Has the hotel sector reached “peak OTA”? There was speculation at this year’s Hotel Distribution Event, hosted by Hotel Analyst in London, that this may be the case.
In the strong UK market, the OTAs’ share of bookings has not increased according to data from Travelclick, reassuring many, as fears over the impact of Airbnb were also played down.
Hotel Analyst editorial director Andrew Sangster opened the conference quoting Phocuswright figures that the OTAs’ share of the online travel market was expected to rise from 39% in 2016 to 41% by 2020.
Steffen Doyle, managing director, co-head of European real estate investment banking, Credit Suisse, told attendees that online penetration in general was expected to continue, to reach 40% in 2020, but that it was not expected to climb “infinitely” given that much of the market using it was leisure oriented and that the corporate market continued to use a wealth of other methods to acquire its rooms.
Sangster also pointed to a lot of travel still being “transacted offline and a lot of B2B, which [potential entrants such as] Amazon cannot disrupt”.
Doyle described a buoyant market, which put hotels in a strong position when selling rooms. Doyle said: “Demand is far outstripping supply – in Europe supply is at 0.9%, very low, with demand at 4%, driving revpar growth.” He added that, echoing the US, the brands were “going to increasingly penetrate Europe and that will change the OTA penetration in the region”.
Faith in the ability of the brands to drive revenue was shared by Jerome Wise, VP, enterprise clients, TravelClick, who said that the direct and OTA channel mix in the UK were the same this year as last – with brand.com bookings up by 0.2 percentage points. A small, but, he said, not insignificant increase.
Counting “reasons to be cheerful”, Wise said: “In a strong market hotels should be taking control of their rates and channels, hopefully hoteliers are leaving enough inventory to be able to provide rooms right up to the last minute without having to drop rates.”
Both Doyle and Wise warned that hotels were far from being able to rest on their laurels, calling on them to employ the customer data they had to drive loyalty and pull the consumer back from the OTAs.
Doyle said: “Hotels have been very poor at using the data that they have – but the good news is that, culturally, change is coming.” While Wise said: “Where the battle can be won with the OTAs is CRM, providing a personalised offering. It doesn’t happen yet but hotels should use the data they have it’s not big data, it doesn’t have to be scary.”
The issue of hotels not sharing data within the organisation was raised throughout the day. Wise commented: “There is not enough alignment across the departments, still. It’s wrought with problems. Is your organisation aligned with where the business is coming from? Are you aligned with your cost of sale? If you can get to a position where your cost of sale is truly aligned, it doesn’t matter where it’s coming from.”
There was some hope that an increase in the number of distribution platforms in the market would help cut costs, with Doyle adding: “The business models of the disruptors are built on them expanding their markets, by pushing down prices. The new aggregators – Airbnb and the like – are more of a threat to the OTAs than to the hotels.”
Looking at the influence of the additional supply emanating from Airbnb, Doyle took the three million rooms on the platform and cut them down to 1 million “once you take out the shared bathrooms”. He commented: “I don’t see this getting out of control,” describing how the platform represented 10% of rooms in London, but 4% of the revenue. “They’re not destroying the market, you would see an impact on occupancy and we have a phenomenal market,” he said.
Doyle looked at the sector’s response to the sharing platform, highlighting Hilton’s launch of Tru, which he said was designed to take on Airbnb, but at a premium price.
HA Perspective [by Katherine Doggrell]: No need to panic then, the OTAs have said their piece and, as several speakers pointed out over the course of the day, they can hardly be described as disruptors any more, but more established players, partners if you will.
But really, the kind of partner who charges a perky rate for access to the market and won’t fork over your customers’ contact details seems like a partner who could yet stand to modify their behaviour and, really, hotels would be better off without them. Plus, if there’s anything that hotels haven’t learned over the past decade, it’s that the OTAs are always up to something and most likely that will be snaffling away the business market. During the event rumours started to swirl that Airbnb was doing a deal with WeWork, making those evenings in hotel rooms working in silence at a desk with an occasional break to stare at the wall look even less appealing.
Hotels can be prone to dramatic responses when under duress, but Hotstats’ co-founder Jonathan Langston warned later in the day that, when facing falling profits, finding ways to edge them up 1% here and there was the best way to see a 10% increase and the message of the event was that suddenly replacing all your staff with robots wasn’t going to see a rapid return either, but employing the creativity and emotional intelligence which is expected to see us remain employed when the machines take on our grunt work. For hotels, this is about relationship building with customers with meaningful loyalty schemes and decent service. Lacking in glamour, perhaps, but heavy on incremental gain.
Additional comment [by Andrew Sangster]: I think it should be made clear that the hotel industry has not reached “peak OTA”. Whilst there are challenges to the hegemony of OTAs, these challenges are not coming from hotel companies.
The message remains the same: hotel companies know how to brand the hotel product but they are very much on the back foot when it comes to being the main distributor, particularly online. The online retailing is done much more effectively by technology companies and it is very hard to see how, given the vastly superior resources of technology companies relative to hotel companies, hotel groups will be competitive.
As product brand companies, hotel chains will find it useful to maintain an effective retail channel but more and more volume looks set to be transacted by the retail specialists. There is a big difference between investing to create an effective retail channel and investing to be the dominant retail channel: the former is achievable but the latter, in my view, is not achievable for hotel companies in the long-term.