Hilton announced late last week that it would cut commissions paid on North American group bookings to 7% from 10% in October in an effort to address rising costs and spur capital improvements. The decision by Hilton, the second-largest U.S. hotel company by revenue to Marriott International, follows a similar change announced by Marriott in January. Danny Hughes, senior vice president and commercial director of Hilton's Americas region, spoke with hotels editor Danny King.
Q: What's the primary impetus behind this decision?
A: This is all about the guest experience. The one thing we all want is outstanding services and guest facilities. All of these things require investment and time. We're hopefully creating the opportunity for owners to invest in all of those things for a better guest experience. It'll be a more sustainable business.
Q: Where do you think the funds freed up from the commission cuts will be redeployed?
Danny Hughes
A: You can put the potential investments into three buckets. The first is facilities: Meetings rooms studies say the quality of the rooms is important, things like lighting quality, the access to natural light, access to plugs. They have to be state of the art. Second is innovation. For example, being able to use an iPhone to choose a room, check in, preorder facilities, controlling room temperature and all of the things we haven't even thought about. And the third is service. Ultimately, we're in the business of people serving people. The more we can invest in our people, the more we can create great service and great employment opportunities.
Q: Are you concerned about pushback from agents?
A: We value agents tremendously. They perform an important role. We're trying to rebalance so that we can create world-class services as well as opportunities for our investors. But we intend to adopt an open line of communication to understand every agent's needs.
Q: Will there be any exemptions?
A: This is going to be for all group bookings. We are not making exemptions for anybody. All group bookings from the first of October will be subject to the change in commissions.
Q: Did Marriott's decision to reduce group commission rates influence this policy?
A: No. This is something we've been analyzing carefully for a long time. We came to this decision completely independently.
Q: Hilton says group-related costs are rising, yet ASTA CEO Zane Kerby, in reference to Marriott's decision to cut commissions, said group bookings are among the most profitable for a hotel. What's your response?
A: You can't make one blanket statement that one segment is more profitable than another. There are too many different metrics. This is about finding the most sustainable solution. Right now, it's a little challenging.
Q: What percentage of Hilton's North America business is from groups?
A: I can't say an actual percentage, but it's significant and it's a growing segment. The group segment is hugely important. There is no substitute for people getting together, so we've seen that segment continue to be very strong because of the desire for people to meet face to face to get things done.
Q: Do you think other large hotel companies such as Hyatt and InterContinental Hotels Group will enact similar reductions in group commission rates?
A: I have no idea. We've had no discussions with any of our competitors on what their plans may be. It's certainly an issue every hotel is facing. I can only state that we've taken a thoughtful approach to this and have taken our viewpoint independently.