Recent moves by hotel companies to reduce the commissions paid for groups and meetings is once again stirring talk about whether the traditional model for rewarding travel distribution partners is dying, and if so, what other types of travel distribution incentives might replace commissions.
A poll of the audience at Onyx CenterSource’s recent FutureSource conference in Frisco, Texas showed there is no real consensus about the future of commissions as travel distribution incentives. Asked how long they thought commissions might be around, only 28 percent of those polled said forever. Forty-eight percent predicted they would last 10 years, and 29 percent said they only expect them to be around for five years.
Likewise, it is unclear what might replace commissions as they are reduced or cut.
Given recent research that shows consumers—millennials in particular—are returning to brick-and-mortar travel agents in droves, it’s evident that hotels will want to continue rewarding those who bring them business.
For business travel, commissions remain a key driver of revenue growth for travel management companies, or TMCs, many of which are scrutinizing the profitability of their customers ever more closely and booking only hotels that have good payment records.
At the same time, we are seeing slow changes in how fees are paid to travel management companies and how those travel distribution incentives are funneled back to the corporations they are booking travel for.
Marketing fees and value rates
Traditionally, after companies entered agreements for TMCs to handle their travel needs, all or part of the hotel payments paid to the TMC were passed back to the corporation. That model has been evolving over the years, with some TMCs forgoing commissions in favor of marketing fees that are paid directly from the hotel to the TMC.
An alternative model is that of the value rate, under which the TMC secures a reduced rate for their corporate client in lieu of a commission pass back. The customer gets a better value, either through a lower rate or perks like free Wi-Fi and breakfast—essentially what the TMCs can negotiate on behalf of their clients. So even if the hotel doesn’t get a passback, the company gets better value for its expense dollar.
In-house booking and payment collection
Rather than give up their commission passback, some companies have begun driving their own programs, either by establishing in-house TMCs or by setting up their own IATA number so that when their external TMC books a hotel with that number, the commission is paid directly to the customer and not the TMC.
Meetings and Events Travel Distribution Incentives
Some of the big hotel brands have recently cut back on the commission rates they pay for group events. This reduction is driven in part by the fractious nature of planning group events and the extra costs associated with a lack of transparent systems for tracking bookings, actual stays and commissions paid. This is a critical reason Onyx developed GroupPay, an industry-first solution for the group, meeting and events space that provides hotels and group planners a transparent, trusted event tracking and payment platform.
As more innovative tools are developed, hotel companies may be able to move away from blanket policies, such as across-the-board group commission reductions, and tailor their partner rewards programs to individual customers using data from the very systems they use to process and track those payments. Hotels may also be willing to increase their incentives to companies and TMCs that use more efficient processes that reduce their in-house tracking and payment costs.
Whatever travel distribution incentives our customers select, we at Onyx CenterSource are ready with new solutions for the ever-evolving payment types and policies our customers choose to adopt.