are looking for ways to address disappointing ADRs.
A year and a half ago, Hilton implemented a $50 fee for cancelling reservations any time after booking for some hotels, which received a negative reaction, so Hilton did not proceed with the fee. As might be expected, Marriott is receiving negative responses from third-party meeting planners.
With Internet price transparency, so much consumer focus on room rates, and OTA (online travel agency) commissions that are typically around 15 percent, the industry is seeking many approaches to increase room rate. For example, there is a trend of urban hotels charging what is similar to a resort fee as a way to increase revenue.
Q. Do you think Marriott International will rethink this decision and raise commission paid back to 10 percent?
In many cases it will be a matter of individual opportunities. Commission is receiving much of the attention right now, sometimes more than the room rate. A planner can say she or he has an event to bid on. There are a number of things that go into the amount of the fee. Ways for the person doing the booking to be compensated for getting a great rate. If the total amount of the event is higher, the commission can still be high. If it's a desirable piece of business, there may be the need to negotiate a special rate. I think the negative reaction sometimes misses all of the issues related to commissions. Not to defend commission rates, but the issue may be a bit more complex than the headlines have indicated.
Q. What do you think of the fact that select intermediaries are exempt from Marriott's commissions cut?
I can understand why that adds to the concern for some third-party meeting planners. Many businesses have special deals for the most desirable or financially rewarding clients or referrals.
Q. Do you think other hotel companies will follow Marriott's lead?
I think there will be a pause to see the reaction. Then I anticipate there will be two strategies. Those that continue to pay 10 percent commission and promote that, and others who adopt lower commission rates, more quietly.
Q. What do you think about the third party model as it exists and how do you think it might change?
I estimate the change in the economics will not be enough to result in a significant industry change in the business model when alternatives are evaluated.
Q. Do you think destination like Mexico will benefit by this commission cut?
It will be a negligible effect for a limited number of hotels. The complexity of passports and international travel make it more challenging.