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Online goliaths take over distribution space

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20 July 2012
By Gavin Landry
HotelNewsNow.com columnist
Story Highlights
  • There is a remarkable battle taking place among online giants to disintermediate OTAs and become an even bigger player in the hotel/travel vertical.
  • With the introduction of Google Hotel Finder and Apple’s iHotel app, these online giants are trying to become bigger players than OTAs.
  • Roomkey.com may become the white label back-end supplier for inventory to these players that will need an interface.

I attended the NYU International Hospitality Industry Investment Conference a few months ago. There was quite a lot of buzz in the hallways as deals were being made with an abundance of enthusiasm permeating the event.
 
It was great to see and stood in stark contrast to last year’s event where the opposite sentiment reigned supreme and banks’ wallets were the equivalent of a clenched fist. Jonathan Tisch, a true leader and icon of the industry and chairman of Loews Hotels, mentioned the important initiatives underway to stimulate more international travel to the U.S. and rightly commented that our lagging infrastructure poses a great threat to our future ability to attract more travelers. Hopefully, the government impasse will not prevent us from unblocking the one non-outsourceable product and leading export in the U.S.: tourism!

If we can fix the infrastructure, then booking travel will be more rampant among eager travelers. Cindy Estis Green of Kalibri Labs spoke about some very interesting back-channel activities that will greatly affect the hotel industry, as well. There is a remarkable battle taking place among online giants to disintermediate the online-travel agencies and become an even bigger player in the hotel/travel vertical. Let’s name the behemoths:


These new distribution channels will shift the major cost of hotel distribution from the OTAs and third-party resellers and show up in various searches and geo-targeted mobile algorithms.

In the short term, if Google and Apple launch their apps while OTAs still have popular traction among consumers, this will add to the hotel cost scheme because the hotels will experience both a cost for media and for the OTAs. Over time, the OTAs will become less and less important as people will go from search in Google or Apple to directly booking on brand.com or one that is supported by brand.com such as Roomkey.com.

Ironically, the much maligned Roomkey.com may become the white label back-end supplier for inventory to these players that will need an interface. I asked the question why the hotel industry does not just follow the lead of Southwest Airlines who refuses to allocate to the OTAs. If the industry pulled out, then wouldn’t it eviscerate the OTAs while at the same time allow the industry to take back its customers relationships and lowest rate functionalities? I know it is much more complicated than this, but it seems this latest battle of giants fighting over the hotel’s room inventory is reminiscent of the way the OTAs siphoned off billions of dollars in revenue and valuation.

In 2004, InterContinental Hotels Group cut its connection with Expedia, but no one else followed. Perhaps the overall understanding of OTAs’ impact was not fully known at that time. IHG reported no major negative consequences as a result of the disconnect, but they have re-engaged a partnership since that time. I also hear Expedia might be exiting the discount travel game in what one can only assume is a prescience about the future.

As someone who has been directly involved in various aspects of this industry for the past 25 years, it will be very interesting to see how this scenario plays out for domestic hoteliers and travel partners.
 
Gavin Landry is a 25-year veteran of the industry. He is a graduate of Cornell University’s School of Hotel and Restaurant Administration and Principal of Landry Hospitality Consulting Services, L.L.C.; a full-service hospitality consulting practice specializing in hotel development and existing hotel cost and revenue improvement programs. He is an Adjunct Professor at NYU’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management teaching graduate level courses on Tourism Policy Analysis, Tourism Planning, Tourism Product Development and Tourism Principles and Planning. LHCS offers a complimentary financial analysis for hotel properties that want to find new revenues and improve their operating income.

The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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20 July 2012 at 5:19 PM Central Time
In response to: Online goliaths take over distribution space
hharteveldt commented:
Gavin, I enjoyed reading your column. As ana analyst who;'s looked st distribution across the travel industry, I've seen several areas in which the distribution dynamic for hotels differs from airlines. I believe this is why so few hotels have been able to emulate Southwest's business practice of avoiding OTA distribution. To start, airlines are far more concentrated than hotels. We have five US network airlines, four low-cost carriers, and two ultra low-cost airlines in the US. It's rare to find more than 2 airlines flying nonstop between any two airports. One major hotel chain can fly six or more flags. More hotel brand fragmentation means more consumer confusion, and generally less consumer involvement (outside the most frequent of guests). Second, airlines are able to dominate airport through control of ticket counter and gate space, slots (where those exist), schedule and capacity. This leads to a "fortress city or "fortress hub." Hotels generally can't do this. Third, airlines can and do differentiate pricing by channel. While many airlines have "full content agreements" for GDS-based distribution, an airline may levy a surcharge to book through a call center or at an airport ticket counter. Airlines that don't have "full content agreements" may charge higher fares in the GDSs than on their own websites. Fourth, airlines own and control their inventory, whereas the hotel business is fragmented. Hotel chains have to make owners, franchisees, etc. happy and that happiness is partially achieved by maximizing occupancy which, in turn, is accomplished in part via extensive distribution. Fifth, airlines have far more participation in their loyalty programs than hotels. In our research at Atmosphere, 69% of airline passengers say they belong to at least one airline loyalty program, yet just 57% of hotel guests belong to at least one hotel program. Sixth, airlines have been steadily reducing capacity supply but hotels can't. An airline can park unneeded planes in the desert or sell/lease them to another airline that may fly the plane in a different part of the world. All a hotel can do is close off a portion of its rooms. The structure itself is still there, and the mortgage needs to be paid no matter how many rooms are in service. And then thee is the way hotel marketing funds and budgets are created. Again, an airline can control its budget, while a hotel chain relies on the size and success of its network for a good chunk of that funding. Ultimately, the highly fragmented nature of the hotel business, the fact hotel brands don't always own their own capacity, that the hotel industry continues to invest in its products, and its focus on treating all guests well works against it when it comes to distribution. Hotels are expensive buildings and they must be paid for. Selling through third parties, including OTAs, isn't necessarily a bad thing. When I talk with hotel executives, the economics, especially for merchant model inventory, and the lack of shared information (e.g., guest email) are what seem to be the most frustrating aspects of distribution. Smart entrepreneurs, who see opportunities through new technologies (I'm seeing lots of smartphone and tablet-based start-ups, plus social media) and business models, continue to emerge, and their focus is often on the hotel stay. Hotels should focus their efforts on those intermediaries that are collaborative, that bring hotels guests the hotel wouldn't otherwise get itself, and that generate results in a cost-effective manner. Henry Harteveldt Atmosphere Research Group



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