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May 2014, London
The next round in the battle between the OTAs, hotels and the Big 3
Are OTAs on the back foot? Will Google destroy metasearch? Is Airbnb for real? Can hotels fight back? Pamela Whitby scratches the surface
Yes, it’s 2014 and the online travel industry is still a weak and fragmented market. In Europe, where the Travel Distribution Summit takes place next week, early signs from the European Travel Commission are that things are looking up.
In its most recent report, the results for the first months of the year point to continued growth for European tourism in 2014 with prospects coming from both intra-regional and long-haul markets. In addition, international arrivals and overnight stays for destinations during the first quarter of 2014 look particularly bullish.
Yet despite these positive signs, this is a hyper-competitive space with everybody jockeying to grow, or at least retain, their share of the pie.
According to Richard Lewis, CEO at Interchange & Consort Hotels, Best Western Hotels, Beacon Purchasing, it’s still a very tough environment for hotel suppliers. But on the upside the OTAs, which have built their business on a highly fragmented industry and have long stripped out hotel margin, appear to be softening in the wake investigations into the practice of rate parity and alleged collusion.
“Some time back any attempt to negotiate on last room availability would have been a deal breaker for Expedia,” says Lewis. “Now that isn’t the case and going forward big data and personalisation are going to play a much bigger role than rate parity.”
Some time back any attempt to negotiate on last room availability would have been a deal breaker for Expedia
In fact, Lewis believes that the OTAs are no longer the main threat. Today it’s the other Big 3 - Facebook, Google and Apple. It’s simple. Like Amazon – and we know how Amazon has, through association and probability, used data to make targeted offers to consumers – these three firms own vast quantities of data. And all three have made various attempts to garner more travel sector revenue.
Recognising this, Best Western is working closely with all three firms. It was first the first hotel company to become fully bookable on Facebook and according to Lewis, Google is a great partner in the UK and has given them some “fantastic insights”.
James Poole, VP International Marketing, Avis Budget Group is another who understands that Google and the OTAs, for that matter, are essential partners in its quest to get the basics right (more on this next week).
Of course, not everybody agrees but in an interview with Google earlier this week, Nigel Huddleston, Google Industry Head, Travel, stressed his commitment to building professional relationships based on trust with both hotels and OTAs, and in equal measure.
Delivering economies of scale
Some, however, would argue that the OTAs, who deliver around 5% of Google’s advertising revenue, have to be more important. Tim Hentschel, chief executive of HotelPlanner, an intermediary, which deals with group bookings and meetings, is one. As he points out Google has tried, and not always that successfully, to make headway on various fronts. Google + failed to take on Facebook, Google TV was a white elephant…the list goes on. But where Google has been more successful, he says, is with technology hardware – yes we’re talking Google Glass.
Not only do the OTAs have the marketing budgets (and a quick look at who dominates on Google maps shows just who has the capacity to outbid everybody else) to swing it with Google, they also have the technology.
“From my perspective, the best technology to be on a booking portal [for Google Glass] is going to come from the OTAs,” says Hentschel. “How difficult will it be to do multiple connections to multiple chains? Google just isn’t going to reinvent a booking engine for all those OTAs.”
The point he is making is that in this environment you need economies of scale, and in the niche group booking and event planning arena that Hotelplanner operates in, this is something that Hentschel understands only too well.
“If Google wants to make the most money, and have the most robust system they will piggy back on whoever else is in the marketplace. It makes good business sense not to invest billions in what’s already been built,” he says.
It makes good business sense not to invest billions in what’s already been built
Indeed, earlier this week Huddleston told EyeforTravel that Google had no intention of getting into booking flights or hotels. He also stressed that hotel suppliers should not ignore the power of pay-per-click. As Hentschel points out, the bottom line is that Google wants to sell as much as possible and in his view organic search will get pushed further and further down the page.
For Hentschel then, the future points to two huge, dominant players - Priceline and Expedia - who will continue to “carve up the entire globe” and gain more market share.
But what about Airbnb, which private-equity firm TPG recently invested $450 million in, valuing the home-rental site at $10 billion. Does the model stack up? Will there be a slew more court cases? For Hentschel the answer to these questions is no and yes, respectively.
“What they are doing is illegal and completely unfair, if you remove the 68% of illegal major city centre rentals, they are just another vacation villa rental site like VRBO or HomeAway,” he says.
Time for training
While Lewis – and probably many other hoteliers too – would like a partnership with the OTAs based on a more equal footing, it may be that the threat to the hotels is coming from within.
One big question is this: do staff on the reservations’ desks of major hotels know that when a guest comes into the hotel with a receipt from booking.com for £350, that hotel is effectively burning anything between £35 and £70, maybe more?
Lewis recently attempted to book a room directly at a well-established chain in the UK and was informed that the best available room rate was £450. However, on the booking.com page in front of him, a rate appeared for £280.
On confronting the hotel, the answer was that the rate on booking.com room was a lower grade room, which could not be booked over the phone because the systems weren’t aligned. His recommendation was for Lewis, who only needed a bed for a night, to book that hotel via booking.com.
Our staff need to know how travel distribution works and what this means to our business
This scenario is not uncommon, and it’s a little worrying.
Does the reservation team also know that this payment may sit for some time in the OTAs coffers, giving them the cash flow to do better marketing, develop their mobile strategy and acquire more hotel partners to take more commission from, while the paint in the hotel lobby fades and peels and, worst case scenario, goes bust.
“Our staff need to know how travel distribution works and what this means to our business,” stresses Lewis.
So the challenge is to make sure that the reservations' teams care. After all, their jobs depend on it.
Time is running out. To join the debate and find out how to compete effectively in this market, book your place at TDS Europe where Richard Lewis and Tim Hentschel, alongside numerous other travel industry executives, will be speaking next week. James Poole, VP International Marketing, Avis Budget Group will be speaking in Miami on June 2-3