REPORT FROM THE U.S.—Now that hoteliers have had a chance to read over the 214-page Distribution Channel Analysis study, discussion and debate over the conclusions found in the study can begin.
The study—produced by STR and the American Hotel & Lodging Association and published by the Hospitality Sales & Marketing Association International Foundation—was released in late January and is available for download on HotelNewsNow.com. STR is the parent company of HotelNewsNow.com.
Distribution experts applauded the authors on their deep dissection of data, however, some are questioning the findings.
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Max Starkov
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For example, Max Starkov, president and CEO at Hospitality eBusiness Strategies, disagrees with one of the main points in the study—that the cost of selling hotel rooms on intermediary channels could double in three to four years. Starkov said share of hotel distribution from the online-travel agencies is “countercyclical and is already declining with rising travel demand.”
Starkov studied the percentage of bookings made via OTAs versus brand.com websites and said, “All hotel companies are invigorated by the 2011 results and the 2012 projections, and we already see the OTAs losing the upper hand.”
He commended the authors on the report but said most of the data was collected in 2009 and 2010 and is already outdated. Regarding the growth of OTA “leakage,” he said many hotel brands are now enforcing internal guidelines directing their franchisees to limit the OTA share of bookings to the 7% to 8% range. Also, brands are aiming to limit the OTA merchant commissions to the 15% to 18% range, he said.
“The OTA commission of 20% to 25% is directly tied to the travel-agency commission of 10%,” Starkov said. “Two to three years from now I don’t believe the major hotel brands will be paying more than 5% travel-agency commission if not abolishing it outright, similar to what the airlines did. This will further erode the OTA commissions to a paltry 10% to 15% tops.”
Robert Cole, founder of RockCheetah and former director of hotel distribution with The Sabre Group, said he thought the report was “really, really good,” noting the deep dive into analyzing the different channels was what the industry needed.
However, he said analyzing channel data on a macro level is much different from applying conclusions at the market level.
For instance, Cole said it took him a while to understand the authors’ point that hotel demand in the U.S. market is “price inelastic,” meaning lowering prices will not stimulate enough incremental demand to make up for rate reductions.
“It’s not … but it should be,” Cole said. “Look at Southwest (Airlines). Southwest goes into a market with lower prices and then more people fly in and out of that market.”
New players in the game
One of the major themes throughout the Distribution Channel Analysis study is the entrance of new players, which the authors refer to as “gatekeepers who will become a new breed of third-party intermediary.”
Google, Facebook and Apple are cited as examples, and the authors say these gatekeepers “will charge fees for referrals to hotels and, while there is no firm evidence pointing to an exact number, it is plausible that upward of half of the hotel business could ultimately pass through third parties before being delivered to a hotel or brand.”
“I think it’s overplayed and overexaggerated,” Starkov said. “First of all, Google is not an OTA and will never become an OTA. Second, before Google Flights and Hotel Finder, Google was already delivering between 40% and 80% of website visits and bookings in hospitality. So what are we railing about? It’s not a new thing. It’s pure lead generation—end of story.”
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Robert Cole
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Cole said it will be interesting to see if Apple gets involved but, at this point, he doesn’t see how the company could have a drastic effect on how hotel rooms are distributed.
“Apple isn’t good at sharing. It isn’t one of their core skills,” he said. “Apple has a version of record for everything, and they don’t want to give that up. Metasearch doesn’t play well for Apple.”
“Apple? With hotel distribution? That’s a joke,” Starkov added. “It’s not Apple that will have an effect—it’s mobile. Mobile is a distribution channel. The Google-enabled devices are increasing market share and are already bigger than Apple in many places.
“Yes, Apple paved the way, and one day people will consider Steve Jobs the creator of the mobile world,” he continued. “The iPhone truly changed the way people surf and shop on the mobile device. But this is nothing new.”
Cole said Facebook is “scary” because of how big the network has become and what kind of clout it has, and he said he could see the company doing some “interesting things” for group bookings. For example, hotels could make deals available only to people who are part of a certain Facebook group.
From the property-level perspective, Michelle Davis, director of revenue management for HVMG, an Atlanta-based hotel ownership and third-party management group, is paying attention to new distribution players but has been apprehensive to participate thus far.
“We’re seeing what their distribution model is going to end up being and how the capture ratio is going to happen for them,” she said. “But I’m not going to say, ‘Here’s my inventory and sell it as much as you want.’”
Davis said data on emerging “gatekeepers” is reinforcing the notion that hotel management companies should employ full-time ecommerce managers to supervise cost-per-click and digital advertising strategies, and those job functions should not fall to the revenue manager.
Shifting channel mix
One of the authors’ goals in researching distribution channels was to help hoteliers analyze and manage a hotel’s channel mix against its competitors. The authors studied how shifting share from one channel to another affects fees and revenue and concluded that hoteliers should “conduct systematic channel audits to ensure they are reaching the customers that they are supposed to be targeting.”
Davis said HVMG is taking steps toward those audits and has determined that, instead of analyzing revenue per available room, she is instead measuring gross operating profits per room, or GOPAR.
“That’s where you have to start analyzing distribution channels and the costs,” she said. “I can sell rooms at the same rate in three different areas and the yield would be different.”
Davis said HVMG will continue to watch the trends in pay-per-click and evaluate the returns on investment.
“The great thing with pay-per-click is you can reallocate and you’re not stuck with your spend like you are with a (global distribution system) campaign,” she said.
Davis agrees with the authors of the study in that where a hotel sells its rooms can say more about its competition than its geographic area. However, she said, that’s not a new concept.
“My No. 1 competitor might be Hotel X for a certain weekday and during the weekend my No. 1 competitor might be Hotel C,” she said. “It’s the same thing and the same thought process. Who I compete with online might not be the same person I compete with at the front desk.”
Starkov said managing channel mix comes down to going after the distribution channels that are the most cost-effective and generate the most reservations.
“Distribution is a business so you have to play with solid business reasoning,” he said. “Each individual hotel is different; the cost of booking should be predominant and focusing on those channels that are lower cost but provide a higher percent of booking is a good approach.”
