Cindy Estis Green explains that an organization built around revenue strategy absolutely needs to be in place going forward. Today, the industry is dealing with a certain set of costs, channels and segments of business but they will inevitably change and processes need to be in place to manage and measure the opportunities and costs that arise from the constantly shifting distribution landscape.
Kalibri Labs’ CEO & Co-founder, Cindy Estis Green, explains why the industry has reached a point where it needs to manage costs of acquisition in a similar way as it manages labor costs. Operating in the digital world calls for a move to Revenue Strategy which is very different than the traditional approach taken in the analog world because it integrates all of the revenue generation disciplines and has a focus on profit contribution.
By Ken Barna
Jennifer Hill, our VP of Business Development, joined an esteemed panel of presenters headlining the HSMAI DC chapter's 2018 State of the Industry held at the MGM National Harbor last week. The event coincides with many hotels’ budget planning seasons so, presumably, attendees were looking for DC and U.S. national trends, key performance indicators and insights around which they can base their budget projections for 2019.
Elliott Ferguson II, President and CEO of Destination DC, Mark Woodworth, Senior Managing Director of CBRE Hotels Americas Research, and John Hach, Senior Hotel Industry Analyst & Advisor at TravelClick all shared their different viewpoints on how the industry has performed over the last 1-2 years as well as forward looking analysis as to where the hotel industry could be headed as we move into 2019 and beyond. While the data was primarily focused on the Washington DC region there are elements that would apply to many first-tier cities across the country, despite the unique makeup of a DC hotel’s business mix with its proximity to the federal government
Mark Woodworth presented a conundrum. While occupancy across the industry has maintained a more-than-healthy percentage since 2010, ADR has not been growing in tandem since Q2 2015.
Historically, and rationally, as the law of supply and demand would dictate, occupancy and ADR have remained tethered in their growth and decline. This recent anomaly, or at minimum abnormality, coupled with John Hach’s analysis showing softness in on-the-books reservations for 2019 gives pause for concern, or at least potentially re-considering a less aggressive RevPAR growth projection for the 2019 budgets currently being planned.
Woodworth mentioned that CBRE has come up with 15 different hypotheses as to what could be causing this so-called conundrum, and I’m sure you may be thinking of a few yourself right now, but one thing is clear, if ADR isn’t rising in lock-step with occupancy, you will need to squeeze every dollar out of your Net RevPAR with an intelligent revenue strategy. Jennifer Hill spoke at length about the different ‘types’ of revenue that can help revenue managers and strategists compare each channel or source of business apples-to-apples by removing the costs of acquisition they incur. Having this depth of data is often the hard part, but Kalibri Labs has spent the last six years building a best-in-class database of over 31,000 hotels across the U.S. that not only tabulates ADR, Occupancy and RevPAR, but tracks the cost of acquisition so you can see beyond what might appear on a hotel’s P&L, the Hotel-Collected Revenue.
Hill explained that understanding the Guest-Paid Revenue, or the rate the guest actually transacts when they book, is very important and is often, depending on the booking channel, far different than what would be remitted back to the hotel by a third party. It is also critical that those costs of acquisition are considered and tracked when formulating your 2019 budget or any time you’re thinking of making a shift in your hotel’s revenue strategy. COPE Revenue, she joked, is your way of ‘coping with third-party acquisition costs,’ but it is a very real and important acronym in the revenue strategy vocabulary she presented, meaning Contribution to Operating Profit and Expense (COPE). COPE Revenue is, simply, Guest-Paid Revenue with all direct transaction-related costs removed. Going one step further, by also removing sales and marketing expenses, a hotel can view their Net Revenue.
So how do you get your hands on this level of data?
Our ETL (extract, transform and load) process normalizes guest folio datasets from brands across the industry, including the channel and rate category through which the guest booked, when they booked, whether they are a loyalty member, and the acquisition costs associated with that transaction, such as commissions (retail or wholesale), loyalty investment, and channel costs. This data is used to derive Guest-Paid and COPE Revenue from the Hotel-Collected Revenue total that a hotel is accustomed to seeing. With this information, revenue strategists can draw much more valuable insights understanding where lies the most profitable business and then develop an action plan to go after it.
So how could you use these insights?
If you are a DORM or asset manager, for starters, you would want to utilize Hummingbird PXM, our hotel revenue strategy digital platform, that shows your business mix using the detailed revenue types outlined and defined above, but also allows comparison and benchmarking to a customized benchmark group or selected comp set. Hummingbird PXM refreshes data every month, so it most definitely should be part of your ongoing revenue strategy discussions and decision-making process. For all the reasons highlighted at the HSMAI State of the Industry event, this budgeting season is the ideal time to understand all the intricacies of your market, and benchmark against your hotel’s revenue performance in order to better prepare your hotel for what could be an uncertain 2019 in Washington, DC.
In the first four segments of this series we’ve explored the value in upgrading your KPIs to track revenue and profit contribution through a series of next-generation hotel industry benchmarking metrics. We discussed how Guest Paid ADR, COPE %, Loyalty Contribution and Booking Lead Time remain interconnected and how trends from each metric can affect both a hotel's bottom line, as well as that of the broader industry.
As we observe the growth and evolution of brand loyalty programs, Length of Stay becomes an important variable in the equation. Length of Stay, or the number of actualized room nights per booking, is impacted by a variety of factors, as well as economic and societal trends. For instance, a recent Forbes.com article said "78% of millennials intentionally carved out personal time on their business trips."
Weekdays still represent a higher loyalty contribution than weekend stays, but trends like ‘bleisure’ will begin to be woven into the fabric of loyalty programs to encourage and incentivize extending a business trip for personal purposes, generating a longer length of stay.
Transparency and granularity in data at scale across the industry can only help all operators stay in tune with the emerging trends the industry is facing as the digital marketplace continues to rapidly evolve.
One thought as to the cause of the decline is an expanding volume of total bookings in combination with group business declining, or remaining relatively flat, producing a drop in Length of Stay when compared to the same month of the previous year.
For the complete report and to purchase an annual subscription to the Hotel Industry Performance Overview (HIPO) report, please visit the link below. With HIPO report you will receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you.
With a higher loyalty contribution, one would expect Profit Contribution (COPE)% to be higher, due to the current correlation between Loyalty Contribution representing an increase in direct bookings and thus lower acquisition costs. Booking Lead Time and COPE % are related but perhaps more indirectly, as a shorter booking lead time can force a hotel to begin to use more costly sources of business as inventory becomes distressed, and can act as a leading-edge symptom of declining cycle strength.
A longer Booking Lead Time should result in higher Guest Paid ADR. With an emphasis on driving Loyalty Contribution, the direct and repeat bookings would generate a higher Profit Contribution (COPE) % and thereby more NET revenue flowing through to the bottom line. Historically, the industry has evaluated performance based on top-line revenue and on occupancy statistics. However, it is evident that the five critical hotel KPIs for the digital age are highly intertwined and essential in anticipating movement that can affect your hotel, markets and establish the trends that drive the overall health of the industry.
For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.
In our next segment we will review Length of Stay, its trends and importance in tracking across the industry.
The Profit Contribution % or COPE % tracks the proportion of room revenue after commissions, transaction and channel costs are removed. The lower the COPE percentage, the costlier the business is for the hotel and the less room revenue remains, after costs are factored out. To move the needle back to a healthier balance, following Loyalty Contribution % is a key component to fulfilling the hotel’s optimal business mix. Loyalty Contribution % is the proportion of room night demand associated with a loyalty membership, and vital to continually filling the hotel through direct channels and with repeat business. When reported by Kalibri Labs, this Loyalty Contribution % only includes the brands that have a formal loyalty program.
Over the past 18 months the Book Direct campaigns from the major hotel brands have made growing loyalty programs and brand.com bookings a top priority. Within the HIPO report you can track the growth in Loyalty Contribution across the U.S. as well as in top markets, by property size, weekday vs weekend and by rate bands that are important to you. This emphasis on loyalty program growth is only going to intensify, as Loyalty Contribution is becoming the new system contribution across the industry.
For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.
In our next segment we will review Booking Lead Time, its trends and importance in tracking across the industry.
Having established the importance of tracking Guest Paid ADR in our last post, next in our informational series is getting to the bottom (line), pun intended, of COPE %. Contribution to Operating Profit and Expense percentage (COPE %), also known as profit contribution, is quite simply, a bottom line key performance indicator that displays the proportion of room revenue after commissions, transaction and channel costs are removed. While COPE % an easy concept to understand, the data has not always been easy to obtain.
Only Kalibri Labs has been able to aggregate the cost of acquisition data from our hotel partners across the industry at this scale. Therefore, COPE % is new terminology to many and needs its own introduction.
COPE ADR is the room revenue the hotel keeps after individual costs of acquisition per transaction are removed and COPE % is the proportion of COPE ADR to Guest Paid ADR.
Most hotels are good at tracking ADR by channel, and they understand that certain channels drive higher rates. But what happens to those ADRs when you begin to factor in the commissions and transaction fees associated with each reservation. Identifying your COPE percentage in each channel is the first step in improving your channel mix.
Tech titans and third-party intermediaries have invested millions of dollars to simplify the online booking process and aggregate demand through their own channels in an attempt to attract users with a smooth and convenient user experience. While this can provide options to users and extend distribution, it can also lead to a spike in costs, if not tracked continually. Track COPE % at the U.S. level or in your specific geographic markets of interest in the Hotel Industry Performance Overview (HIPO) report.
For the complete report and to purchase an annual subscription to receive monthly updates on the U.S. Hotel Industry or the Metro Areas (MSAs) that are important to you, please visit the link below.
In our next segment we will review Loyalty Contribution, its growth and importance in tracking across the industry.
Over the next several weeks, we will serve up 5 key data points we are tracking at the industry level and why they are so important in the digital age.
Guest Paid ADR
Contribution to Operating Profit and Expense % (COPE %)
Booking Lead Time
Length of Stay
As technology has become a powerful tool for the industry to reach its customers, it can also increase the acquisition costs and lead to an expensive marketplace, challenging a hotel’s bottom line.
The first key metric is Guest Paid ADR. Historically, those following the hotel industry have become accustomed to tracking Hotel Collected ADR, which is the traditional ADR measured by hotels. Guest Paid ADR, as the name indicates, is the amount the guest is actually paying for their room night including mark-ups, commissions and channel fees that would not be reported or accounted for in the Hotel Collected ADR figure typically reported throughout the industry. Tracking Guest Paid ADR is important for pricing purposes as well as understanding the full revenue opportunity that exists for each booking, before the commissions and transaction fees that would be charged by distribution partners.
It's important to note that new standards have been developed by the Financial Account Standards Board, and the factors that previously determined “gross” or “net” revenue recognition have been changed. The new standard requires the party who is the principal in the sales transaction to record the revenue on a “gross” basis. These new standards go into effect on Jan ‘18 and they will improve the industry's understanding of acquisition costs.
These new standards further solidify the importance of routinely tracking acquisition costs as it will improve the industry’s ability to manage these costs and to understand more accurately what guests are paying for their rooms.
GDS is the source of business with the HIGHEST Guest Paid ADR $156.58 up 0.8% YOY.
In our next segment we will review the importance of profit contribution, a net revenue metric we call COPE %. For the latest updates please subscribe to our blog, and follow Kalibri Labs on Linkedin and Twitter.
By: Ken Barna, Director of Marketing
For those of you who were unable to attend RSS 2017, or perhaps you joined us at the Renaissance Marriott on July 26th but just need a quick refresher, our CEO and co-host of the event, Cindy Estis Green has provided her 7 key takeaways from the 5th annual Revenue Strategy Summit. These themes were covered in-depth and reviewed from multiple angles by members of the various expert panels. Below is an executive summary of the highlights to take back to your organizations.
1. The Tech Titans (Google, Amazon, Uber, AirBnb) are coming – ready or not. In fact, they are already here and making their presence felt throughout the hotel industry. Their entry may prove to be both an opportunity as well as a threat. Industry decision makers need to stay informed to take advantage of the disruption.
2. Chinese travelers are coming en masse. And the retailers are coming too. Alibaba dwarves Amazon – all eyes are on their entry to North America and beyond.
3. Two new major areas to drive profitability for hotels need to be in focus:
Managing acquisition cost across the business mix
Generating ancillary revenue outside of solely room revenue
This may include revenue share with outside vendors like UberEats for select service hotels
4. The application of data will continue to grow in importance to influence profit contribution – in three main ways:
Personalization – recommendation engine type usage
Revenue performance evaluation – refining how efficiently hotels acquire their revenue
Digital Marketing – both through Brand.com, apps and mix of third party sites and apps.
5. Emerging technology will evolve and adopt quickly –
Augmented Reality & Virtual Reality will impact guest experience on property as well as marketing to enhance the user in the shopping process.
Artificial intelligence (AI) in algorithms to refine the match between products offered and customers, as well as predicting hotel performance.
6. Value of guest experience will be a key point of differentiation going forward. Guest preferences will more prominently weave their way into Loyalty programs executed through digital tools and aid in the seamless nature of good hospitality, enhancing the guest experience. This applies across the spectrum of individual guests, meeting planners and travel agents.
7. Hotels will be evolving organizational structures to bring about a more holistic view of revenue strategy – integrating direct sales, revenue management, digital marketing, customer engagement, and promotional activity. In order to approach revenue generation in a more optimal way, the silos will gradually be replaced by interdisciplinary teams.
It was a valuable day filled with thought leadership from around the industry. But don’t just take our word for it. Below are some recent links to additional coverage of RSS. We hope to see you all there next year!
By: Kathleen Ayers, Data Integration Engineer Manager
In the world of data, bigger is better. Bigger data produces more insights and more robust analyses. A big database is a competitive advantage and data companies are continually looking for ways to expand and enhance their data sets to get an edge on their competition.
Large databases can provide an infinite number of ways to solve a problem or answer a question. Theoretically, the endless possibilities seem great. However, as Barry Schwartz explains in his TED Talk on the paradox of choice, while some choice is better than no choice, too much choice can produce paralysis rather than liberation.
Let’s say as a hotel revenue manager you notice a year-over-year decline in mid-week transient RevPAR over the past month, and you want to figure out the cause of the decline. You could approach your data from several different angles, but how can you find the best-suited, most accurate solution to your problem without feeling overwhelmed?
Here are three simple steps that will help you maximize your efficiency, minimize your choice paralysis and guide you to the best solution.
1. Formulate a research question
Determine the exact research question you need to answer before diving into your data. If you wander into the forest of data without a set destination, you may get lost (hopefully you left a trail of breadcrumbs). Dive into your data with a clear intention and purpose in mind so that you can avoid distraction and tangents.
In our example, you state your research question as, “Why did transient RevPAR suffer a 10% year-over-year loss in April 2017?”
2. Write a hypothesis
Take an informed guess at the answer to your research question. Quickly brainstorm the potential paths and data points you could use to reach a conclusion and choose a path that seems promising. If your path leads to a dead end, back up and try again.
Given your knowledge of the hotel, you hypothesize “Transient RevPAR decreased in April due to the loss of two large corporate contracts.” When you test this hypothesis, you find that corporate business actually appears relatively stable; therefore, you try again with “Transient RevPAR decreased because of a decline in package offers.”
3. Restrict your sample size
Think about whether you really need to use ALL of the data available to draw a conclusion. In statistics, you learn that you only need a representative sample of a population to draw meaningful conclusions. Sometimes, focusing on a small set of confirmation numbers or a small group of hotels will prove your point.
To test hypothesis 1, you can look specifically at transient corporate RevPAR in April 2016 versus April 2017. To test hypothesis 2, you can look at transient package rates that were offered each year, which leads you to find that several package rates were discontinued since last year. In both cases, your hypothesis is specific enough to allow you to look at a limited set of data to find answers.
Whether you are reading a paper report, or querying your company database, specifying a research question, writing a hypothesis, and restricting your data set will help you navigate the sea of big data efficiently. By limiting your choices, you will find a clear and direct route to your solution.
By: Kalibri Labs Marketing team
Several key themes emerged from Part 2 of the landmark study, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry. We outline these takeaways in the infographic and descriptions below. For the full scoop, click here to request access to the full study.
Shifting Demand: Bookings are shifting from traditional Property Direct channels such as walk-ins or voice calls to digital channels, whether that is Brand.com, OTA, or GDS. Property Direct bookings have dropped from 40% of all bookings in 2014 to 34% in 2016. As bookings that transact directly at the property generally bring the highest profit margin, along with the lowest cost of customer acquisition, these room nights that have shifted to other digital channels now carry higher costs of acquisition.
Hoteliers will need to ask themselves several questions going forward to get an idea of the impact of these shifts on their individual properties. For the guests who used to call directly or drive in, how are these guests now booking? Are they going to Brand.com or booking through a third-party? What actions can be taken to drive consumers who may previously have booked directly at the property to book on Brand.com or other direct channels which have a higher profit margin compared to third-party bookings?
Cost of Booking Increases as Revenue Capture Declines: Revenue Capture - or, the percentage of Guest-Paid Revenue that hotels retain after customer acquisition costs are paid – is declining as hotels spend more on commissions and fees to acquire guests through third parties and on sales & marketing expenses.
Overall Revenue Capture for the industry declined from 84.4% in 2015 to 83.9% in 2016. In terms of incremental revenue that would drop to the bottom line, this decline represents $729 million that U.S. hotels could have retained had their collective Revenue Capture percentage remained the same as it was during the prior year. This decline is predicated on increased acquisition costs.
Consumers Actively Influence Supply & Demand: The effect of consumer behavior and the sharing economy on hotels is growing. Consumer to consumer accommodation platforms like Airbnb are increasingly impacting supply, while travel inspiration & planning apps influence guest decisions, and guest reviews sway booking behavior. These all add up to external forces that the industry has never seen before and needs to adjust to.
To dive deeper into the take aways and research, request your code to download Part 2 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry here.
By: Mark Lomanno, Partner & Senior Advisor
Leaving an ALIS conference there is always much to reflect on. It takes time to sift through all the information - what was said and what was implied. There were three major topics which I have contemplated a great deal after the conference.
First, prior to ALIS this year, the last few major US hotel industry conferences had a slightly pessimistic view on where the industry was headed. Reasons for this included the long term nature of the current recovery and the sluggish ADR growth that was a significant deviation from the robust increase seen in past economic cycles. However, now the mood has shifted to one of cautious optimism - perhaps because of the absence of any real signs that point to an economic downturn. While hotel collected RevPAR growth is forecast to be on the low end of acceptable, it seems that is ok with most folks.
The second topic was on the US presidential election and what effect the election of Donald Trump was going to have on the hotel industry. There are lots of conflicting data points here including a rising stock market, travel bans, immigration reforms, loosening of banking regulations and a severely bi-partisan culture to name just a few. Each point taken on its own merit would have a significant impact on the hospitality industry, some positive and some negative. Taken as a whole, it’s harder to say and will be interesting to see how it all plays out, but the optimistic nature of the conference seemed to infer that most in our industry see benefits in the short term.
Finally, the need to develop net revenue metrics is strong. While the industry has enjoyed a sustained recovery, the increased cost of doing business has not resulted in the revenue growth or profit that was expected based on historical cycles. Increased expenses, especially relating to acquiring the guest, have skyrocketed in the past several years necessitating a closer look at costs. This is true both at the industry and property levels. One of the best ways to evaluate costs is to examine Revenue Capture, which is the percentage of room revenue available for operations and profit after subtracting the cost of customer acquisition. This new metric gives needed insights into both the true cost of customer acquisition and the opportunity to improve profit.
The conference certainly provided food for thought and we will see what the future holds.
By: Cindy Estis Green, CEO & Co-founder
Featured in Hotel Yearbook 2017.
It's a new world order, writes Kalibri Labs' Cindy Estis Green: one that is dominated by the digital marketplace and in which all parties are struggling to migrate from the analog days of the past. The next 2-3 years will be fascinating to observe, she says - and takes us on a tour d'horizon of the current political and regulatory landscape.
Demystifying the Digital Marketplace-- Part 1, is the first installment in a three part series recently released by Kalibri Labs. It is written from the hotelier's perspective and introduces three key themes. Firstly there is an urgency to alter current revenue management approaches as we move from an analog to a digital market, including the need to more closely manage customer acquisition costs. Secondly, the realty of the new digital market includes the emergence of meta search and mobile apps that will challenge both hotels and legacy OTA players and lastly there are segments of the market (for example corporate and meetings) that are ripe for disruption and to which hoteliers should pay close attention as these changes unfold.
While all issues discussed in the new study are meaningful globally, there are variations in the way they play out in different regions. The rising costs and the predicted changes in the commercial relationship between hotels and OTAs described are particularly being examined carefully at the EU level. Most regions of the world have taken an ad-hoc approach to regulation of the digital market. In contrast, the European Union is in the middle of a massive review of all digital platforms which will have serious implications for the hotel industry; this includes travel providers as well as retailers such as Amazon, services such as video, television, telecom across the EU as well as general search engines such as Google. Questions arise around the way these platforms interact with consumers and the nature of the relationship between suppliers and distributors. Issues around transparency of pricing and bias in search listings are examples of the topics being explored by the European Commission, along with concern for the power of aggregated content and fairness in the relationships between hotels and distributors regarding commercial use of this content. The outcome of the EU's Single Digital Market review may have far reaching repercussions for the way hotels acquire and interact with guests for many decades to come.
Foremost in the hotel arena is the activity in many EU member states around rate parity. Since France passed the Macron Law in August 2015, many EU member states are trying to determine if the removal of contract-driven room rate controls imposed on hotels and third party intermediaries will benefit consumers with lower rate offers. Even with the so-called "narrow parity," hotels can offer lower rates to smaller OTAs, but must remain at parity with Booking.com/Expedia Inc. and as long as there are only one or two major players in each market, the language in the contracts may not change reality on the ground. The hotel industry may be too fragmented and the OTAs too consolidated to expect the hotels to gain any leverage in their dealings with a powerful duopoly.
The fallout from the gradual dissolution of rate parity, followed on by the Book Direct campaigns launched by most of the major chains, has yielded some notable reactions from the largest OTAs, implying that they are concerned enough to believe the campaigns will impinge on their growing market share. Early data from Kalibri Labs in the U.S. market is showing that consumers do shift to brand.com when given a compelling offer to book. While the rapid shift of consumers to the worldwide digital marketplace has remained uncharted waters, the European Commissions's Single Digital Market initiative recognizes that it may be time to put appropriate controls in place. Consumer deception in the online shopping and buying platforms has been a fact of life, and being in the early stages of understanding the depth and breadth of it, they are deciding how much regulation may be required. For example, strike-through pricing used by OTAs looks more like fake discounts when the discount is based on a rate that is actually not available for the dates in question.
Looking more closely at the antitrust case being brought against Google by the European Commission raises a question about the latter's role in the hotel market. When search results are primarily based on a pay-for-placement model, the days of organic search are behind us and the vexing question of consumer deception pops up again. Are consumers informed enough to realize that a Google search listing may not be driven by the results most relevant to the query but rather based on the commercial relationship with a supplier? The same kind of questions are raised in the OTA listings with respect to a consumer's awareness of how this market operates. If they don't realize the strike-through prices are not real, would that fly in the face of the EU Directorate General for Competition's Unfair Commercial Practices Directive? If so, a question arises about what can be done to improve both consumer education around the digital marketplace and the enforcement of guidelines that may already exist to govern digital commerce?
There are many issues that are likely to surface as the European Commission evaluates the feedback from hundreds of hoteliers, technology, airline and other travel executives who responded to surveys designed to inform the Digital Single Market initiative. It's a new world order dominated by the digital marketplace and all parties are struggling to migrate from the analog days of the past. The next 2-3 years will be fascinating to observe. Hoteliers should participate through their national hotel associations and other hotel-oriented groups to be sure their voices are heard. For more on this, look at the HAMA and European Hotel Forum white paper, Digital Marketplace in Europe, explaining the issues in more detail.
With the advent and acceleration of the digital age, consumers continue to adjust their behavior, approaching even hotel booking differently. Whereas in the past most guests tended to book their room reservations directly with the hotel by calling or going to the property directly, now consumers are much more likely to shop for and buy their rooms online or on a mobile device. For a hotelier, the shifting consumer behavior from one booking channel to another can have a dramatic effect on the property’s bottom line, as each booking channel comes with its own associated costs. Understanding the impact of shifting channels is key to managing a hotel’s cost of customer acquisition.
Today, direct booking channels are defined as reservations through brand.com, voice or directly to the property. By comparison, indirect booking channels are reservations that come through online travel agencies, global distribution systems and fully independent traveler wholesale. Group bookings are the only major booking channel where reservations can be booked either directly or indirectly.
In the past five years, hotel booking patterns in the U.S. have shifted significantly toward indirect bookings rather than direct bookings. Since 2011, the ratio of direct bookings to hotels has declined from 4.2 direct bookings for every indirect booking, to now 2.8 direct bookings for every indirect booking as of June 2016. That shift represents a 33-percent decline in the direct booking ratio in just over five years.*
(*Note - this analysis covers all the hotel segments except economy chains, as data for that segment was not fully loaded at the time of this writing.)
Which channels have lost share of total bookings over the past five years? There has been a noticeable decline in the percentage of hotel room bookings that have either gone through the voice channel or directly to the property. (See Figure 1.) This decline aligns with the increasing comfort of most consumers to use digital methods to book, as consumers now have more flexibility in the booking process. It is important to note however that overall room demand has increased in the U.S. in each of the past five years, so the absolute number of bookings does not show as pronounced a decline.
By contrast, the share of group bookings has only declined slightly over the same time period, and has actually been about flat since 2012.
Conversely, several booking channels have shown explosive growth since 2011. Brand.com, OTA and GDS booking channels all have a substantially greater share of total bookings than they did five short years ago. That growth has been led by Brand.com and the OTA’s, both increasing more than 20 percent over the time period. The GDS share has also increased but not at nearly the rate of the other two digital booking methods. There is no reason to expect this shift in booking patterns to change in the next few years, but it will be interesting to see if there is continued acceleration in the growth of these channels or whether the growth rate subsides or plateaus. As a point of reference, the digital channels of Brand.com, OTA, and GDS represented about 44 percent of all room bookings in 2015.
As channels continue to shift along with consumer behavior, it’s important for hoteliers to monitor these shifts and understand the cost implications associated with each of these channels. The strength of Brand.com bookings is encouraging, as reservations through Brand.com are the most financially beneficial for the hotels; the costs are considerably lower when compared to both GDS and OTA channels which incur a significant commission. As the economic climate changes in the next few years, as it is certain to do, understanding and managing a hotel or portfolio’s channel mix will become an increasingly important discipline.
Mark Lomanno is a partner and senior advisor at Kalibri Labs, a next generation benchmarking platform for hotels operating in the digital marketplace, evaluating and predicting revenue performance at the industry, market and hotel levels. In addition to his role at Kalibri Labs he also advises several start-up and venture capital firms in the hospitality and data space as a member of the board of directors and advisors providing strategic direction and building industry relationships. Lomanno is the former president and CEO of Smith Travel Research.
Excerpt from the new special report by Kalibri Labs, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry, and a Q&A with SVP/Managing Editor Geneva Rinehart.
The digital marketplace has undergone significant change since Distribution Channel Analysis: A Guide for Hotels was published in 2012.
Following a deep dive into the travel distribution landscape, three primary themes have emerged:
1. HOTELS ARE EXPLORING NEW TECHNIQUES FOR IMPLEMENTING REVENUE STRATEGY. An abundance of new online models has driven an imperative for hotels to shift from traditional, analog operating methods to a focus on digital. Current operating methods are costly and deployment is inefficient. This fact is evidenced by third-party commissions rising at twice the rate of revenue growth. Hotels previously tried to be available on every “shelf” but most have realized at this point that (1) it costs too much to be prominent in every distribution channel, and (2) the dominance of third-party intermediaries in the consumer path can undermine the relationship between hotel and consumer. Hotels will always have the opportunity to build a relationship during the actual stay experience but risk losing out on the connection made through inspiration, information gathering and booking phases of the travel journey. Third-party intermediaries are focused on developing their own customer bonds and have little incentive to facilitate the relationship between a hotel and its shared customer. Therefore, despite the mutual dependence between hotels and third parties, a sense of competition arises for owning the customer relationship. Two critical components of revenue strategy involve managing to a hotel’s optimal channel mix, including close tracking of acquisition costs, and differentiating the guest experience during the stay as well as in pre-stay and post-stay contact.
2. THE LEGACY OTA MODEL IS DECLINING. Apps and metasearch are gaining traction by providing consumers a more convenient and seamless experience across air, car, hotel and other components of travel. The legacy OTA model once assisted consumers by narrowing down lists of hundreds of hotels while still offering a wide range of options. A number of new models point to a next-generation consumer interface. With metasearch and social sites (like TripAdvisor and Facebook), along with some new apps (like Google Trips) now seamlessly integrating many elements of travel, the evolution toward a curated consumer experience is underway. In the meantime, some foundations of the traditional OTA model have been challenged. Through rigorous research on consumer clickstream data, the billboard effect was dismissed as a dead concept. The claim had been that OTAs drove multiple brand.com bookings for each one booked directly on the OTA site, but the research study, sponsored by the Consumer Innovation Forum and released in 2015, proved there is barely any lift in brand.com bookings as a result of visits to traditional OTAs. Further, some conditions that locked up hotel inventory and rates for third parties such as rate parity and last room availability are dissolving, whether from European regulators in multiple countries or changes in large chain agreements. This change is paving the way for greater autonomy by hotels and smaller third-party distributors. These changes will ultimately result in a more open and competitive marketplace.
3. NEW ENTRANTS SPELL DISRUPTION FOR SELECT CUSTOMER SEGMENTS. There are a few key segments in which disruption is imminent. Corporate travel has long relied upon legacy travel management companies handling the larger managed travel accounts. This is in contrast to a high degree of fragmentation on lightly managed and unmanaged business travel. New developments are likely to force change in the traditional RFP process for corporate accounts. These include: rate scanning with auto-cancel and rebook capability up until day of arrival, reward and incentive programs for travelers to self-police their own spending, aggressive moves by third parties to aggregate the lightly managed accounts, along with consolidation by hotel chains who don’t participate in annual rate bids. Corporate account activity will further be diverted by the aggregation of home and vacation rental markets, which will also create supply spikes during leisure high-demand periods. The groups and meetings market is ripe for disruption as well. The last five years have seen extensive offline third-party intermediation but no one has yet managed to aggregate this demand by offering a compelling online venue for casual or professional meeting planners to shop and book. Historically, the booking of groups and meetings has been inefficient and costly but indications are that the next 3 to 5 years will bring new options for this segment. This highly inefficient process may finally be streamlined with reduced costs and an improved experience for the consumer.
These three themes, along with many more, will be explored throughout Part 1 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry.
Geneva Rinehart: If the cost of acquisition is rising out of control, is there any way for hotels to reverse that trend?
Cindy Estis Green: The costs have reached 15-25 percent of guest paid revenue. That is only second to labor costs an it has to be contained. I am not suggesting that it can be reduced by a huge margin just by paying attention to it, but you can't manage without measuring it. When airlines and car rental companies are low single-digit cost of sales, we know we can do better. Bringing the range down to 10-15 percent is a good target. Some hoteliers throw their hands up, saying they can't negotiate lower OTA commissions. Much of the net revenue improvements will not come from changes in the basic commission rates but rather through (1) better channel mix, (2) diversifying the sources of business, and (3) learning how to generate ancillary revenue.
Geneva Rinehart: What do you mean by an optimal channel mix for a hotel?How does a hotel go about finding it?
Cindy Estis Green: Every hotel has its own unique optimal channel mix. We have to start benchmarking against that optimal mix and not against average top-line revenue of a disparate group of hotels within a three-block radius that are not really comparable. A hotel has to learn all of its demand drivers and the cost of each and then test different scenarios to find the channel and segment mix that delivers the highest profit contribution. A hotel has to consider its physical condition, location, how it compares to competitors and its room/meeting space configuration. It has to be realistic about the limitations on sources of business, what it is capable of attracting and how much it costs to get that business. Then it has to tightly manage with maniacal focus to achieve its optimal mix targets.
Geneva Rinehart: You mentioned that hotels need to differentiate the guest experience. Are some companies better at this than others? Do you have any examples when it's done well?
Cindy Estis Green: Everyone thinks about how hard it is to acquire customers. Many of the brands are onto something now with a focus on growing their loyalty base. But they won’t make much progress without also putting some attention on the guest experience. If the booking and stay experience is different and unique, then guests will return. Good consumer product examples are Apple® and Amazon. CitizenM is a great example in hospitality. It generates 50 percent through brand.com and when it opens a new hotel, initially the majority comes through the OTA channels. It has no loyalty program but yet the experience has created a very strong, loyal base.
Geneva Rinehart: You suggest that OTAs will be overtaken by metasearch and apps, and yet Priceline has a larger market cap than all the hotel companies combined. Do you really see them in decline? What evidence are you seeing that tells you this is happening?
Cindy Estis Green: The OTAs are evolving and will continue to evolve. They aren’t going away. What we see is the consumer demand is evolving and providers are working toward that. For example, notice the money Expedia is putting into trivago advertising and Priceline is building KAYAK. They are both working on apps to include booking as well as guest service. And Google is launching Trips and Destinations – both apps that are likely to become competitive to the OTAs and the brand.com sites. Consumers want apps and other device-based access to information and booking. It’s consumer driven and those that provide the most compelling and convenient services to travel shoppers will win over the legacy booking options.
Geneva Rinehart: You noted some pretty big changes in the business travel segment. How do you think the corporate travel market will evolve?
Cindy Estis Green: The business travel market is ripe for disruption. It’s a lucrative base for hotels, and consumers are pretty savvy now with online shopping and buying. Some convention and routine business travel has already started to move to OTAs and metasearch. Travel management companies (TMCs) using the global distribution systems will still check other online sites before booking. If some new entrants make it easy for companies to save money and for travelers to quickly find affordable options, this market is bound to shift from the old traditional model with locked-in annual pricing through RFPs to a more dynamic model.
Geneva Rinehart: Airbnb is obviously a hot topic in the industry. Where and when do you see it affecting hotels?
Cindy Estis Green: Hotels are not uniformly affected by Airbnb. Our analysis so far shows that the primary period where Airbnb is potentially cutting into demand is due to lower compression during peak leisure periods like weekends and special events. During routine heavy compression periods in major cities, there is less overall impact – but at the segment level, there are distinct segments and rate categories where there is evidence of softening of peak rates. This will continue to evolve and change as more units are made available at the higher end of the market and as Airbnb gets more aggressive about the corporate market.
Geneva Rinehart: Ok, everyone wants to know if the book direct campaigns are really shifting more business to brand.com. Are the hotels getting higher profit margins?
Cindy Estis Green: Without getting into specifics, it is clear that the campaigns are shifting business. We see a lot of variation by market and by hotel segment. We will have more detailed recaps of the results in the U.S. market in Q4 when there is more data and time. I anticipate that with so many brands actively promoting book direct that the message to consumers will resonate. There may be some meaningful shift where consumers start to believe that booking on the direct channels has better
By: Cindy Estis Green, CEO & Co-Founder, and Matt Carrier, Director of Revenue Strategy & Account Management
Featured in the Fall 2016 issue of HFTPs "The Bottomline".
An excerpt from "Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry"
The digital marketplace has undergone a significant amount of change in the intervening years since Distribution Channel Analysis: A Guide for Hotels was published in 2012. What follows below is an excerpt from the follow-up to that book, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry co-authored by Cindy Estis Green and Mark Lomanno. In 2015 U.S. hotels paid approximately $25 billion in overall customer acquisition costs on guest paid revenue of $145.4 billion. This guest paid revenue grew year over year, from $135.5 billion in 2014 to $145.4 billion in 2015. Guest paid revenue represents the revenue a guest actually paid for a hotel room including any commissions that were retained at the point of booking by a net/merchant intermediary or wholesaler. Despite this, the revenue capture figure for the industry in the U.S. declined by .4 percent over that same period. Revenue capture measures the percentage of guest paid revenue that is retained after all customer acquisition costs are paid. The revenue capture decline, from 83.2 percent in 2014 to 82.8 percent in 2015, represented almost $600 million in revenue that, if it had been retained, would have contributed directly to net operating income and the hotel’s return on investment. Using an 8 percent capitalization rate, this additional cost of $600 million reduced the asset value of the overall hotel industry by at least $7.5 billion in 2015. That equates to $1.7 billion in real estate asset erosion for every 10th of a point lost in revenue capture.
With this impact of distribution costs in mind and following a deep dive into the travel distribution landscape, three primary themes have emerged:
1. Hotels are exploring new techniques for implementing revenue strategy. An abundance of new online models has driven an imperative for hotels to shift from traditional, analog operating methods to a focus on digital.
Current operating methods are costly and deployment is inefficient. This fact is evidenced by the rate of third-party commission growth rising at twice the rate of revenue growth. Hotels previously tried to be available “on every shelf,” but most have realized at this point that it costs too much to be prominent in every distribution channel and the dominance of third party intermediaries in the consumer path can undermine the relationship between hotel and consumer.
Hotels will always have the opportunity to build a relationship during the actual stay experience, but risk losing out on the connection made through inspiration, information gathering and booking phases of the travel journey. Third party intermediaries are focused on developing their own customer bonds and have little incentive to facilitate the relationship between a hotel and their shared customer.
Therefore, in spite of a mutual dependence between hotels and third parties, a sense of competition arises for “owning the customer relationship.” Two critical components of revenue strategy involve managing to a hotel’s optimal channel mix, including close tracking of acquisition costs, and differentiating the guest experience during the stay, as well as in pre- and post- stay contact.
Every single booking, no matter the source, comes with a price tag. A hotel will never get all of its bookings from a single channel and so hotels must work to identify and manage to an optimal channel mix. At the hotel level, managing costs is not simply about negotiating a better deal with a channel vendor such as an OTA. It’s about understanding the profile of demand in a hotel’s market, the costs associated with getting that demand, and then proactively managing to an optimal channel mix, optimal because it yields the highest net revenue and profit contribution.
2. The legacy OTA model is threatened while apps and metasearch are gaining traction by providing consumers a more convenient and seamless experience across air, car, hotel and other components of travel. The legacy OTA model once assisted consumers by narrowing down lists of hundreds of hotels while still offering a wide range of options. A number of new models point to a next generation consumer interface. With metasearch and social sites (like TripAdvisor and Facebook), along with some new apps (like Google Trips) now seamlessly integrating many elements of travel, the evolution toward a curated consumer experience is underway. In the meantime, some foundations of the traditional OTA model have been challenged.
Through rigorous research on consumer clickstream data, the “billboard effect” was dismissed as a dead concept. The claim had been that OTAs drove multiple brand. com bookings for each one booked directly on the OTA site. However, a 2015 research study sponsored by the Consumer Innovation Forum (CIF), an American Hotel & Lodging Association committee focused on the education and research of the hospitality industry’s digital and distribution space, proved there is barely any lift in brand.com bookings as a result of visits to traditional OTAs. Consumers had only a 7 percent likelihood of visiting a brand. com site after an intermediary.
Conditions that locked up hotel inventory and rates for third parties such as rate parity and last room availability are dissolving, whether from European regulators in multiple countries or changes in large chain agreements, thereby paving the way for greater autonomy by hotels and smaller third party distributors. These changes will ultimately result in a more open and competitive marketplace.
3. New entrants spell disruption for select customer segments. Corporate travel has long relied upon legacy travel management companies handling the larger managed travel accounts, in contrast to a high degree of fragmentation on the lightly managed and unmanaged business travel. New developments are likely to force change in the traditional RFP process for corporate accounts — such as rate scanning with auto-cancel and rebook capability up until day of arrival, reward and incentive programs for travelers to self-police their own spending, aggressive moves by third parties to aggregate the lightly managed accounts, along with consolidation by hotel chains who don’t participate in annual rate bids. Corporate account activity will further be diverted by the aggregation of home and vacation rental markets, which will also create supply spikes during leisure high demand periods.
The groups and meetings market is also ripe for disruption. The last five years have seen extensive offline third party intermediation, but no one has yet managed to aggregate this demand by offering a compelling online venue for casual or professional meeting planners to shop and book. Historically, the booking of groups and meetings has been inefficient and costly, but indications are that the next three to five years will bring new options for this segment which may finally streamline a highly inefficient process with reduced costs and an improved experience for the consumer.
With these major industry sea changes in mind it is clear that hotels must be more focused than ever on driving profitability through a focus on Net Revenue. These three themes, along with many more, are explored throughout Parts 1–3 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry. HFTP is a sponsor of the report, and a copy is available now to HFTP members (password: HFTP2016).
By: Cindy Estis Green
Featured in the Summer 2016 issue of Hospitality Upgrade.
It's no secret that there have been a flurry of book direct campaigns launched in recent months. This includes IHG and Accor launching campaigns in Europe in 2015 followed by Hilton, Marriott, Hyatt, and IHG in the U.S. in 2016. This trend has raised many questions about how these campaigns will affect hotel performance from an owner and operator standpoint. Additionally, concerns have been raised by third-party OTAs and meta search vendors about how it may affect their own growth targets.
AGGRESSIVE RESPONSES FROM THE OTAS HAVE INCLUDED: letters to hotels claiming the book direct campaigns are not working, de-ranking and “dimming” of hotel listings and removal of participating hotels from preferred listing status. Both the CEO of Expedia and Booking.com have come out in public statements indicating they are not happy about the book direct campaigns and intimating that the large chain brands’ attempts will not succeed. The OTAs retaliatory actions convey a message that they sense a serious threat to their business.
Based on Kalibri Labs analysis, the data shows that direct brand.com bookings are significantly more profitable than OTA bookings, to the tune of a roughly 9 percent before factoring in ancillary spend which can take this to almost 18 percent. These findings are based on analysis of a database of daily stay and cost history from 25,000 hotels in the U.S. from 2011-present. On top of this, the acquisition costs for customers using direct channels decrease over time while those for OTA customers remain steady or may grow as commissions rise. Hotels essentially pay the same commissions every time a guest comes through an OTA; there is no reduction in cost when volume increases or guests come back. In contrast, as loyalty rosters grow, the overall marketing costs are reduced and the entire system becomes more efficient. The added advantage of direct engagement leads to improved relationships with guests.
The other factor regarding the OTA channel is that the presumed “billboard effect” benefit, touted by third parties as a mitigating factor in the high commission cost of their channels, has been shown to be a myth. The Online Travel Shopper’s Journey study published by the AH&LA Consumer Innovation Forum (released in Part I of Demystifying the Digital Marketplace) will explore this in detail, but the key finding from the 2015 study is that there is only a 7 percent probability that a consumer will visit an OTA and then return to brand.com to book.
Third-party business from OTAs, meta search, wholesalers and traditional travel agencies can be an important part of the mix, but a high level of dependence on any channel or segment that carries a high cost can prove risky. Striking the optimal balance between direct and indirect business sources will ultimately result in a hotel enjoying higher profit contribution, delivering better consumer experiences through higher levels of guest engagement, and yielding healthier economics for a hotel as a result of a diverse business base.
First, to frame the issue it may help to assess book direct from the hotelier’s point of view. While cost of acquisition is certainly an important factor, it is only one variable to consider. In addition to the direct cost savings, most hotels have found that there are other benefits of increasing the volume of business that is booked through direct channels. We have determined five benefits and will examine each of these benefits individually to evaluate its impact on a hotel.
Lower cost of initial customer acquisition. When calculating the costs associated with a brand.com booking versus an OTA or meta search booking, it is helpful to compare both the direct costs as well as the net revenue and net ADR. Kalibri Labs refers to it as “COPE revenue” to reflect the revenue after removing direct transaction-related costs. The acronym COPE stands for Contribution to Operating Profit and Expenses and represents the percentage of revenue the hotel keeps for each channel after direct transaction fees are removed, such as commissions, channel costs and loyalty costs. Using upper upscale hotels as a sample in the U.S. market, the average brand.com booking has a COPE (or contribution) of 93.2 percent, which means it retains 93.2 percent of the guest paid revenue, while the average OTA booking yields only 82.7 percent. Of course, this includes a blend of retail, merchant and opaque OTA business so every hotel will vary. Even with the allocation of appropriate sales and marketing expenses and when all promotional rates including member pricing discounts are taken into account, the average net ADR is still almost 9 percent higher through brand.com.
Increased opportunity to use knowledge about a guest to personalize his or her experience. The knowledge about each guest can ensure that the products offered are consistent with what the guest is interested in receiving. Some guests would prefer to pay an upcharge for a deluxe accommodation and are happy to know when it is available. Some would like to take advantage of packages adding in parking or breakfast to the room charge. These kinds of offers are not easily managed currently on a third party site. In a full service or resort setting, hotels may have drinks, dining, spa or recreational offerings that can be sold in conjunction with the room. The benefit of getting that 10 a.m. massage appointment booked ahead of arrival compared to the experience of being told that all preferred time slots are already booked is a clear case of better serving guest needs. Using a select group of upper upscale hotels in the U.S. with a brand.com net ADR of $175 and the average length of stay of almost two nights, this guest type will yield an incremental $35 per stay in ancillary spend compared to those coming through an OTA channel with an average net ADR of $161 and less than two-thirds the ancillary spend. The hotels in this sample, when combining the nearly 9 percent higher net ADR with the additional ancillary spend of brand.com bookers, receive 17.9 percent higher net revenue from brand.com bookings than those coming from the OTA channel.
Opportunity to build on the relationship to get the guest to return to the same hotel or a sister hotel thereby reducing the recurring costs of customer acquisition. Many businesses calculate what is known as lifetime value analysis when evaluating the potential of their customer base. The cost of acquiring a guest the first time they come to a hotel is typically higher than the cost of getting that guest to return, making returning guests less costly over time. OTA business is predominantly not recurring, so hotels are constantly cycling through thousands of new customers. There are no economies of scale; that is, it is not possible to reduce the costs as sales volume increases and there is no difference in cost whether or not it’s a repeat visitor. Whether you are a large chain or a small independent, the hotel always pays a fixed premium as though each customer is a “first timer.” However, when a guest booking directly comes back multiple times, the higher sales and marketing expenses incurred on the first visit can be spread over future visits and total cost of acquisition over the guest’s “lifetime” use of a hotel are considerably lower. Hotels with a large recurring client base will generally be more efficient in customer acquisition spending, resulting in considerably higher net revenues.
Diversifying the demand streams so the hotel is not beholden to one primary source for all of its business, a high risk during a down economy. There is a growing concern around rising cost of sales as U.S. hotels are now paying 15 percent to 25 percent of the guest paid revenue to acquire their customers. In the 2008-09 recession, when demand dropped precipitously to almost 9 percent below previous levels, hotels were willing to pay a premium to those who had control over that demand. This forced commission levels to rise from 20 percent to 25 percent, which was the norm at that time, to upwards of 30 percent to 40 percent. That was a time when OTA business made up 6 percent to 7 percent of total room nights for U.S. hotels. Now that it is closer to 15 percent, the next recession could be painful if hotels continue to grow dependency on a channel over which they have limited control and whose objectives may not be aligned with their own. A range of demand drivers for a hotel creates a healthy balance and mitigates the risk of losses during the inevitable downturns in the future.
Improved engagement with the guest provides a better experience and ensures that he/she gets what was expected upon booking. Hotels have always scored considerably better than other sectors of travel in terms of consumer satisfaction. Hotels play important roles in their communities and part of that is driven by the experience hotels provide to their guests. The ability to build relationships with guests is better served when a hotel can communicate pre-stay, during the stay and post-stay. With or without a loyalty program, a hotel's ultimate success depends on its ability to deliver a differentiated guest experience and to engage the guest at every point of contact to that end. Few OTA customers are committed to hotel loyalty programs as they usually do not receive points for those visits. The focus for OTAs to build their own relationship with these customers also puts some obstacles between the guest and the hotel. Adding in the scams and other forms of deception, even the FTC is recommending that consumers are more likely to get what they expect by booking directly.
By: Mark Lomanno
For as long as I have been following the hotel industry, room rates that guests are charged have almost always gone up or down based on seasonality. The habit of pricing by season often results in wide fluctuations in room rates during the course of the year. This is of course with the intent of maximizing revenue by adjusting room rates charged to the guest based on anticipated or historical demand levels. I have often wondered how much revenue hotels have left on the table by either not raising ADR sufficiently during peak months or lowering them too much during slow months.
Recently I examined some Airbnb pricing data that made me think further about the value of pricing by season. Specifically, I was looking at some pricing by city (large cities with a large Airbnb presence) and by month for Airbnb vs. hotels, segmented by chain scale category. Initially, I was looking to see how Airbnb pricing compared relative to the various chain scale classifications to see where they were most competitive with hotels (a discussion of how we derived what we believe to be the most accurate way to determine pricing is a bit too lengthy to review here). While that data was extremely interesting, what was also fascinating was the difference in pricing by month reported by Airbnb properties vs. that of hotels.
What we saw was Airbnb properties have little to no seasonality in their pricing, while hotels have the variability discussed earlier. What further piqued my curiosity is that, while there was little seasonality in pricing, there was very significant seasonality in occupancy. In fact, the occupancy seasonality mirrored that of the hotels. This almost certainly indicates that the Airbnb operators are not capitalizing on their room rate potential in peak months. However, we see they do not drop their rates during slow periods, but still maintain an occupancy pattern similar to hotels, which results in a much better revenue performance than hotels in slow months.
Some of this is due to a lack of revenue management tools for Airbnb operators, a dearth that will likely disappear in the near future. Still, one man’s conclusion is that hotels need to take a hard look at their seasonal pricing, especially during the low season. Does all that discounting really do any good for your bottom line? I have long suspected that the industry does not need to lower their room rates as much as they do, both in downturns and seasonally.
By: Cindy Estis Green
Featured in the December 2015 issue of Hospitality Upgrade
2015 has been a whirlwind year for the digital marketplace. Here are just a few of the changes that affected hotels and the digital ecosystem in which they operate.
Expedia acquired Travelocity and Orbitz by Q3 of 2015 and most recently announced the acquisition of Homeaway to compete in the vacation rental space. Sabre announced the acquisition of Trust, adding to its breadth of independent hotel and small chain CRS offerings, and Amadeus consolidated its hold on Newmarket, expanding its distribution reach into the groups and meetings markets. Priceline/Booking.com pulled together a trio of companies to provide services to independent hotels. These companies included buuteeq to create websites, HotelNinjas to provide cloud-based PMSs and PriceMatch to offer revenue management services. Priceline/Booking.com calls the new offering Booking Suite and appears ready to compete with hotel brands and franchisors by offering an end-to-end distribution platform and related services.
Then Accor fired right back in Europe, Priceline’s stronghold (through Booking.com), by offering up a new booking platform, AccorHotels, for independent hotels that is open to any qualifying independent but does not require participation in one of the Accor brands. If that is not enough, Google has taken aggressive steps to monetize all of the primary real estate on the first page of every hotel search listing, allowing OTAs to bid on branded search terms, thereby creating a bias against direct bookings and raising the cost for those that happen. And Google ramped up Google Hotel Finder to accept bookings on a commission basis (wait, that sounds like an OTA business model!).
TripAdvisor, after months of attempts, finally reached an agreement with a series of hotel companies to offer hotel rooms for sale, with its crowning achievement being the Marriott deal in mid year. And it is offering Instant Booking (wait, that sounds like an OTA business model too!). Instant Booking is all the rage and is yet another example that everyone seems to want to dip their toe in the OTA waters.
Airbnb announced an aggressive move into business travel and claimed it had hundreds of new corporate accounts signed in the first 30 days. Rate parity is now outlawed in France under the new Macron Law with another form of rate parity restriction in Germany and other moves to regulate it in Italy, Sweden and more. Several large hotel companies announced that they dropped last room availability conditions in their contracts and widened the range of closed user groups to be eligible for special rates, further loosening rate parity restrictions. A preview of a new research study proves that the “billboard effect” is officially dead. This study raises serious doubt about the prevailing conventional wisdom, saying that a listing on an OTA site will benefit the bookings on brand.com.
Google’s practices are under deep investigation by the European Commission for antitrust violations throughout the European Union, and the European Commission also launched a multiyear investigation of all digital platforms, not just in travel. The commission opened up for comment until late December 2015 to gather facts about whether there should be increased regulation.
In the United States, the Federal Trade Commission announced a series of warnings to consumers to beware of potential scams that are rampant with online travel agents that purport to be official websites or call centers but are not. This follows a series of stories from several U.S. news outlets including ABC News “Nightline,” CBS News, NBC News and The New York Times describing in detail how some third-party sites deploy deceptive practices to mislead consumers.
Most of the technology consolidations seem to be designed to build more and bigger distribution platforms to support hotels in reaching travel shoppers and buyers. Amadeus and Sabre are moving away from their roots as GDS companies and looking to expand and offer a wider range of services to the hotel community. With the potential to be a next-generation OTA, Airbnb is pushing the legacy OTAs into vacation rentals to hedge their bets on the traditional hotel industry. Booking.com is certainly working both angles by claiming to have the largest portfolio of vacation rental listings while expanding into the business that hotel brand/franchise services have occupied. This is a good move in case Google decides to replace OTAs in the booking of hotel rooms through Hotel Finder. Expedia is working hard to build scale through a series of acquisitions.
Regulation and legislation are front and center activities in the digital landscape, and while it is new to the hotel industry, paying attention to government affairs with respect to technology appears to be gaining traction with hoteliers. The American Hotel & Lodging Association (AH&LA) in the United States has ramped up its efforts to impose needed regulation on the vacation rental sites with regard to safety, security and tax remittances to municipalities and states, and has sharpened its focus on the rampant consumer deception throughout the digital market. The European Commission is cranking up a machine to take charge of all things digital. It’s the Wild West online and it may finally be time to rein in the cowboys.
It appears that technology and hotel merger and acquisition activity will not slow down in the New Year. Everyone is vying for a stronger position and thinks that growing scale will earn them a bigger slice of the pie. Better fasten your seatbelts.
The hotel industry is flying into 2016 at high speed.