The 23-year-old echoes of the first airline commission caps
rang in the ears of some agents when they heard that Marriott was reducing
commissions on meetings in the U.S. and Canada by 30%. Judging from comments
under articles about the cuts, some readers are interpreting the action as
equivalent to the first step in the slow erosion of pay that ended with the
elimination of base airline commissions in 2002.
There are similarities, but there are also important
differences. Airlines were in dire straits in 1995 (in
aggregate, they lost money each year from 1990 through 1993, and they barely
squeaked out 0.4% profit in 1994), but Marriott says it is reacting
specifically to a significant rise -- characterized to me by Brian King,
Marriott's global officer of digital, distribution, revenue management and
global sales, as "alarming" -- in costs associated directly with
Travel Weekly's sister publication Business Travel News cited a report compiled by hotel benchmarking company Kalibri Labs and the auditing and consulting firm PwC. It stated that, across all U.S. hotel companies, pre-event meetings costs associated with sales amounted to 35% of room revenue, and third-party commissions of $1.4 billion accounting for 4.3% of pre-event costs.
While on one hand this is a fractional cost of doing business -- direct spending for meetings, inclusive of room revenue, totals $330 billion, according to the Meetings Mean Business coalition -- King said Marriott had been "squeezed" by costly trends and had been looking at how to address them for many years.
King said the decision was difficult, and that the company knew it was not going to be popular. I asked him why Marriott would take the lead; wouldn't its scale provide some financial advantages when dealing with a problem the industry as a whole shared?
He replied, "Why not Marriott? We often take a leadership role."
I inquired if the Starwood acquisition and inheriting Starwood's meetings cost structure had brought things to a fore. He paused.
"That's hard to answer," he finally allowed.
But it's not unreasonable to conjecture that Starwood might have had some bearing simply because other hotels -- and even one chain, MGM Resorts International -- are facing similar challenges but are nonetheless trying to take advantage of Marriott's stance by offering bonus commission for meetings.
And the timing, the optics, of the move also raises questions, coming as it does shortly after corporations just received a significant tax cut.
I'm not at all unsympathetic to businesses that, as costs rise, take measures to reduce expenses. Cost reduction was a key to survival for many travel agencies.
There was some chatter in comments beneath stories that agents should band together and sell away from Marriott.
Separately, ASTA has taken the strongest stance against the commission reduction of any professional association.
Among the lessons learned during the airline commission cuts was that agents can't legally organize boycotts against suppliers and that ASTA's responses must be very carefully calculated and calibrated. ASTA itself was collateral damage following the airline cuts, as many agents withdrew support from the organization, perceiving that it was ineffectual in stopping the caps and cuts. Its reputation suffered for years.
Agents (and ASTA) remade themselves, with many now saying that the airline moves were, in retrospect, the best thing that happened to them, pushing them to reshape their businesses as consultants.
But it was painful along the way.
What struck me at that time was that despite whatever unhappiness they may have experienced, they continued to put clients' interests first. TWA, which was inching toward its demise, touted that it would continue to pay full base commissions to travel agents. The needle didn't move. The TWA experience at that point was less than optimal, and agents wouldn't put their clients through it.
If there is a cautionary tale for Marriott here, it actually might come from the cruise industry, not aviation. Six or seven years ago, there was a growing perception among travel advisers that some Carnival Corp. brands were becoming less agent-friendly and that they were trying to build their direct bookings at the expense of the channel. While the lines protested it wasn't true, the perception continued to build.
Rather suddenly, cruising as a sector experienced a spate of bad news, much of it related to Carnival brands. The Costa Concordia ran aground. The following year, the Carnival Triumph was adrift at sea for days. Positive brand sentiment began to fall.
Initially, Carnival's appeals to agents for help in its time of need largely fell on deaf ears. It took considerable time and effort, but Carnival worked hard to reestablish its culture as agent-friendly, and it is once again in good graces with most advisers.
As mentioned, Marriott is experiencing good growth, and as its seven wins recently in our Readers Choice Awards, including "Best Overall," demonstrated, it is well-regarded by agents. What it has to keep in mind is that partnerships must be built for good times and bad.
Agents will be watching closely.
paragraphs of this column were modified to reflect events that occurred
between the time of its writing and its posting.