The increasing incidence of intermediaries selling hotel rooms and other services is a major topic of discussion among U.S. hotel owners and operators. From online travel agents to convention housing companies, third parties are placing themselves in between hotels and their guests during the sales process. Of course, these intermediaries want to get paid, and this has therefore become a rising expense for hoteliers.
As per the Uniform System of Accounts for the Lodging Industry (USALI), payments to intermediaries are classified as commissions. In recognition of the rise in intermediaries, the 11th edition of the USALI stipulates two commission expense categories within the rooms department: One is for commissions paid for booking transient business, and one is for commissions paid for booking group business. The commissions paid within the rooms department cover sales made not only for guest room rentals but also for any other ancillary revenue associated with those guests. If, however, an intermediary secures business solely for the benefit of the food and beverage department (i.e., local catering business without guest room rentals), the commission payment is recorded within the food and beverage department.
Not included in the rooms department commission expense category are payments made to agents for the rental of commercial space within a hotel. These commission payments are recorded as professional fees within the administrative and general department.
In recognition of the rise in intermediaries, CBRE Hotels’ Americas Research began to track commission payments within the rooms department starting in 2015. Our firm’s Trends in the Hotel Industry database captures the combined commissions paid for both transient and group business. The following summarizes the magnitude of rooms department commission payments in 2015 for U.S. hotels.
A Significant Expense
On average, commission payments are the second largest expense within the rooms department, behind labor costs. This ranking does vary by property type. At limited-service and extended-stay hotels, the cost of providing complimentary meals exceeds commission payments. At resort properties, more money is spent on the laundry, linen, and supplies provided in the guest rooms.
Measured as a percent of revenue, commission payments averaged three percent of total rooms revenue in 2015. Unfortunately, the metric we cannot access is the percentage of rooms revenue that is subject to a commission payment. Therefore, we are unable to calculate the average commission rate charged by travel agents and other intermediaries.