Hubert Joly, CEO of Carlson
Wagonlit Travel (No. 2 on the Travel Weekly Power List), wrapped up
several important tasks in 2006. His GDS strategies coalesced. He
acquired Navigant, one of his largest competitors. He finalized the
design for a state-of-the-art desktop for his corporate customers.
So, with these tasks
completed, what has risen to the top of his to-do list?
"Compliance is less
than 50%," he told me, meaning that fewer than half of the hotel
reservations made through CWT are for properties with negotiated
discounts. With room rates rising, he views hotels as a category in
which he can help save money for his customers, but only if they
stay focused on negotiated rates.
If that's the top
priority for a corporate agency executive, what's on the mind of
leisure travel agents?
president of Vacation.com, the largest collection of leisure
agencies, has made hospitality his primary focus. Earlier this
year, V-com signed up Marriott as the group's first-ever preferred
hotel supplier and then made Radius' hotel program available to its
focus on hotels to save money. Leisure agencies focus on hotels to
make money. Why all this sudden interest in hotels? Or perhaps more
to the point, why now and not 10 years ago?
Rising room rates are
certainly making hotels more attractive, but travel agencies have
historically been wary of hotels, in part because they wondered if
they were going to be paid honestly. Well into the 1990s, hoteliers
were notorious for stiffing agents on commissions. I recall my own
agent calling me on a few occasions to ask if I had actually stayed
where he booked me. The properties had reported that I was a
I was told by a
source who did not want to be named that American Express once sent
letters to major hotel brands demanding millions of dollars in back
commissions, purely on spec. I was further told that all of the
hotel companies but one negotiated payments with American Express
rather than submitting themselves to an audit.
By now most hotels
have cleaned up their acts and reliably pay commissions. And many
leisure travel agents have come to understand that hotels today are
a far better source of commission income than airlines were when
they were paying 10% base commission. Consider this: According to
the American Express 2006 Business Travel Monitor, the average
domestic booked hotel rate -- not the rack rate -- rose 9% last
year. Average air fares, on the other hand, have fallen 11% over
the past six years.
The average rate for
one night in a hotel room in the fourth quarter of 2006 was $200.
The average roundtrip domestic air fare paid in 2006 was $231. An
agent booking a traveler into a hotel room for two or more nights
can tap into a revenue stream that's far richer than air
commissions were in their heyday.
And one need not pray
for a client who wants to spend a week in Manhattan (average room
rate: $304) to take advantage of sizeable hotel commissions. The
difference between the average price of a deluxe room (the top of
America Express' five-tier scale) and a budget room (at the bottom)
was only $54 a night ($179 vs. $233).
Common wisdom holds
that the degradation and ultimate elimination of base commissions
on air between 1995 and 2002 was the largest contributing factor to
the falloff of about a third of ARC-appointed travel agencies
during that time period. Many of these agents who closed shop,
characterized in some circles as order takers, were fatally
challenged by the loss of air commissions and could not survive the
rise of automated order takers (Internet-based mega-agencies) and
the drop in travel after 9/11.
The emergence of
hotel commissions as a robust source of revenue could conceivably
provide the monetary cushion that air used to provide to even
But just as airlines
decided to cap commissions when they were enjoying their highest
levels of profitability, hotels, too, are likely to want to keep as
much of the higher rates they're getting as they possibly can. It
would not surprise me to see changes in the compensation model.
Already, hotels in the corporate space are pushing for negotiated
percentage discounts rather than negotiated flat rates.
Agencies might do
well to hold onto a bit of their wariness and view hotel
commissions as terrific incremental revenue well worth pursuing,
but not make them an integral part of their economic foundation. If
fat hotel commissions were to lead to a second Era of the Order
Takers, it's not likely that era would last long.