Analysis: Hotels bite back in battle with Online Travel Agencies
Since hotel chains are baulking at the commissions the OTAs charge them – typically ranging from 15% to 30% depending on room type and location - and fear that their expensively established brands are being devalued by the OTAs’ price-orientated approach, they have tried to offer discount rates to their loyalty project members to improve direct booking.
When Marriott International was in the middle of its high intensity bid battle for Starwood Hotels last month it was still able to find the time to launch another salvo at a more familiar foe: online ticket agencies (OTAs).
Marriott announced that it was offering members of its loyalty programme a new booking rate called Members Rewards, providing discounts of between 2% (weekday) and 5% (weekends) off the lowest available public rates for non-premium rooms. The rates, which came into effect in mid-April, apply to all Marriott hotels and brands globally.
The catch, however, is that the new rate is only for those who book direct, either via the website, mobile app or call centre, although Marriott does say it will also be available via “select corporate travel professionals”.
But Marriott was not the first hotelier this year to take on the OTAs. In February, Hilton International announced discounts of up to 10% on room rates for all its 4,500 hotels worldwide for Hilton HHonors members who booked direct. Hilton also rewards its loyalty scheme members with other benefits, such as the ability to choose the room they want when booking on the hotel chain’s mobile app.
The discount offer coincided with the launch of Hilton’s biggest-ever marketing campaign: ‘Stop Clicking Around’, aimed at getting the message across that surfing the OTAs such as Expedia (Hotels.com) or Priceline (Booking.com) for lower rates was literally pointless.
“There is a huge misconception that third parties always offer lower prices for our hotel rooms, which is simply not true,” explained Mark Weinstein, global head of customer engagement and loyalty at Hilton.
He also pointed out that last year some 57 billion Hilton HHonors reward points were not ‘earned’ by members even though they were staying in a Hilton branded property because they had booked through a third party, such as an OTA, rather than direct with the hotelier.
Last week Hyatt Hotels followed its rivals by announcing discounts for its Hyatt Gold Passport members – again of up to 10 per cent - on rooms booked direct via its website or mobile booking app. The deal only applies to North American and Australian hotels at present but is likely eventually to be rolled out worldwide.
Industry analysts also expect the 92m members of the InterContinental Hotels Group Rewards Club – which claims to be the world’s biggest hotel loyalty scheme - to be offered a similar direct booking discount deal soon.
It is now becoming clear that the global hotel chains are getting serious in their approach to the OTAs. Not only are they baulking at the commissions the OTAs charge them – typically ranging from 15% to 30% depending on room type and location - but they also fear that their expensively established brands are being devalued by the OTAs’ price-orientated approach.
Chain hotels, which account for about 60% of the UK market (70% in the US) according to hotels data provider STR, now focus on being brand managers rather than property owners. Their strategy, therefore, is based on persuading travellers that a Holiday Inn Express from IHG , for example, is better than a Hampton by Hilton (or vice versa).
Moreover, persuading them to book through direct channels such as a hotel website or call centre enables the hotelier to establish a future relationship with the traveller. And capturing guest data is the new name of the game in the hospitality world, something that selling rooms through third parties such as OTAs limits.
But the hotels faced a snag in their direct booking campaign: rate parity. This is a legal agreement between hoteliers and OTAs that guarantees the hotel will maintain the same publicly available room-only rate across all its channels of distribution – either direct or via OTAs and other third-parties such as traditional travel agents. This, in effect, protects both the hotel and the OTAs from under-cutting by either side.
Over the past year, however, it is understood that the major chains have been quietly renegotiating some elements of their rate parity agreements with the OTAs which has now given them the scope to offer discounts to their loyalty scheme members, although not the public at large.
They have been helped by concerns – especially in Europe but also in the US - over the restrictive nature of rate parity agreements which could be deemed anti-competitive. France so far has taken the toughest stance: last summer it enacted a law to ban all such rate parity agreements involving hotels within the country.
Various other EU countries are also considering action under competition regulations – Germany and Italy are among the most active – although the UK’s Competition and Markets Authority (CMA) decided last autumn not to take any action after a lengthy investigation into the issue.
But the political heat was turned up last week by a House of Lords select committee, looking at online platforms and their impact on various industries including travel, calling for the CMA to open a fresh investigation - a proposal vigorously backed by the British Hospitality Association.
Yet the OTAs remain a powerful and even growing influence on hotel distribution - Google and TripAdvisor are also joining the fray - and have no intention of giving way easily. Expedia, the biggest OTA after last year’s acquisitions of rivals Travelocity and Orbitz, has recently suggested that the cost of hotels chasing direct bookings at the expense of the OTAs is about an 8% reduction in revenue per available hotel room, a key metric.
Expedia thinks the figure, based on factors such as reduced exposure on its booking sites as well as the actual lower room rates, could worry hotel owners who rely on income from their assets rather than waging a war that neither side can really hope to win.
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