The coronavirus lockdown has prompted many to rethink their business models. And many in the hospitality sector are rethinking their attitude to digital technologies, as their businesses emerge once more into an ever more mercurial marketplace.
OTA groups Booking and Expedia are still looking to regroup, having already been considering the direction their future should take, ahead of the arrival of Covid. One of the platforms now looks to be heading towards long term rental listings, in a bid to reclaim lost revenues.
A new market sentiment report from eRevMax provides some crumbs of comfort for the embattled online travel agents, as hotelier respondents voted OTAs ahead of direct website bookings as their main source of revenues, for the next two to three months. But with price-sensitive leisure guests to the fore, many are contemplating dropping rates to win business volume. That said, 84% of those surveyed said that they would be using competitor rates to help establish their own prices.
The research suggests many in the industry have been nudged to take a closer look at technology solutions, in a bid to improve bookings and reduce revenues lost to underpricing, or excessive commissions, with intelligent benchmarking a key issue.
And while established players continue to bang the drum for their solutions, the lockdown year of 2020 has also presented an opportunity for new players to test the market, including recently launched Australian startup reZme. The platform delivers a room sales website for individual hotels on a fixed monthly fee basis, integrated with all the property’s marketing channels.
The idea was developed by Matt Taylor and co-founder Luke Young. Having spent eight years with Choice Hotels as general manager, marketing across Asia Pacific, Taylor was all too aware of the challenges facing hotels when it came to effective online marketing. Young, with a digital marketing background, had worked with him across online marketing campaigns for Choice.
Taylor told Hotel Analyst: “The time at Choice opened my eyes – and I saw the dominance and impact of the OTAs.”
He also watched the combined efforts of the brands to counter the OTAs with their “book direct” campaigns. “We think it’s been an admirable approach – but hotels don’t have the tech to execute.”
Instead, the pair deliver effectively a new website for a property, designed to substantially improve bookings, countering the massive drop-off in conversions that legacy hotel group websites experience. “It’s not attached to the channel manager, and it brings all the acquisition channels under one roof.”
ReZme already has 25 paying customers, “and the feedback has been quite phenomenal,” said Taylor. “Our vision is to concentrate on the Australian and New Zealand markets for the next 6-9 months – but it’s been interesting to what traffic’s come in during the last couple of weeks.”
That traffic has been due to a fundraising launched via the Birchal investment platform, aiming to raise AUD800k in an eight-week period, to support reZme’s growth.
“We’re not naive in thinking hotels can do away with OTA’s, but if we can reduce their costs to some degree, it will help.” Taylor said the product will suit any hotel, but his sweet spot is 3- and 4-star properties, with 150-200 rooms.
Meanwhile, established players are struggling to recover lost sales. At established OTA Booking Holdings, the focus appears to be moving towards longer term rentals, as the platform looks to rebuild after substantial losses of revenue during the 2020 lockdowns. The platform recently announced it would be offering accommodation providers the opportunity to list rates for 7- and 28-day rentals. And, in key city markets, it is trialling a pilot offering of bookings for more than a month.
In a blog post, Gianbattista Vespucci, commercial director partner services at Booking.com told space providers: “There’s a real opportunity for traditional hotels and vacation rentals to capitalise on the long-stay segment.”
He revealed that during the second quarter, around 40% of reservations via the Booking platform were for alternative accommodation. “Travellers increasingly value the privacy, space and self-service nature that comes with these property types – especially when they plan on staying longer,” he argued.
HA Perspective [by Chris Bown]: Anyone who can present an alternative to the established OTAs deserves a hearing. And with a background watching Choice hotels in Asia Pac being stuffed over by commissions, reZme presents a compelling proposition. If the upstart can deliver a really simple, white label booking option, what’s not to like?
Meantime, Booking is looking to broaden its offering. But what is it – a place to book your hotel/holiday accommodation, or an alternative to a residential lettings agency? Maybe the OTAs can bridge the gap – and in the process really upset the traditional rental agency model, in some markets.
To succeed, Booking will need to provide easy filters – someone looking for a one-year rental on an apartment in London probably has a different list of key requirements, to a one week visitor to the capital. But in principle, why not? This could be Booking’s next breakthrough moment?
Additional comment [by Andrew Sangster]: According to Phocuswright, global hotel booking volumes were USD524bn in 2019 with online representing 42% of the total. OTAs were dominant online, accounting for around two-thirds of bookings made that way.
The rise and rise of OTAs had seemed relentless. Even though chain hotels were more resistant to the advance of OTAs, the superior marketing power of OTAs meant that they were still gaining ground relative to book direct in most markets.
The picture has been made more complex because the bigger hotel brands usually count OTA bookings as coming through their own channels. Their argument is that they have negotiated better rates and thus these are a benefit to the hotels they are franchising or managing.
The big hotel brands have thus been claiming that their reservation systems were growing share although, in some cases, the OTA share within that accounted for nearly all and sometimes more, of the rise.
Covid has changed the dynamics. Business that is coming back is mostly domestic and what international there is comes from source markets that are generally known to hoteliers. This gives hoteliers the best chance they have ever had to gain control of their distribution.
In normal recoveries, OTAs have held the edge in driving demand. But the current situation is firstly a supply shock that has then led onto a demand shock, with the full impact of the latter still to manifest.
Many hotels are currently shut, particularly in southern Europe. STR on 22nd August said that Spain still had 30% to 40% of its hotels closed. France and Italy had 10% to 20%. The UK and Germany had less than 10% closed. In contrast, hotels in the US and China were almost fully open.
These closed hotels mean the supply situation is much more muddied than usual. The pricing power of hotels may be stronger in some situations than it was before the pandemic, at least in the short-term.
The next few years are going to determine whether hotel brands can “take back control” of their distribution or see online tech players dominate the sales and marketing space. The arrival of cost effective tech solutions for hoteliers helps rebalance the playing field and the role of tech titan Google is going to be critical too.
But fundamentally, hoteliers are not technologists. The notion of being in control is, and always was, an illusion. Hoteliers supply a product that is retailed through a complex distribution network.
For owners and investors in hospitality real estate, the requirement is to maximise the yield. And this yield is much more than simply getting the highest revpar. For example, sticking a global brand on the outside of a hotel building may enable the owner to obtain significantly cheaper finance and this might more than compensate for a superior net rooms yield via a non-branded distribution channel.
Distribution choices are going to be critical in determining overall investment returns. As with so many things, Covid has not changed this but it has accelerated the growth in its importance.