With online hotel sales soaring, and analysts predicting a drop
in travel agent-generated bookings, the unpleasant question again
rears its ugly head: Will hotels go the way of airlines in
eliminating or reducing standard 8 to 10 percent agent
When asked, officials at several of the largest hotel chains
responded with a resounding “No” followed by a qualifying “at least
Still, analysts say the way travel agents make money by putting
heads in beds is likely to change significantly in coming
Bill Carroll, author of the recent PhoCusWright report and
visiting assistant professor at the School of Hotel Administration
at Cornell University, said the traditional commission system will
give way to what he calls “pay for performance on steroids.”
With online hotel bookings expected to increase to one in five
by 2005, traditional travel agencies’ share is expected to drop to
18 percent, down from 21 percent in 2001, according to the
“Although that decrease may not seem significant, travel
agencies currently represent only one-fifth of all hotel sales,
and, despite GDSs’ efforts to increase hotel transactions, that
share will decline even further,” the report states.
Agents are still making money on hotels.
“But how prepared are they for the possibility that hotels will
follow airlines and eventually eliminate commissions?” the report
asks. “Or, if hotels offer lower rates exclusively on their web
sites, much as the airlines do with their discounted web fares? At
such a time, only those agencies that have access to volume deals
and wholesale rates will prosper with hotel sales,” says the
To survive, travel agents will need to adopt new compensation
and “value-proposition” models.
Here’s how hotel officials interviewed by PhoCusWright predicted
travel agent compensation will change in the future:
Travel agents will charge client service fees for finding and
booking properties, and helping businesses manage hotel costs.
Agents will charge clients a reasonable fee (shared with GDS)
for handling bookings, cancellations, and re-bookings and take on
the mindset that they’re earning those fees for professional
Agents will earn performance payments overrides or net rates for
generating new business, shifting share in markets and during
off-peak times, and attracting higher paying customers or booking
more expensive rooms or services.
Suppliers will pay travel agencies for marketing, and for
sharing information, particularly about loyal and/or corporate
Agencies will create opportunities for hotels to promote their
services using multimedia, such as advertising on the agency
Those predictions have already become reality for many
Still, in interviews, hotel officials swore allegiance to the
traditional agent commission system.
If hotel chains do start cutting commissions, “I think they’d be
crazy to do it,” said Michael Handlery, chairman of the American
Hotel and Lodging Association.
Handlery, who is also president of Handlery Hotels Inc., based
in San Francisco, estimated that travel agents generate about 20 to
25 percent of business at his two hotels.
“We love paying commissions,” he said. “The more in commission
you’re paying, the more business you’re getting.”
Hoteliers representing some of the largest chains agreed.
The standard 8 to 10 percent hotel commission for travel agents
“is still a very efficient distribution model,” said Hubert Tupay,
director of corporate and travel agent marketing for Best Western.
“Travel agents are a tremendous resource and an extension of our
Still, Tupay noted that bookings by traditional travel agents
were down. “Travel agents need to reinvent themselves and become
smarter about what they book.”
Last week at a conference of hotel officials in Los Angeles,
Henry Silverman, chairman, president, and CEO of Cendant Corp.,
predicted that travel agents will be forced to “morph into a
“The traditional agency that depends on payment by suppliers
won’t exist three to five years from now,” said Silverman.
Though there are no immediate plans to change the commission
system at Cendant, Silverman said the company would be evaluating
the issue with input from franchisees, and watching what other
hotel companies do.
In November, Best Western launched a program with ASTA to
improve the business skills of travel agents. The “Model Travel
Agency Program” identifies core principals for survival during
turbulent times, marketing plans, financial analysis, and advice
about technology systems and more.
Marriott International has also joined forces with ASTA to study
the creation of an innovative travel foundation that would conduct
research relevant to travel agents.
Looking at the costs of online versus traditional travel agents
to hotels is potentially the type of research the foundation could
evaluate, said Richard Copland, ASTA president.
Copland said there is little chance hotels will drop agent
commissions altogether, but he does see more reliance on pay for
performance in store.
Still, said Carroll, no matter how sophisticated hotel web sites
might become, they will never be able to handle certain details
like a warm-bodied travel agent for the travelers who want more
than just a place to sleep at the cheapest price, said Carroll.
“It’s often not about a better price, it’s about a better