The hotel industry’s love-hate relationship with online travel agencies was a hot topic during a CEO panel at the Asian American Hotel Owners Association annual convention last week in Philadelphia. As distribution costs continue to rise, hotel companies are challenged to win back business from third-party intermediaries and produce more bottom line profit for owners.
While OTAs play a role in the distribution landscape, Steve Joyce, CEO of Choice Hotels, said they are taking too much value out of the equation. “They don’t take the risk, they’re not putting any capital up. They’re trying to get in between important customer segments and the folks who put their sweat equity and their hard earned dollars at risk to build buildings.”
That’s why Joyce believes OTAs should get compensated more significantly when they add value, and compensated less when they are simply transferring customers. “They are a big part of the buying decision for a lot of consumers out there,” Joyce said, “but there has to be a balance of the compensation versus the risk that’s being taken and that they’re being rewarded for delivering incremental business.”
Hotel companies first need to identify why customers are choosing OTAs rather than going directly to brand.com websites, said Rakesh Sarna, executive vice president and group president of the Americas at Hyatt Hotels. “We as brands need to recover that space back from them, because no one is forcing us to take their business,” Sarna said. “We’re taking it because maybe other channels are not as robust as they should be, and we need to fix that to become more competitive.”
One of the reasons why the OTAs are in such a powerful position is because they individually spend more in sales and marketing than the brands combined, said Best Western President and CEO David Kong. “It’s no wonder they have that kind of control.” So the cost of OTAs is not just a commission to hotels, but it’s also a dramatic increase in hotel advertising costs. For example, by giving preference to the highest bidder, Google enables OTAs to outbid hotel brands for the highest ad position. “It’s a huge problem for the industry, and there’s no end in sight,” Kong said.
But just because consumers are flocking to the OTAs, doesn’t mean they have to book there. “They can still come to our website if we make a strong enough proposition,” Kong said. A low rate guarantee program is one way hotel companies can market to consumers who might be booking on OTA sites and try to convert them into the brand channel, Kong added.
Joyce said the obstacle hotel companies still need to overcome is changing consumer perception that OTAs offer lower prices than brand.com sites. But Thorsten Kirschke, president of Carlson Rezidor Hotel Group’s Asia Pacific region, said all too often the distribution conversation circles around price or cost issue. “That makes a fundamental assumption that 99 percent of our customers are after one thing only—a cheap stay. That notion ties together with what has brought us into this difficult situation, that is we need to collectively work on the credibility of our brands out there.” Kirschke said hotels need to answer an important question—why would someone trust a third party more than the hotel or brand itself? “Every company talk about the value of the guest experience, and I think that’s where we collectively need to work on.”
One of the major defenses a brand has against OTAs is a rewards program, Joyce said. “It drives more of a share of those travelers’ stays and it is dramatically less, at a cost point, than you would be paying for an OTA. So that is why you’ve seen every brand company hold firm on we are never giving the OTAs points because that is one of the key differentiators.”
Sarna, on the other hand, said rewards programs are a very porous defense. “People are saying, ‘Well, I’d rather not get points of the stay, when I’m getting such a better rate.’”
The bottom line is, “the reason the OTAs got a stronghold is because the hotel industry gave them cheaper rates than we were selling on our websites, that’s why they got market share,” Joyce admitted. “We screwed up, we let them in the door, and now we’re living with it.”
The brands have an obligation to find ways to help franchisees protect their investment and educate the property level employees who are managing inventories not to sell out more than they should, Kirschke said. “We were very happy in the early 2000s when we had different distribution opportunities, we blew it up, we made our mistakes, we learned a big deal, but these guys or some form of complementary distribution that comes at an add on price will be there in the next five to 10 years and is there to stay. That’s the way the world has evolved.”
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