TORONTO—Some hoteliers might say putting inventory on a third-party reservation site is like flushing it down the toilet. Kyle Nantais, director of revenue management/e-revenue for InnVest REIT, would argue it’s more like putting it in the toilet tank.
When explaining to hotel owners how using opaque distribution sites—those that allow consumers to see price star rating, and little else about a property before booking their reservation—affects profitability, he often uses a toilet-tank analogy:
Profitability, he explains, is like the water in the back of a toilet tank. Room inventory is like a brick. The lower the price point on an opaque site, the bigger the brick. When your inventory is being booked, the water level might look quite high, but it’s only after you remove those bricks that you see how profitable you actually are.
“The problem with opaque is that it’s an addiction,” he said during a breakout session at the Hotel Association of Canada’s Annual Conference last week at the Fairmont Royal York in Toronto. “They just open the channel on a very low, low price point, and they just fill up the property.”
Opaque sites were a hot topic of discussion during the session, perhaps because of the presence of Travis Becker, revenue manager for Hotwire, an opaque site and sister-company of online travel agency Expedia.
Among other questions, the panelists were asked if opaque sites were truly opaque.
That’s not necessarily the case in some secondary markets, where the property sample includes as few as three hotels, Nantais said. In such markets, travelers—including some corporate travelers—can book on these “blind” distribution channels, but know at which property or properties they’ll likely spend the night.
For revenue managers, avoiding such pitfalls with opaque sites and OTAs all begins with setting an online distribution strategy.
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| Every operator and owner needs a good online distribution strategy, said Kyle Nantais of InnVest REIT. |
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“If you haven’t done so already, you need to develop an Internet strategy,” Nantais said. “You need to know what sites you’re monitoring and what sites you’re giving inventory.”
Drill down to see what channels are generating the most profit, advised Jeremy Dean, corporate director of revenue management for Airline Hotels & Resorts, a Saskatoon, Saskatchewan-based management company. The rest is just a matter of doing the basics.
“Know your market. Know your demand. Manage your inventory and do the basic stuff,” he said.
The panelists discussed a number of other topics during the fast-paced, 60-minute panel:
Complete control. Having complete control of your pricing and inventory is crucial, Dean said. “Giving up that control really leaves you open to some dangerous things.”
Confusing packages. With so many packages at so many price points, aren’t consumers being left in the dark? Only if the information isn’t accurate, Nantais said.
“We confuse the consumer if we don’t have accurate information on all sites,” he said. “ … The more information you give, the more willing they are to act. Information’s not the problem. It’s the accuracy of that information.”
For example, Hotwire has just started to include bed types on its opaque offerings. Doing so has resulted in an average-daily-rate increase of US$3 to US$5 for the 300 participating hotels, Becker said.
Brand domination. While brands make up the majority of room inventory on OTAs, that’s not necessarily what worries Nantais. “The fear for us is that different OTAs are allowing hotels to increase commission for positioning,” he said.
That’s a big problem in major markets, where owners are competing for positioning on nine or ten pages of search results, he said. More often than not, it’s those hotels that are featured more prominently that get the booking.
The billboard effect. Yes, there are fees associated with listing room inventory on an OTA, but should those fees be thought of as marketing line items? That’s the conclusion of the billboard effect, a study on which was conducted by Cornell School of Hotel Administration.
The theory states that listing inventory on an OTA helps to market the given property, thus increasing the likelihood that consumers will book a room whether on the OTA or the property’s own Web site.
“It’s part of your marketing fees,” Nantais said. “It’s a small price to pay to get the increased volume.”
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| Jeremy Dean of Airline Hotels & Resorts advised drilling down to see what channels generate the most profit. |
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Yielding rates. Hotels that yield their rates most aggressively on Hotwire are the ones that typically walk away with the most money in their coffers, Becker said.
At Westmont Hospitality Group, for example, Nantais yields rates a few times each day. “It used to be (US)$10 to (US)$15 dollars,” he said. “Now you move in smaller increments.”
Though Dean warned against yielding for the sake of yielding. “It really depends on the market that you’re in and what your competitors are doing,” he said.
The future. Global distribution systems might be on the decline, but OTAs and opaque sites are on the rise, panelists agreed.
“I can pretty much guarantee that your online reservations will increase in 2010,” Nantais said. “It’s not going away. We need to be better prepared.”
Dean shared a similar sentiment. “None of these distribution channels are going away any time soon, so embrace them.”
