Incentive Travel Tidbits
The Inside Scoop About Service Charges, Tips, and Commissions
I recently had a couple of interesting conversations that reminded me of some misconceptions that a lot of people have about commissions, service charges and tips. This will be a short post just to clear a few of these up.
Hotel and Restaurant Service Charges
Many groups are under the impression that, when you pay the 15% service charge to the hotel, all of it goes to the staff. This is rarely the case. It’s similar to what happens in the automobile service industry. Savvy consumers realize that what they pay for “labour” does not go to the mechanic who worked on your car. A hefty portion of the labour charge is for administration and overhead.
In the hospitality industry, almost all hotels and resorts put the service charges collected into a pool. It is not just distributed to the frontline staff that served you. At some destinations, the service charge is shared with management and, sometimes, part of your service charge is even taken for administration. What is even more surprising is that, at some destinations, this even happens in restaurants and even the owner of the restaurant gets a cut from what you leave on the table.
There was a time when travel agents didn’t charge fees. The internet has been both a blessing and a curse to the travel industry. Headlines like these are telling:
Commission cut adds to agents’ agony
Travel agents decry effects of commission cut.
PRACTICAL TRAVELER; Agents Set Fees After Pay Is Cut
With more and more travellers booking their flights directly through the internet, some airlines don’t pay any commissions to travel agencies or incentive travel planners. Even when they do pay commission, the percentage the airlines pay is low and ever shrinking.
Some clients don’t understand why travel agencies and incentive travel planners charge fees. Well the reason is simple.
- Some hotels don’t pay commissions at all.
- Many hotels only pay commissions to local travel agencies, meeting planners and incentive travel planners.
- Often, meeting planners and incentive travel planners receive commissions for sleeping room rates only.
- Also, meeting planners and incentive travel planners often receive no commissions for meals, meeting rooms, the meeting package, audio-visuals, or recreational activities booked through the hotel for the group.
- Commissions paid to meeting planners and incentive travel planners are typically low (5% – 10%) of what you pay for the room and that’s it.
(Please note: IATA travel agents do receive 10% commission from many properties for rooms, meals, meeting rooms, etc. but this is not always the case, especially when booking foreign destinations.)
Here are some articles that discuss the trend by hotels to reduce or eliminate commissions. While it is not widespread in North America, this has been evident in other locations and there is a liklihood that hotels will eventually follow the lead of airlines.
Implications for Group Incentive Travel
If you are planning a trip for your group, build in an extra 15% for tips and, on your last day, pay that directly to the restaurant, banqet and housekeeping staff that have served you. That way everyone is covered and the staff will be fairly compensated for their hard work. If you give the extra tips to the manager, he or she will be obliged to put it into the pool.
At restaurants, always thank the servers personally and discretely hand each of them the tip. Budget 10% – 15% in addition to what the restaurant has charged you for service.
If you hire the services of an incentive travel planner, they will work hard for you and you will be charged a fee for services. About 10% – 15% of the value of your hotel, accommodation, excursions, etc. is reasonable. (Smaller groups will typically pay the higher percentage and there will usually be a minimum fee.)
If you work with a travel agent, expect to pay a fee for service. As airlines continue to chop or even elminate commissions, expect this fee to increase over time.
Suggeted Reading: James Mak explores some of these trends in his book Tourism and the Economy: Understanding the Economics of Tourism available through Amazon.
Anne Thornley-Brown is the President of Executive Oasis International, a Toronto based firm that regularly organizes incentive travel and executive retreats in Dubai, Oman, Jamaica, Malaysia, Singapore, and Canada. They provide one stop shopping service with a personalized approach to incentive travel for corporate groups of up to 40. Customized itineraries include travel, transfers, hotel, tours, team activities, and special events.