Planners React to Hyatt’s Commission Cuts

Guest Room at the Hyatt Herald Square in New York City
Guest Room at the Hyatt Herald Square in New York City

Last week, Hyatt announced it will slash third-party commissions from 10 percent to 7 percent, effective Feb. 1, 2019. This follows an initial move from Marriott International, followed by Hilton Hotels and InterContinental Hotels Group earlier this year, to cut commissions. Northstar Meetings Group reached out to several planners for comment. 

Eric Rozenberg, president and CEO, Event Business Formula
Eric Rozenberg, president and CEO, Event Business Formula

Eric Rozenberg, president and CEO, Parkland, Fla.-based Event Business Formula
I am not surprised at all. I believe the whole industry will go like this, with commissions that are even lower in the future. If you are living on an all-commission model, it's time to change your business model. You have to start speaking a different language and position yourself as a strategic partner with your client. That means asking different questions and offering much more service than just booking rooms. For 20 years, I never ever counted on hotel commissions to make my budget, it was always given back to the client or paid as a success fee based on pre-agreed key performance indicators. I feel for people who are making revenue solely with commissions, but I think there is an opportunity for them to evolve and change and expand the services they are offering to be positioned as more strategic. What is happening now isn't that different than what happened with airlines and travel agencies.

Steve Collins, owner, Breckenridge, Colo.-based Resort Meeting Source, LLC
I refuse to give these companies the right to dictate what I charge for my services, any more than I have the right to dictate what they charge for coffee, for a service charge that only partially goes to the servers or anything else like that. I would never steer a client away from an ideal hotel simply due to a commission issue, but my clients value the service I provide for them, so they support me in commission disputes with hotels. 
 
Marriott's initial excuse for this is just ridiculous. They said their third-party revenue was growing, but their commission payouts were growing even faster. That is mathematically impossible -- 10 percent is 10 percent, regardless of the number that follows. I think what they were seeing is due to the chain's shift into regional sales offices. Since sales staffs might no longer actually be on-site at hotels that planners are considering, there is no longer an advantage to working directly with a hotel salesperson.  
 
For example, I was researching a hotel in New Orleans recently, and my client had a simple question about the neighborhood around the hotel. The "on-site" sales rep I was talking with was based in Atlanta, and she had no idea how to answer that simple question. Because of this, many clients now prefer to work with a third-party company that can learn about their event once, and then represent them at multiple locations. Since further research will be required no matter what, it just makes sense that clients would find someone to take the burden of that research off their shoulders, and also create a situation where they no longer have to educate the staff at each individual hotel as to their needs. Their third-party rep can provide that service for them.  And because those hotel sales reps have so much more to cover than just one individual hotel, rather than going out and trying to track down new business, they became increasingly reliant on the third-party companies to bring that business to them. What Marriott is seeing is a failure of their sales model, but rather than address the cause, they chose to treat the symptoms. Hilton, InterContinental and now Hyatt are just following along, as they see it as a way to lower their costs.
 
What these hotel companies are doing is trying to find a way to surreptitiously raise their rates without the end client actually noticing. I will still present these hotels in my proposals, but I will most likely be adding a line item with full disclosure to the client to bump up the rate on those hotels to show what the "apples to apples" comparison rates would be. If those rates are not competitive with other hotels in the area, it will be my client's decision to choose a hotel accordingly. This is no different from airlines cutting their advertised fares but then adding on all sorts of additional fees.
 
My clients are now leaning much more toward independent hotels that do not follow this policy, but it is their decision, not mine.
 
Years ago, a high-ranking hotel financial officer told me he that he felt meeting planning could eventually go the same way as travel agencies for booking airline tickets. He felt that things could evolve to where meetings could simply be booked online, without the need for meeting planners or hotel sales staff. This is just one more step in that direction. Of course, what he failed to recognize is that while there are only a few variables in booking a plane ticket, there are literally hundreds of variables when booking a meeting. Thinking that someone could book an entire event simply by filling out a form on a website is the height of naiveté as far as I'm concerned.
 
My hope is that the meeting planning community and the hotel sales staff community as well will stick together, recognize this for what it is, and push back to the point where it goes the way of the effort by Ritz-Carlton to drop their commission rate all the way down to 3 percent many years ago.
 
Sam Bhandarkar, business events strategist
There is substantial differentiation in margins between hotel companies that own their assets and those that don't. It does a disservice to the casual reader to fail to mention how the operating models of companies like Hyatt Hotels and Marriott International differ from those like MGM Resorts International and Omni Hotels. The frustration of intermediaries like myself is justified, but we cannot allow the perception of the distribution costs being incurred by these massive management companies as applicable to smaller, privately held companies. We need to avoid equivocating Hyatt's acquiescence to Marriott's position to some kind of industry standard of adoption.