The rise of online travel agencies (OTA) has caused heated debate within the hotel industry for years. As hoteliers complained bitterly about high OTA commissions, the global hotel brands worked on bolstering their loyalty programmes and an entirely new digital marketing support system emerged to help independent hotels drive direct bookings.
Hoteliers have tended to believe they are ‘losing’ at least some of their direct bookings to the OTAs. However, from the IHIF main stage on Wednesday, Fiona McDonnell, VP global partner services, Booking.com, claimed this is not the case.
She said: “It really is about bringing incremental demand and how we play together and making sure that is happening. When we talk to hoteliers, 91 percent tell us that it is incremental which means we’re not playing in the same space and when we did research with one large hotel chain, we found that our audience overlap was less than 5 percent.”
She continued: “This idea that we are all fighting for the same customer and just discounting by putting it through an OTA does not stack up with the data we see. Therefore, the challenge is how we make sure we get the demand from everywhere to maximise occupancy and make sure we have sensible cost of acquisition.”
Most hotels sell their inventory via multiple distribution channels, with one or two main sources of bookings. Owners and investors must decide which major source of their bookings is the most cost- effective. Do they choose to pay the fees to a global brand? If so, which one? Do they stay independent and/or join a sales, marketing, and distribution association?
Global hotel brands have loyalty programmes with millions of members. Wouldn’t logic dictate choosing the brand with the largest loyalty programme as the best way for investors to maximise their asset value? Not according to Elie Younes, global chief development officer, Radisson Hotel Group.
“We sign up to 200 hotel deals with owners every year and I don’t remember signing one deal because of the loyalty programme,” he said. “It’s an important part, but it’s a small piece of a bigger puzzle: IRR, ROI, yields on equity, how he’s going to pay back the banks etc. Part of the discussion is the system delivery, of which the loyalty programme is just one part.”
Younes went on to say that what makes a brand stand out is how responsive it is to the owners and how closely a brand aligns with their specific needs: “As you have different types of guests, you also have different types of owners: institutional owners, private equity owners, family offices, white label operators, and each owner has a different business model that you must understand.”
“An institutional owner might not care too much about your cost of acquisition or your system delivery, because chances are he needs you as a tenant, not as a revenue generator. A white label operator or family office franchise will put much higher value on the revenue generation part you bring to the table.”
Christopher Hartley, CEO, Global Hotel Alliance, said that independent hotels are “very heavily penalised” by OTAs: “If you’re Accor, you’ll have a very nice chat with Booking.com and they’ll give you a great rate. If you go as an independent operator, you’re going to pay the highest commission and that’s a huge cost. The irony is that behind all of the big brands, there is an independent owner who has to repay his debts and think about his ROI, so the cost of acquisition is key.”