Cutting commissions: a call for caution and common sense
7 Aug 2018 - by Riedwaan Jacobs
South Africa’s attractiveness as a destination for international conferences could be under threat if PCOs stop earning commissions.
There are multiple voices calling for PCOs to stop accepting commissions and start charging on different remuneration models, including the billable hours model, or charging by the hour. Those who are calling for this are being short-sighted, and are failing to see the bigger picture.
Should they prevail, the concern is not so much losing commission from the conference venues, but the chain reaction this would cause. If a zero-commission policy is adopted by conference venues it would mean standalone conference venues don’t pay commission. The hotels with onsite conference facilities will follow and would likely apply it to their meeting facilities as well as accommodation. It will be just a matter of time before all hotels adopt the same policy.
Such a policy would cause major damage to South Africa’s reputation as an attractive destination for inbound international conferences and groups. Bear in mind commission is an international norm in our industry, it is not confined to South Africa.
There is no guarantee that international companies/associations will choose South Africa as the destination for their event or conference. South Africa must bid against and compete with many other great, international destinations to host these conferences.
There is also a big DMC component to international conferences, with foreign delegates requiring accommodation, and a large percentage of them booking through the official conference website. This service is something that international associations expect from PCOs when bringing their conferences here. In most cases, the associations want a percentage of the commission earned from the accommodation and other bookings. This is an important secondary revenue stream for them too. They also expect the DMC/accommodation services to be provided at no cost because they are aware of the commission we earn as compensation for providing this service.
With no commission earned from providing DMC services (such as housing bureau services), there will be no incentive for us to provide such services. Or, if we do, we would have to charge for it. We will be the only destination where PCOs don’t provide housing bureau services or where they charge a steep fee to provide them. This combined with the association losing revenue from the commission split will result in them choosing another destination for their conference or group. South Africa is already starting to lose its “Mandela” and “Miracle Nation” aura which contributed towards our attractiveness as a destination. A no-commission policy like this will have dire consequences. South Africa will lose many bids. The entire supply chain will suffer as a result. Simply put, the industry will implode.
Not only will the meetings industry be affected by this, but business tourism and tourism as a whole will be negatively affected because commission is an integral part of the tourism industry. Incentive companies, DMCs, travel agents, tour operators, booking agents etc. all rely on commission, more so than PCOs. Everyone will suffer. It will take the entire industry more than a decade to recover from such a blunder.
We don’t exist in a void, we compete against other destinations that will continue paying commissions.
Recently two large international hotel groups, Hilton and Marriott Hotel group, announced that they would be reducing agent commissions from 10 to seven percent. This was seen by many as the beginning of the end of commission payment by hotels internationally. This also further bolstered the argument of those pushing for a no-commission policy in SA. I disagree for a number of reasons.
Firstly, these two big groups only reduced their commission to smaller, independent agents and PCOs. The larger players such as Helms Briscoe etc. are exempt from the reduction. They still get a 10% commission. These hotel groups are testing the water and are hoping that other hotel groups follow suit. But it is having the opposite effect, with many of the smaller hotel groups viewing this as an opportunity to increase their revenue and grow their share of the market. Already a few hotel groups have strongly affirmed their commitment to continue paying 10% commission and some have even announced an increase in commission up to 15%.
The two groups that reduced their commission are going to lose a lot of business and are going to experience reduced revenue. Because meetings and conferences are usually planned and booked two years in advance, they are only going to wake up in two years’ time and realise their revenue and bookings have dropped significantly. The bulk of bookings worldwide are done by agents – travel agents, DMCs, incentive companies, PCOs, and tour operators. They will shift their business. These two groups are going to eventually up their commission back to 10%.
Even if somehow a no-commission policy manages to gain ground internationally and countries/destinations start changing over to being no-commission destinations, emerging destinations such as India, Africa, and others are going to stick to the paying of commission policy for as long as possible. They will use it as their unique selling proposition to attract conferences and groups. The destinations that hold out the longest will benefit the most and the destinations that switch over to a no-commission model first, will lose the most.
South Africa should hold out for as long as possible, not rush to be the one of the first no-commission destinations.
With the above in mind I urge everyone engaging in this debate to apply their minds properly – look at the big picture and consider the long-term effects and unintended consequences of such a policy. We are already operating in a tough business environment, and this will have serious consequences for all of us.
Riedwaan Jacobs has over 18 years’ experience in the Conference, Exhibitions and Events industry, mostly in senior and strategic roles. Riedwaan honed his skills in the world of planning and executing large, complex, prestigious and high profile international and national conferences and exhibitions. He entered the world of Events Exhibitions in 1999 by joining a small Exhibition & Events company. In 2005 he joined Global Conferences Africa, initially as the Senior Conference Co-ordinator and then as the Ops Manager. In this time he managed and was responsible for the success of many international conferences of all shapes and sizes, ranging from 300 delegates to 12 700. In 2012 he founded and launched ILIOS Conferences (PTY) Ltd.