Chutzpah or stupidity? Reactions to American Airlines pulling its flights from Orbitz and its affiliates 21 December have covered all ends of the spectrum—as has the analysis from the subsequent fallout from Expedia, which days later stopped selling AA flights after a months-long pricing dispute.
Chutzpah: I’m sure AA’s initial move received many “hoorahs!” from the hotel industry, which has long bemoaned the inordinate commissions charged by online travel agencies, led by Expedia. When AA pulled its flights from Orbitz, the company claimed consumers could just as easily buy tickets from its direct brand website, and AA could retain more of the profit. The airline company deserves some kudos for having the guts to stand up to Orbitz or any OTA. I don’t see many other travel companies willing to throw it all on the line.
Stupidity: Yes, consumers can just as easily buy tickets from AA.com, but that doesn’t mean they’re going to do so. The travel-buying public is conditioned to do comparison shopping on the likes of Orbitz and Expedia. Take your product off those distribution channels and you’re likely to see some business decline. (AA says its overall tickets sales have increased in both cases, at least in the short run.) About a third of Americans book their tickets on independent travel sites, according to a Yahoo! News report. But what about Southwest, you ask? Only this and other similarly sized discount air carriers can get away with selling tickets exclusively on their direct websites because they already have a reputation for offering cheaper fares.
Where does the hotel industry fit into the dispute?
It’s nice to be on the outside looking in for a change, isn’t it? But we’d be foolish not to try to draw some lessons from this whole debacle.
Let’s just be clear: Comparing the airline industry’s distribution structure with that of the hotel industry is a bit of an apples-to-oranges comparison. I won’t bore you with the details here, but those wishing to explore the issue should read this analysis from Gautam Lulla posted on Tnooz.
Now on to those lessons …
Lesson No. 1: Drive direct bookings …
A bit of a no-brainer here, but still one worth mentioning. Max Starkov at Hospitality eBusiness Strategies put it best when he wrote in an August 2010 blog, “The only viable option to drastically reduce reliance on the OTA channel is for the industry to embrace the Direct Online Channel.”
Lesson No. 2: … but don’t assume customers will flock to brand.com.
Direct bookings might be the way, the light and the truth in any hotel distribution strategy, but we can’t assume customers will always use them. Like I’ve already said, the travel-buying, value-seeking public is conditioned to shop around for any hotel/flight-related purchase.
I don’t know if AA had a well-thought-out strategy in place to drive bookings through AA.com before it pulled the plug on Orbitz, but I sure hope they did. What might that strategy look like? Again, I’ll defer to Starkov, who, along with Mariana Mechoso Safer, laid out the Top 10 Internet Marketing Resolutions for 2011 for hoteliers in a recent blog.
Lesson No. 3: The OTA endgame should be sought on the middle ground.
We all know the back-and-forth between hoteliers and the OTAs can’t continue forever. Hoteliers are either going to get very smart (doubtful, as the knee-jerk reactions to the downturn showed) about how to properly manage their room inventory, or they’ll get so frustrated (more likely) that they’ll do something drastic and pull their inventory entirely—as was the case with AA. (I suppose they could simply trudge onward in their state of victimization and continue to be bullied by unsustainable commission and pricing models.)
Despite my better judgment, I’ll throw realism to the wind and pray for that first option. While a full-out industry overthrow of OTAs might be one to share with the grandkids, the industry would be better served to use third-party distribution platforms only to drive incremental business. This is by no means a revolutionary idea. Again, the majority of us already know this.
Of course, how we go about reaching this end has yet been seen—or rather, has yet been executed. Perhaps it will take a single brave soul, boasting a bit of chutzpah and stupidity, to get the ball rolling.