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Hotels, the wholesaler hell and the fight back
Across the board, hoteliers are holding hands up in despair at wholesaler behaviour but big and small players alike are ringing the bell for change. Pamela Whitby reports
Not all that long ago, Catarina Randow, VP Revenue & Distribution, First Hotels was a little confused at a meeting with a wholesaler. “They were guaranteeing an enormous amount of business coming from Spain to Gothenburg in April.”
No offence to Gothenburg but Randow, a keynoter at a recent EyeforTravel conference who agreed to an interview, did have to wonder why so many Spanish people wanted to visit Sweden’s second biggest city in April.
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As it turned out, Randow’s scepticism was spot on. What transpired was that this wholesale business negotiated with her hotel, was then resold to a Spanish reseller, which then sold on to travel agents in the local market.
“They had applied a huge mark up, leaving very little margin for the hotel to deliver a best available rate,” she says.
Back in the good old days, hotels were only too delighted to ring-fence inventory to B2B segments – namely the wholesalers. These rooms were sold offline and the relationship worked well for everybody.
By selling rooms to wholesalers and travel agents with a fair margin to mark up, hotels could guarantee some long lead lower-yielding base business. Wholesalers could then reach out to their networks of tens of thousands of travel agents worldwide and make a decent return on their high volume business. And, of course, travel agents, which sold their products over the counter or by phone, could bundle their packages and sell on to the consumer, marking up at their own discretion. The risk for all parties was minimal.
Then came the internet which changed everything; previously negotiated B2B rates became public, the rates were no longer between the customer and the travel agent and the wholesalers, which used to be the preferred channel for hotels to reach out to offline agents worldwide, became the enemy.
“As the online space has become more transparent, the [hotel] industry has sometimes found it challenging to control the destination of inventory which was originally offered in good faith to non-retail segments,” explains IHG’s Brian Hicks, Vice President, Revenue Management, Europe & Global Revenue / Property Based Systems.
Wholesalers no longer differentiated between offline and online travel agents (OTAs); they sold indiscriminately to both. And like mushrooms on a rainy day, the OTAs sprang up everywhere
Marco Corsi, Third Party and Distribution Manager, Sokos Hotels, Finland
Weighing in on the discussion is Marco Corsi, a third-party and distribution manager for Sokos Hotels in Finland, who spoke to EyeforTravel in his personal capacity. “Wholesalers no longer differentiated between offline and online travel agents (OTAs); they sold indiscriminately to both. And like mushrooms on a rainy day, the OTAs sprang up everywhere,” he says.
Quickly recognising that they couldn't compete with the marketing clout of the big name online players – aka Expedia and booking.com – smaller fry OTAs began promoting themselves as ‘cheap rate’ channels for consumers.
All they needed was technical skill, a relationship with a willing wholesaler with access to all the hotel’s rates, and an agreement with a credit card provider. Then voila, it quickly became possible to set an automatic mark up which guaranteed that they [the OTA] would always make a profit – and would always be cheaper than the hotel!
So far so bad and as Niki Selimi, OTA sales manager at Valamar Hotels, Croatia, points out the impact has been huge: “Chains like ours lose credibility because we cannot guarantee the best price to guests and instead of securing direct bookings we are losing revenue to the OTAs”.
While the issue has impacted hoteliers across the board, it’s particularly tough for smaller and mid-sized players and especially those operating at national level.
However, if reading this provokes a response of … oh here we go again, just another whining, complaining hotelier, Corsi gives some context.
“Most of those hotels operating at a national level lack any means of international marketing, and have no way of reaching out to a global market other than through third parties,” he says. “Choosing not to work with the wholesalers, or for that matter the OTAs or other third parties (which now have the advantage of interacting directly with consumers) is not always an option.”
Margins increasingly stretched
With the rise of metamediary sites like Trivago, Kayak and Skyscanner, the OTAs with access to wholesaler inventory have gained a visibility that could never have dreamed of five years ago. To complicate matters further, some wholesalers are in cahoots with other wholesalers, which serves to strip out hotel margin even further.
One hotelier cited a scenario, where a wholesaler had guaranteed 8,000 room nights, only to find that those rates had gone through four wholesalers before they came back to the hotel.
Says Corsi: “In many cases the hotel has no idea that the OTA selling them even exists, but worse than that is that they may never have even heard of the wholesaler whose name is on the voucher issued to the guest and which ultimately should be good for payment.”
Should there be any issue with the reservation, the hotel would have to rely on the same help desk number as the guest – assuming there even is one.
Changing business models
While much of the criticism is levelled at wholesalers, to be fair their traditional business models have taken a hammering too. And although hotels may demand it, with the best will in the world, wholesalers cannot control their tens of thousands of travel agent customers who may choose to direct inventory to uncertified OTAs or meta-mediaries. And with new online players appearing all the time, wholesalers too have found themselves in a tricky position.
In this wild west of distribution, instead of whining about it, it’s time for hotels to take back control.
Big chains like IHG are leading the way in the fight back, and at a recent EyeforTravel conference, he invited hoteliers to get in touch for advice.
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According to Hicks, although most global hotel businesses have a good working relationship with a range of certified wholesalers and OTAs, the growth of uncertified players in the online space – and increasing transparency of inventory – has meant it’s important to continuously review these relationships. And IHG has a whole team dedicated to this effort.
Not so for smaller hoteliers like Selimi, who simply doesn’t have the resources to police what he says is a big headache. He would welcome more sharing of information between hotels.
There is, however, some positive news and Hicks says: “We have had great conversations with many of our wholesalers who understand the need for greater clarity on this issue.”
IHG has signed umbrella agreements that include both static and dynamic rates on behalf or its hotels globally with some of the big wholesale players and is holding them accountable. The prices are still set by hotels, the holding company sets the binding terms and conditions on behalf of all hotels. And if the wholesalers don’t play by the rules, IHG has made is making the call to cut them off.
Hotels have a point; after all in any business, there is an expectation that the product owner will apply a reasonable mark up to enable them to run their business effectively.
So if the OTAs are able to sell a hotel’s core product – namely the room night - at a lower rate, then something is wrong and something has to change.
Next week we consider five things that hoteliers can do now to manage their wholesale relationships. Don't miss it!