Marriott likely secured commission rate cut in Expedia deal

Since news broke that Marriott International and Expedia
Group had inked a new multiyear contract and “reached mutually beneficial
economic terms” last week, speculation about the contract’s
commission rate has run rampant. 

Robert Cole, senior research analyst for lodging and leisure
travel at Phocuswright, said he believes that Marriott is likely to have
negotiated a rate below 12%, a rate that Marriott was widely rumored to have been
paying. 

“These numbers are pure conjecture, and I have no
inside information, but my understanding from what I’ve heard is that Marriott
got its commission rate down to maybe 11.5% or so,” Cole said. “I’m
sure Marriott would have loved to get it to 10% and that Expedia would have
loved to push them up to 15%, but they’ve come to an equilibrium. Expedia has
no real interest in losing Marriott, and Marriott has that same feeling toward
Expedia.”

Cole added that sheer size, combined with the hotel industry’s
record-high occupancy and extended growth streak, could have given Marriott
added leverage in negotiations. The deal with Expedia is the first since
Marriott acquired Starwood in 2016, and the hotel group’s portfolio now
includes 30 brands. 

But while a commission cut is certainly considered a win for
Marriott, Cole warned that too drastic a reduction could also end up backfiring
in some cases. 

“If Marriott goes too low with these commissions, then
they could become less competitive from a compensation basis,” he said. “In
cases where two hotels might be fairly identical and priced the same, which one
should rank higher? You would think it makes more sense for Expedia to surface
the hotel that pays a 12% commission over the one that pays 11%.”

Of course, commission rates are far from the only piece of
the puzzle. In their joint statement on the contract, Marriott and Expedia said
that the agreement also “expands Expedia Group’s role related to the
Vacations by Marriott leisure packaging platform, and it leverages Expedia
Group’s technology capabilities for an innovative distribution arrangement
beyond transient retail bookings, which is expected to launch in the fourth
quarter.”

Those details, along with the presumed commission decrease,
could influence how other major hotel players approach their own negotiations
with Expedia. 

“I think some of these other hotel companies might be
saying, ‘Hey, Marriott appears to have gotten a little bit of a haircut on their
rate — maybe we can do the same,'” Cole said. “For all of them, the
big challenge is how to work with the OTAs and make sure that both sides are
really, legitimately benefiting and working toward the same goals and not
against each other. Because you can expend a huge amount of energy fighting,
which doesn’t get anybody anywhere and just makes the channel dysfunctional.”

With specifics about the Marriott-Expedia agreement lacking,
some believe it’s too early to tell just how big an impact the deal could have
on the industry. 

Mark Meader, ASTA’s senior vice president of industry
affairs and education, said, “Speculation on the recently announced
agreement between Marriott and Expedia is premature at best given the
confidentiality and likely complexity of the agreement. Assuming they have
reached ‘mutually beneficial economic terms,’ as per their joint statement,
both parties win. The effect on other players in the travel space, including
travel advisors, either directly or indirectly, remains to be seen.”

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