Hotel companies were considering moving to a model where owners pay for business delivered, delegates at this year’s Hotel Distribution Event in London heard.
The shift puts the role of the global branded groups under ever-closer scrutiny, as the cost of distribution informed owners’ choices.
Peter O’Connor, professor of information systems, ESSEC Business School, said: “Do hotel companies know what they’re doing? Are they sleek professionals or are they about to drown in a sea of change? Hotels can’t carry on charging 12% of the top line. They need to evolve. They will put less emphasis on brand and more on the distribution. Two companies are looking at business delivered instead.
“Hotels are working with a model which is going out of date.”
O’Connor pointed to over 700 brands in the hotel sector, which he described as a “problem” because “it’s becoming very difficult to identify them”, pointing to less than one third of people searching for a hotel search for a brand on Google and less than 1% of people on Expedia filtering by brand. He added: “You may be benefiting from lower OTA fees with a brand, but you have to factor the brand fees in as well.”
If you have a branded hotel you tend to have higher occupancy but lower ADR
Coming to the defence of the brands was James Wheatcroft, VP marketing, Northern Europe, Accor, who told the assembled: “The leverage of a bigger brands means that we can drive business. In an asset-light world our job is to drive volume and the role of loyalty is key.”
O’Connor was sceptical of loyalty programmes, commenting: “If you give people a 6% discount for joining their loyalty programme, of course they’re going to book direct, but instead of pulling back business from OTAs, it’s cannibalising the direct bookings which weren’t online.” He added: “As you do more transactions, they are learning more about you. It’s that interaction with the customer which makes reward programmes more interesting.”
Providing nuance to the brands were the third-party operators, with Neetu Mistry, commercial director, Cycas Hospitality, commenting: “When the brand provide the marketing services, it’s brand led. But if you’re a unique hotel where the farm down the road is a USP, that’s lost. With a third-party operator, you can get the reach and coverage as well as the selling point.”
One area which had forced the brands to act was homesharing, with the impact of Airbnb being “non-exclusive” in terms of the market segments it was affecting, according to James Bland, director, BVA BDRC. He added: “Airbnb is forcing an increase in innovation in the brands, which is exciting to see.”
Lennert de Jong, chief commercial officer, CitizenM, pointed to the value of brands against OTAs in pressured markets. He said: “The OTAs are there to provide the cheapest price for guests. In the bigger market we see that if there is a downturn, there is a big price depression on the OTAs, but the branded hotels are doing quite well.”
For CitizenM, the company remained focused on acquiring the consumer for the long term, rather than fixating on the way they came to the hotel. He said: “We are an owner, we own real estate, I don’t care about brand.com, I don’t care about OTA, I just want to find the right people. We’re looking for travellers with a higher lifetime value of one night and one hotel. That’s the long-term approach. I don’t have anything to prove to the owner, I am the owner.”
O’Connor acknowledged that, such was the distribution environment, “independent hotels can’t do it all themselves”. He said: “The independent hotels may have a higher ADR, but they also have higher costs. Direct bookings are expensive, you need to give lots of money to Google, you need systems, you need time. But that cost is not 17%, it’s in the 30s, the 40s. Signing up with a soft brand gives you advantages you can’t get on your own.”
Orla Lee, VP EMEA, market management, Expedia, offered another route for independent hotels, adding: “Hoteliers fall into a couple of buckets; the larger chains with their own resources and the small independents. Hoteliers will continue to leverage the technology out there and less towards developing solutions themselves.” Solutions, she said, which the OTA could offer.
Providing another channel was OYO, which O’Connor described as “an OTA. It’s selling distribution to a hotel, it’s an OTA”.
Jeremy Sanders, head of OYO UK, described the company’s “bread and butter” as “the tail, the independent sector”. He said: “We work with some properties which need a lifeline, but some which are doing well but want to be doing better.” An important part of this, he said, was “investment; it drives ADR, drives repeat customers, everyone benefits”.
At the other end of the spectrum, Osama Hirzalla, VP sales & distribution, Europe, Marriott International, said that the company was looking at channel costs not in terms of direct cost, but in terms of profitability. He said: “You need to look at the cost to help you negotiate better agreements. That’s what works for us in terms of managing the channel mix.”
The challenge of keeping up with technological developments was felt across the sector, from groups both large and small. Jeremy Ward, cloud strategist, Cloudreach, described ‘shadow IT’, where “teams outside the IT infrastructure are creating whatever they want. There is now massive demand and the ability of IT to change failed to keep up”. He added: “Shadow IT can be a problem – it solves a business problem but it doesn’t solve the governance problem.”
Delegates heard that it was important for data to be accessible across an organisation, with Paul Payne, CTO, Iris Software Systems, commenting: “In big systems loyalty data, customer data, can become trapped and hard to use in real time. It’s not giving you access to what you need. You need to decompose that structure so that the data sits as data.”
Mark Campbell, CIO, Dorchester Collection, agreed. He said: “We have an enormous amount of data on our customers, but we never knew how to use it. Now everyone across the organisation can access it, we also have researchers who gather information about guest and create and anticipatory service for them.”
HA Perspective [by Katherine Doggrell]: This was the seventh Hotel Distribution Event and was also the seventh consecutive year in which the mass considered when Google was going to make the leap into direct booking. As Andreas Erben, founder & managing director, Gorgeous Smiling Hotels, said: “What’s the reason for having all these OTAs when Google can do it on their own?”
Google’s Satyan Joshi would not be drawn and the consensus remained that the search engine was happy getting its circa USD2bn from Booking and Expedia. Although with those two pulling in almost USD25bn between them in revenue last year, it can only be a matter of time before Google fancies a bit of that, plus, y’know, it’s already built those lovely tools. Like a gun in a drawer in chapter one of a murder mystery – it’s getting fired.
But while we wait for Google and probably Amazon to redefine the market, the global branded operators continue to fight their corner. The loyalty game is still in its early stages – Accor has yet to launch its new scheme – and it will be some time before hotels can make the most of the really juicy aspect of the programmes; the data.