Ritz Cuts Site Commissions

<B>Ritz Cuts Site Commissions</B>

By Chris Davis

Unlike the seismic effects of the cycles of airline commission cuts during the past five years, the decision by Ritz-Carlton to reduce commissions to third parties that handle only site selection and negotiation likely will not have a major immediate impact on corporate meeting programs and their budgets.

Relatively few corporations outsource site selection and negotiation alone to such firms. Most companies that outsource do so for several areas of meetings management, including onsite staffing and registration assistance. Generally, they use full-service independent firms, which aren't affected by the commission cut.

Also, many corporations prefer to negotiate with hotel chains to receive rates net of all commissions and pay fees to third parties when necessary. Still, no other chain has matched Ritz-Carlton's move, including corporate parent Marriott--though some sources believe it's likely and that other chains may be waiting for Marriott to match first. Until then, it's primarily business as usual.

"The majority of our corporate accounts handle meeting planning themselves," said JoAnn Kurtz-Ahlers, Ritz-Carlton vice president of sales and business development. "Of those that do, about 90 percent use full-service third parties instead of just site selection providers. I can't speak for the rest of the industry, but for us, site selection providers are by far the smallest player with corporate meeting accounts."

A survey by Meetings Today, conducted earlier this year, supported Kurtz-Ahlers' estimates. The Meetings Monitor survey showed that just 11 percent of corporations outsource site selection and negotiation, a number that includes companies that outsource those functions to full-service third parties unaffected by the cut (Meetings Today, Aug. 14).

Those companies that do use site selection firms probably can expect some sort of fee charged by site selection companies or they may look to redefine their business, to be classified as full service. The decision as to how a particular third party should be classified will lie with individual properties, Kurtz-Ahlers said, with corporate Ritz-Carlton involving itself in blurry cases, as could happen if a third party changes its business strategy to encompass a broader range of services.

New York Life Insurance Co. assistant vice president of corporate travel Shaun Malay prefers to negotiate either net hotel rates or receive the 10 percent commission himself, so the Ritz-Carlton move won't affect him much, he said. "We're still going to try to get the lowest rate we can and optimize revenue as much as we can for the company," Malay said. "This doesn't bother me as long as we get the cheapest room rate. It won't affect the business we do with Ritz-Carlton. They won't lose us if our meeting sponsors want to hold meetings there. We'll just negotiate the best we can."

Malay also pointed out that a handful of New York Life meetings have been planned through online meeting portal StarCite's site selection services. StarCite, though, charges a flat per-room night commission on all rooms regardless of rate. As such, it is not affected by Ritz-Carlton's move since that number usually is already far less than 3 percent of the chain's daily room rates.

The decision, however, will affect other meeting portals, some of which charge commissions as high as 10 percent. "We know a portal like EventSource, which charges commissions, would be affected but we haven't had any real business from that side of the industry," Kurtz-Ahlers said.

Other corporate meeting managers agreed that the cut's immediate effect will be minor. Some even applauded Ritz-Carlton's decision.

"I'm very much for this," said Nancy Ayers, director of consolidation for ExxonMobil of Herndon, Va. "It's always seemed to me that services rendered by site selection firms aren't full service but get full commissions, which increases rates for all of us." Like many companies, Ayers doesn't see a major direct impact on ExxonMobil's meetings operations. But down the road, she said the move could help her company, especially if other hotel chains match. "It could mean lower rates for everyone because commissions pull up rates," Ayers said. "It will depend on whether the other chains follow. In the meantime, we will try to negotiate the most cost-effective rates that fulfill our needs."

For many corporations, that means focusing on net hotel rates. "Under the way we manage, commissions are a nonentity," said Mike Doran, director of travel services at Madison, N.J.-based Schering-Plough Corp. "We compensate meeting planning companies based on a unit of work they provide, which for us is logistics management. Wherever possible, we try to negotiate rates net of commission anyway and get the lower rate rather than have everything filtered through. If we can't get noncommissionable rates, or if it's the same as the commissionable rate, we take the commission and credit it to the hotel bill when we charge back the meeting host, so the host doesn't pay an inflated cost for the meeting space to offset the cost of logistics management. If it was up to us, we'd do business in a zero commission environment."

Corporations that don't outsource anything likely will feel the last effect. "We don't really work with third parties, so I don't have a strong feeling that this will affect us in any significant way," said Shirley Mertz of Nationwide in Columbus, Ohio. "We know third parties are a necessity at times, but it certainly seems that Ritz-Carlton is sending a signal."

Ritz-Carlton solicited the opinions of corporate travel managers in developing its new commission structure.

"We looked at every aspect and talked with companies that use site selection providers, those that don't and the site selection providers themselves," Kurtz-Ahlers said. "The reaction was pretty positive. Companies that use them still seemed to feel 3 percent was not so bad for the amount of work involved. The market will dictate pricing. We do feel these third-party companies should not be considered of equal value, and that this is fair for all the parties involved.