The rising role of Airbnb as a distributor came to the fore at this year’s Hotel Distribution Event in London.
An additional route to market was seen as further challenging the brands, with a number of owners questioning the need for a flag.
Jacob Rasin, director of business development, Pandox, said: “I would love for Airbnb to succeed with distribution. They are one of the super-brands of travel.”
Nick Chadwick, SVP hotel asset management, Starwood Capital Group, said: “We’ve put one of our hotels on Airbnb and we’ve been surprised at how many rooms we’ve sold. All our guests have been delighted with the service they’ve been receiving, which is more than they were expecting. The commission is less, but it’s not the easiest tool to use and we don’t have full control of pricing.”
Later in the day Steven Howe, digital manager, Apex Hotels, told attendees of the group’s experiments with the platform at one of its hotels, where it had bought in new customers and, he pointed out, at a cheaper rate than the cost of an OTA.
The cost of the OTAs was a frequent topic of debate, with Chadwick calling for an evolution, potentially driven by new challengers coming into the market. He said: “It would be good and healthy if the hotels were paying the most when they got the most out of the OTAs. Maybe there’s an evolution, a more dynamic pricing model.”
Access to distribution was a factor in choosing – or not – a brand. Stephen Walker, principal, strategic operations, KSL Capital Partners, said: “When we look at operators we ask to what degree can they control distribution and to what degree are they managing distribution. The OTAs are very focused on just delivering rooms, but that’s not the best way to deliver additional revenue sources.”
Rasin was as happy to go it alone, telling attendees: “The first thing we do is to look at which concept will work for which hotel, do we need a brand? Then which type of structure and then net rate – can we run it ourselves? It’s case-by-case but branding is not top when we start looking at hotels. First and foremost we look at what we can do with the hotel, branding is not the first thought – If we keep independent we can be flexible and keep our options – consumer trends change fast – we like options.”
Peter Tengstrom, partner & managing director, Midstar, pointed to the distributors as a method of gauging how successful branding choices had been. He said: “OTAs are more friends now than foes. You have to manage the brand on the OTA’s website, that’s your window to promote the product. The OTAs help show the naked picture if you can’t perform.
The level of business OTAs bought in has changed since their inception, Tim Ramskill, managing director, pan-European travel & leisure equity research, Credit Suisse, said: “Since 2011 the OTAs have move from delivering lower-yielding to premium-yielding business.” They were also continuing to hit costs, with Ramskill commenting: “By 2021 OTAs will have generated USD30bn in fees. OTAs equate to 5.6% of global hotel room revenues this year [estimated] against 2.2% in 2012.”
Ramskill underlined the supply threat posed by the sharing platform, adding: “In my world there has been a remarkable level of complacency about the impact of Airbnb. A revolution is what we’ve experienced in distribution over the past few years. The OTAs are a potential cost challenge, whereas Airbnb is a revenue challenge [to the hotel sector]. There are more than two times as many people searching for Airbnb as searching for Expedia, but the level of search activity this summer was similar to last summer, maybe there is a levelling off.”
Looking at the impact on performance, Ramskill said there had been: “No massive obvious impact on US weekend occupancy by Airbnb, but there has been a surprise about how limited room rate rises have been given how high occupancy has been.
“Airbnb now accounts for around 9% of global hotel room count, having doubled over two years. It’s expected to generate USD30bn in gross booking value this year.”
HA Perspective [by Katherine Doggrell]: Airbnb has made no bones about its interest in the distribution space and, while it has been all very chummy in its attempts to play nice with assorted jurisdictions being allowed to operate, it has been scathing of the costs of the hotel brands and how much cheaper it can do things.
The platform has made a business of branding the transaction and not the product and that works well for the independent hotels it has been looking at. Yes, the technology of the platform is not as flexible as it could be, but hotels have no real credentials here themselves either.
As Howe said, what Airbnb can do is what the OTAs first purported to do – bring in new customers. Chadwick also hailed the platform, pointing to how it was able to shift extended-stay rooms, another product well suited to Airbnb. The platform is therefore likely to find a niche distributing the out-of-the ordinary, something with which is has much practice.
Where the brands might like to observe is not whether it is bringing their independent rivals to market more cheaply, but what variety of rooms they are offering. The more consumers have access to products which make it easier to travel with friends and family, just two groups who we hear also like to travel, the more hotels will find the demand on them to provide the same grows.
Additional comment [by Andrew Sangster]: The demise of the hotel brand has been forecast many times and has so far prove unfounded. This does not look set to change any time soon.
But there is no doubt that hotel brand companies are under pressure. At HDE, Credit Suisse’s Ramskill put up a scary slide that showed IHG’s system delivery increasing over time but how the delivery through the parts of the system that it does not control directly, primarily OTAs and GDS, is taking an ever-larger share. Ramskill called the directly controlled part “true IHG own distribution” and he showed how this has slightly shrunk in recent years.
For owners this is a real bone of contention, often referred to as the fee-on-a-fee issue. IHG claims that sales made through GDSs and OTAs are part of its own distribution as it has negotiated preferential rates. While the IHG argument has some merit, the reality is that its own distribution efforts are undermined by the success of these third-party players. And of course, the big one is the OTA part as GDS is not showing growth (although this has confounded the much-expected contraction).
The Hotel Analyst argument in support of hotel brand is that it is vital for the product, much less so on distribution (retailing of the product). When pushed on this point, Hilton’s John Rogers said in a panel session that Hilton would always come down on the side of product ahead of distribution.
There is no expectation that the big hotel brands are going to quit the distribution game but they are quietly reinventing their role. They know that the marketing muscle of the OTAs and the superior technology of these focused online retailers cannot be beaten.
The whole distribution landscape is in a state of flux and the apparently invincible OTA duopoly is coming under pressure from other technology companies. Airbnb is disrupting the OTAs just as much, perhaps more, than hotels brands. Waiting in the wings is Amazon, Alibaba and maybe Apple.
Being nimble and adaptable is what matters in this climate, not always sheer size and scale. But this latter helps when it comes to going head-to-head with OTAs. This autumn, Marriott is going to take on Expedia. Rumours suggest that Bethesda is on a war footing and is already warning owners that properties may be delisted from Expedia. It is going to be one to watch.