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U.S. hotels’ booking and marketing costs are rapidly outpacing total revenue growth, while recent direct-booking efforts among the largest U.S. hotel companies appear to be doing little to stem growth of the OTAs, according to a pair of recently released reports.
While U.S. hotel room revenue rose 7.3%, to $145.4 billion, last year, transaction costs in the form of commissions and wholesale room discounts rose 10%, to $25 billion, according to a study undertaken by Kalibri Labs at the behest of the American Hotel & Lodging Association (AH&LA).
Meanwhile, the percentage of bookings for U.S. hotels with room rates of more than $100 a night that were handled through an OTA, a GDS, a travel agent or a travel wholesaler rose to 27% last year from 19% in 2011, indicating a 40% surge in indirect bookings over the last five years, according to the 62-page report.
With an OTA reservation costing a hotel as much as 25% of room revenue, such a shift has spurred a raft of campaigns promoting direct booking, offering discounts and value-adds to loyalty members who book through hotel websites and call centers.
The numbers roughly jibe with those put out by Phocuswright, which estimated that the OTAs’ share of U.S. hotel revenue will have risen to 19% in 2017 from 14% in 2010. By comparison, hotel websites’ share of bookings will have edged up two percentage points, to 19% during the same time period. Both channels are pulling booking share away from call centers and walk-in reservations.
“Hoteliers must be mindful of the ratio between direct and indirect business,” wrote Cindy Estis Green and Mark Lomanno, the Kalibri report’s authors. “They must set objectives for this ratio and spend their customer acquisition funds in accordance with these goals. A focus on the cost of acquisition and solidifying the direct connection with the consumer has never been more critical.”
Still, such programs may be alienating travel agents, a channel that accounts for about 10% of U.S. hotel bookings and is typically paid a 10% booking commission. While most of the programs launched by companies such as Marriott International (which late last month completed its $13 billion acquisition of Starwood Hotels & Resorts), Hilton Worldwide, Hyatt Hotels and InterContinental Hotels Group have indicated that loyalty members who book through travel agents can qualify for such promotions, that information has often been confined to the fine print.
With those chain hotels continuing to boost U.S. market share amid Marriott’s Starwood buyout and additions to Hilton and Hyatt’s domestic inventory, such efforts to provide clarity to the agent community is all the more vital, said Mimi Cleary, vice president for supplier relations and strategic sourcing at Atlas Travel, a member of the Ensemble Travel Group.
“Starwood has been very interested in the agency community and regularly reaches out,” Cleary said. “But on the flip side, they’re the ones that still haven’t put their rewards rates in the GDSs. All of the chains really need to put [the discounted direct-booking loyalty rate] in the GDSs for fair play.”
Responding to questions about potentially alienating travel agents via direct-booking campaigns, AH&LA attempted to straddle the line between justifying the strategy while maintaining that travel agency relationships remain vital.
“It’s more important than ever to ensure that our guests know what to look for when booking a hotel to ensure they get what they want and need out of their reservation and their travel experience. The best way to do that is for consumers to book directly with the hotel,” said Maryam Cope, AH&LA’s vice president of government affairs, adding that the trade group is “supportive of our industry’s partnerships with brick-and- mortar travel agents.”
Whether direct-booking programs are an effective method of pulling bookings away from OTAs, however, is another question altogether. Despite the big hotel companies offering discounts in the 10% range for loyalty members who book direct, Morningstar predicted in a Sept. 30 report that hotels’ booking-share gains will be “limited” because many travelers have established persistent booking habits through OTA giants such as Priceline Group and Expedia.
“OTAs are and will remain an important distribution channel for large hotel chains,” wrote Morningstar analyst Dan Wasiolek, the report’s author. “Priceline and Expedia’s network advantages have reached critical-mass scale, as witnessed by their leading room inventory and strong customer visitation on which hotels depend to generate bookings.”
Further challenging the branded hotels is what Chris Anderson, associate professor at the Cornell University School of Hotel Administration, said is a misdirected effort to put more of their value proposition in pricing as the OTAs continue to improve both their technology and their content.
“The brands have put a Band-Aid on the issue by trying to compete on price instead of the technology,” Anderson said. “And when you look at agents, that technology is even more dated than the brands’ technology.”
Still, some agents see as a hopeful sign the appearance of Marriott CEO Arne Sorenson at the ASTA Global Convention late last month, saying his comments suggested that at least the world’s largest hotel company will continue to keep the channel’s concerns in mind as it tries to lure bookings away from OTAs.
“He made very clear to the ASTA agency audience that Marriott’s relationship with agents remains as relevant as ever, with agents providing strong and important value to both leisure and corporate consumers alike,” said ASTA spokeswoman Erika Richter. “Clearly this is a topic of concern to hotel companies, and this significant presence at the ASTA Global Convention 2016 by Marriott and other major hoteliers is demonstrative of that concern and their desire to mitigate any negative effect.”
Sourse: travelweekly.com
