Hotel CEOs: Get tough on OTAs
 
Hotel CEOs: Get tough on OTAs
06 MARCH 2014 10:18 AM

Hoteliers must claw back the ground they lost to online travel agencies, according to a panel of global CEOs during the International Hotel Investment Forum.


BERLIN—Hoteliers, led by the biggest brands, must get tough on online travel agencies, according to a panel of CEOs during the 17th International Hotel Investment Forum in Berlin.
 
Sébastien Bazin, who was named chairman and CEO of Accor last August, was the most vocal. Buoyed by his recent decision to split the company into two business units, he said Accor is now able to regain ground from the OTAs.
 
“Reclaiming that space is about measurement, risk and pricing that service. OTAs are a great innovation, but if you are big enough, and Accor is, you have to control your destinations,” Bazin said during a general session titled “The world according to the global CEOs.” 
 
Accor, he added, opens an Ibis hotel every three days and a new Accor hotel of any brand every two days.
 
“Six (hotel companies) control 70% of the market, but none has really been active in the last decade. Did we do anything about TripAdvisor? No. Did we do anything about the rise of OTAs? No. 
 
“It’s time to wake up and do something about this,” Bazin said.
 
Michael Glennie, president and COO of FRHI Hotels & Resorts, which plans to increase its portfolio by 50% in the next four to six years, said that while on the whole the industry welcomes OTA business, it must be more efficient in driving bookings through its own channels.
 
“The OTAs merely say, ‘more’ (and) fool you if you cannot convert customers into return customers,” he added.
 
Club Méditerranée, an all-inclusive vacation provider with one brand, is different to the other panelists’ companies, said its chairman and CEO Henri Giscard d’Estaing. The group is in the business of creating destinations, and he said 60% of customers come to the company directly.
 
The company is involved in a Chinese bid to be ruled upon in the French courts in the next month.
 
Regaining ground
More concern on the panel came from a fear that major brands are losing customer control and loyalty, especially among younger travelers. 
 
“It is important to differentiate revenue management and social media to extract market share, especially as demand will not see a huge rise,” said Jim Abrahamson, president and CEO of Interstate Hotels & Resorts, who added that the boutique space would remain the market’s hottest segment.
 
Bazin said the leisure industry had much to learn from the mobile phone and telecommunications industry, especially the way it used capital to not only defend what it had but also to expand—that is, defense investment and offense investment.
 
“They effectively made strategic partnerships,” he added, before asking out loud whether the hotel industry should be doing more of that itself.
 
“To compete effectively, we have to make more (of that type of) bet. But make that bet! Even if it might be the wrong one,” Bazin said.
 
Hoteliers should focus on their mobile channels as well, even in the luxury segment, Glennie said. 
 
“Facilitating customers’ website experiences is where we’re spending money. But how do we prioritize, and who’s going to invest in that?” he asked.
 
Investors and customers
Controlling destinies and securing growth will derive from being accountable, reorganizing, partnering with the right investors and innovating, the panelists said.
 
“We were conducting two businesses that required different skill sets and different measurement criteria. That complicated things such as distribution. My thinking was, why give these opportunities to other people when we can do it ourselves?” Bazin said of Accor’s split into separate ownership and operations business units. 
 
“The process will take two to three years, and it is important to be transparent. All the numbers will be available. The numbers for what is now the (ownership and investment) side of the business were pretty bad. We knew that,” Bazin said.
 
“Concentrate on finding investors the right brands, ones with positive revenue per available room and little need for capital expenditure,” Abrahamson said. “As far as the customer is concerned, success will come from service and personalization.”
 
“Why should we leave (all the success) to Blackstone, Colony Capital and Starwood Capital? I’m a true believer that Accor can fix it. In Accor, there will be no new leases until we have figured what we have done wrongly or rightly. This, of course, will limit us in some markets such as Germany,” Bazin said.
 
“Two-thirds of our operating profit comes from Asia, with more than 100,000 guests from China, who spend 20% more in rate than the sector’s average,” Giscard D’Estaing said. “The Chinese are now traveling farther than Southeast Asia, and they like all-inclusive. They were simply traveling, but now they are (vacationing).”

7 Comments

  • Jfield March 6, 2014 6:11 AM

    Bla, Bla, Bla they all want to get control, and revenue, back from the OTA's but the best the major brands have been able to come up with is RoomKey. Roomkey is a joke, no marketing, no serious promotion and it doesn't even work properly. The theory is that it will "pop under" a hotel or chain site to give all of the other participating hotels a shot at the business if the customer doesn't choose the original hotel. Problem is that frequently RoomKey "pops over" in otherwords before the customer can review their original target hotel RoomKey pops up and the customer is totally confused.

  • Anonymous March 6, 2014 7:50 PM

    I agree Roomkey was and is not implemented in the correct way. However, no one can deny the fact that OTA segment has brought the hotel profits down significantly. Hotels are relying on OTAs because they do not want to spend money on online marketing. They don't mind spending money on commissions as its a cut and pay model. Its become a vicious circle and is very difficult to break. Large chains can take a decision like they did in 2004. However, market like India, will continue to support OTAs for atleast next 2 years till the time hotel owners wake up and say no to OTA business. In short, i agree with the article that we have to take the control back.

  • universalpoints March 7, 2014 10:45 AM

    Fellow hoteliers, the heart of the issue rests not with the big chains' ability to come up with a better plan. Instead, it lies with the fact that the majority of the hotels in the world are independent and can be played off of one another. As a result, it is nearly impossible to change the current rules of engagement with OTAs. The big chains have long benefited from much lower exposure to OTAs because they have loyalty programs that only apply when a guest books direct. As a result, they have a much smaller mix of OTA business. They benefit from the "halo" effect of guests searching on the OTAs and then booking direct. After years of the OTAs gaining influence & increasing bookings through questionable tactics (e.g. paying more for a hotel's own keywords, charging higher fees for more prominent placement, and prohibiting the pre-stay contact necessary for personalized service), there may be a solution. That solution is a turn-key rewards program for independent hotels that rewards guests with 5% back via PayPal for booking direct. Such an offering upholds the Best Rate Guarantees found in many OTA contracts while rewarding the guest for their loyalty.

  • JJ March 11, 2014 3:07 AM

    a question for the Hotel Distribution experts: if “Six (hotel companies) control 70% of the market..." why don't those 6 team up and create a modern day Hotel GDS that will provide access to all Merchants (including themselves and OTAs) to source inventory, pricing and content from the same system. I'm work in the airline industry and although margins are tiny from a Distribution perspective it seems light years ahead of hotel distibution.

  • JJ March 17, 2014 2:15 PM

    I agree that OTAs are getting too greedy. They are also getting in to the wholesale market. The trouble is independent hotels have no way of fighting it. There has to be a better way to manage it such as a maximum commission to pay and offer no rate parity if the special rate is only on your own website. The cost of doing business has shot through the roof and there will come a point when more will be detrimental to the bottomline.

  • vinod March 23, 2014 6:52 AM

    Hotels do not have expertise of online marketing management and hence it is better for hotels to focus on core hoteliering business and leave technical stuff to OTA. They can reduce OTA commissions by providing actionable options for booking directly. Includive growth the OTA is recommended.

  • PH December 26, 2014 3:37 PM

    It would be nice to see sites like roomkey be improved and apps created and then marketed...roomkey is a marginal site that one day could compete with a OTA if they would get it together and truly market it and most of all, create an app for it.

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