Is the day of reckoning coming for the relationship between the hotel industry and online-travel agencies? The sometimes-turbulent subject is a topic that permeates every event, gathering, message board, and quite possibly every pillow-talk conversation, that goes on in the hotel industry.
Both sides try to put on happy faces and say they want to play well together. Most observers can easily see through that charade. Hotel companies in general don’t like the OTAs because of the perceived loss of revenue a hotel realizes when a room is sold through a third-party outlet. The OTAs are happy to take the rooms at what some hoteliers claim are ridiculously low rates, mark them up and then sell them to consumers while touting how low the prices are. I get the sense that OTAs view hotel owners as a necessary evil because while they want the rooms inventory, they don’t want to be in the hotel-operations business.
I’m not sure when, but there will be a day when there is going to be a full-blown battle over the issue. Attendee’s of Deloitte’s 23rd European Hotel Investment Conference on Wednesday in London might have heard the opening bell for the battle of the century. That’s when Intercontinental Hotels Group CEO Richard Solomons matter-of-factly answered a question about the company’s recently announced Best Price Guarantee program. Moderator Alex Kyriakidis, the Deloitte executive who will join Marriott International on 1 January 2012, teed it up and Solomons took a nice, even swing.
Anyone who knows Solomons or has seen him speak (I fall in the latter category) knows that he speaks in thoughtful, reverent tones. He is not a rant-and-rave kind of guy, and Wednesday was no exception. He was calm, collected, and simply stating a business case when he and Kyriakidis had the following exchange:
Solomons: “The Best Price Guarantee. That’s something we announced a few weeks ago (on 20 September). We were the first company to come up with lowest Internet rate guarantee and that was then copied by pretty much everyone. We thought it actually didn’t deliver enough to consumers or really talk enough about what it was about. Not just best Internet price guarantee or we’ll match the price and give you 10% back, Best Price Guarantee was about saying if you find equivalent room booked through the Internet cheaper we will give you your first night free. It’s a much more powerful consumer offering.
“The reason we went through it was very clear. As we sit here trying our best for guests and customers and the best for our owners, the best most effective route for booking in almost all cases is direct, direct through our systems. That’s because it’s cheap, it’s effective, it’s safe. When you get it, you get a confirmation that comes from the system that your room’s about to be guaranteed. We have this intermediary group, Expedia, Travelocity, and so on, who make statements and claims and plays about how cheap they are and how effective they are, which we know is … how will I put this … is maybe implying things to consumers that isn’t necessarily always the case, that we think it’s unhelpful for guests to have that.
We’re very happy working with third-party intermediaries or the online travel agents when they drive incremental businesses to our hotels at a sensible price. When they basically steal our business or substitute much, much more profitable business to our owners from our (reservation) systems, we don’t like that. The Best Price Guarantee was about demonstrating to our guests and giving a slight incentive to our owners to make sure that we continue to push guests through our most profitable channels.
Kyriakidis: “Since you announced it, any reaction?”
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Solomons: “We’ve seen quite a spike in sales through our direct channels relative to the online travel agents that we’ve had to pay out through our own wallet because the system was very well prepared for it. The important thing to remember is as a hotel industry we very foolishly hand over huge amounts of money to the online-travel agents, which they then use to invest in marketing, publicizing, to steal business.
Kyriakidis: “Don’t offend your partners here…”
Solomons: “I was in full flow there, Alex. As an industry, we give billions of dollars of year in margin to third-party intermediaries who add no value to our businesses, who try to commoditize our brands because that’s their business model, so they fund advertising to tell our guests they are the best route to book rooms on, which is nonsensical. They have a power and an influence which is beyond what they really are. For us, it’s a very small part of our business, 5%, many markets it’s a lot less. Our own website’s a 20% part of our business. So they make a lot of noise. They have their place, and we’re very happy to work with them, we have relationships with them. But not if they basically take dollars out of the mouths of our owners that we can actually replace.”
I can hear the industry-wide cheers and jeers from my perch atop Park Lane today. Hotel owners just found a new hero. OTA representatives probably feel a little ambushed. Solomons might even regret what he said, but somehow I don’t think so. Even when it stings, the truth is the route to take.
The OTAs have a relevant role in the hotel industry. They provide an outlet, and most important, they allow consumers tools for comparison shopping. Every one of us is a consumer and none of us want to pay more than we have to for anything we buy. The same is true for hotel rooms.
OTAs talk of a billboard effect that helps sell incremental rooms, and if that’s true, that’s a nice thing to have in their back pocket. Ask most level-headed hoteliers with no axe to grind what they want from an OTA and their response is something along the lines of “a place to sell excess inventory before it expires.” So ultimately the drama will play out on the street corner. No hotel owner is forced to give any OTA any rooms. They know the rules when they provide inventory, so how can they be mad at OTAs for taking the rooms off their hands? They need to make the easy call and not give their entire inventory to OTAs.
As the moderator of a series of revenue-management webinars put on by HSMAI (the next one is coming on Tuesday!), I’ve heard the experts say the same thing over and over: Using OTAs is not bad. In fact, it’s an important part of your revenue strategy. Just don’t overload it.”
That’s sound advice. So is adopting a Best Price Guarantee. IHG has a long history of trying to figure out a way around the OTAs. What it has done this time is ensure that its owners have a tool that allows them to level the playing field with OTAs. I suspect other companies will follow soon with similar strategies. Bravo to Solomons and the rest of the IHG management team for putting a useful mechanism in place. The OTAs certainly can’t be mad if hotel companies want to compete on price—that’s what they’ve built their empires on.
Solomon’s words came out measured and clear on Wednesday, but it was the Best Price Guarantee action on 20 September 2011 that spoke louder than words.
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