Third-party online travel agencies such as Expedia, Hotels.com and Priceline have come a long way in the decade or so since they were launched. The profound effect they’ve had on the hotel industry in undeniable.
Hotel companies changed their pricing strategies after wrestling back control of their inventory from third-party online intermediaries earlier this decade. The lowest-price guarantee available to consumers on most branded hotel sites can be traced to the turbulent days following the 9/11 terrorist attacks in the U.S. Desperate hoteliers turned to the online distributors as a way to put heads in beds when it seemed nothing else was working.
Fast-forward to present day 2009 and Yogi Berra’s classic quote “it’s déjà vu all over again” seems to be an appropriate reference here. As the recession has broadsided the hotel industry like an EF-5 tornado leaving a trailer park in its wake, hoteliers are searching high and low for ways to sell their inventory.
During the second day of the inaugural Hotel Data Conference, the chance to ask a third-party intermediary executive about the apparent love-hate relationship between hotels and the OTAs was too much for me to resist. Brian Ferguson, Expedia’s VP of lodging demand and analysis, was absolutely dead on when he indicated that services such as Expedia are not foes of the hotel industry.
“There are no rates that are on our site that aren’t given to us by hoteliers,” the cerebral Ferguson said during the morning general session. “We don’t set the rates.”
I almost shouted “Amen!” when he finished his response. While it’s not as clear-cut as I would like to believe, the formula for success for the third-party reservations sites is incumbent upon the participation of hotels. Without the inventory to sell, these sites wouldn’t exist. Therefore, while some hotel-industry observers like to paint the third-party sites as two-headed monsters ripping apart the lodging landscape, I tend to think of them more like Puff the Magic Dragon, who you might recall requires Little Jackie Paper’s love to survive. In the case of OTA’s, the love they get from the hotel industry comes in the form of room inventory.
Yes, it’s true that the third-party sites have negatively affected the pricing integrity of hotels. Well, here’s a newsflash: it ain’t going to get any better as long as hotels play the game. Ferguson talked about how Expedia, its sister site Hotels.com and hotels are creating more value-add packages to entice customers to make reservations. Packages that include US$100 food-and-beverage credits, spa credits or complimentary rounds of golf are becoming the new norm.
Add to the equation the guest-loyalty programs that most of the OTAs have launched and you have a one-stop consumer jackpot.
Third-party reservations intermediaries are not the hotel industry’s best buddies, nor are they ogres forcing hoteliers to do things they normally wouldn’t do. They’re business models that are taking advantage of a fragmented industry that often is spooked beyond belief because it is at the mercy of a fickle consuming public. The fact that hotel average daily rates are falling faster than reservations in “exotic” destinations did after President Obama’s ridiculous rant in February is not the fault of third-party reservations sites. They definitely contribute to the problem, but it’s the hotel industry itself that has to look in the mirror and take the blame.
