Despite not always seeing eye to eye, hoteliers and online travel agents are learning to work together
The uneasy relationship that characterized the early years of the hotel/online travel agency (OTA) coupling seems to be drawing to a close. As with every marriage, there have been undeniable periods of conflict for this pairing — periods during which one side felt a bit under siege by the other. It was even marked by trial separations, when one partner or another got distressed enough to actually pack a bag and take a place of his own for a bit.
But the dust appears to have settled and the fractious dynamic that once distinguished this inevitable union is gone, replaced with an affiliation that is largely affable; a comfortable companionship marked by an overarching conviction that this, for all of its prickly beginnings and lingering scars, is as good as it’s going to get.
But it wasn’t always this way.
“When OTAs first came onto the scene, the industry did not welcome them,” says Philippe Gadbois, senior vice-president, Sales and Marketing, at Atlific Hotels. “They were viewed as deep discounters” whose presence in the industry landscape presented a threat to both its profitability and its health. More than that, he adds, they portrayed themselves to hoteliers as an inflexible fait d’accompli without options. “They came at the industry with business models that were expensive and didn’t really favour [us.] It was ‘you need to be in, because if you’re not in, you’re going to lose, but if you come in, there’s no advantage to it.’ In other words, give me some inventory.”
Back in the day, when someone wanted to book themselves time away, the process was simple: trot into a travel agency and plunk yourself across the desk from an agent. With every sale, properties tucked 10 per cent or so into the agents’ pockets and called it square. But as time passed, and the Internet became more and more prevalent, the notion of purchasing travel online emerged as a natural, and web-based travel agencies proliferated.
“The hotels realized there was some opportunity to sell room inventory that they couldn’t sell the traditional ways through these companies,” says Tony Pollard, president of the Hotel Association of Canada. “It made sense. And it’s beneficial — so long as the hotel industry maintains control of the inventory. And, typically, they do.”
Almost from the start there were two types of OTAs: transparent and opaque. In the former, consumers make purchases with the full knowledge of the property they’re pursuing; in the latter, they bid on unknowns, submitting only a collection of parameters and nominating a price. “The average hotel runs about 60 per cent occupancy, so they have 40 per cent of their rooms that may go unsold, and they need to sell them,” explains Brian Ek, a spokesperson for Priceline. “The problem for a hotel is, any time you run a sale, consumers expect to buy all of your rooms at that price and won’t want to pay the published rate. With name-your-own rate, the hotels could sell those rooms privately to consumers, without [revealing] that someone was buying their rooms at 50 per cent below the published rate.”
More than that, says Ek, this model exposes hotels to customers that might not otherwise have patronized their properties. “Consumers move up a star level or two beyond what they would normally have been buying because they’re getting the room at such a bargain.”
The option of the two channels is a good thing, say hoteliers. But there are pros and cons to each. “There are some brands that will play in the opaque sites aggressively, because they don’t want to convey a broad feeling of discounting out there,” says Gadbois. “But we play sparingly in that bailiwick and more abundantly in the Expedias of the world. These opaque sites simply aren’t that profitable for us.”
In either case, online hospitality retailers were founded on a fairly simple concept: hotels offer them distressed inventory at favourable pricing that they sell on the properties’ behalf in exchange for a commission. In principle, it seemed a perfect plan with wins all around. A few growing pains, though, were inevitable.
“We were being held ransom in the early days for commissions that were just horrific — as high as 35 and 40 per cent,” says Gadbois, whose Montreal-based firm manages 45 hotel properties across Canada. The hotels, or the management teams, that oversaw them, grudgingly obliged. “As an industry, we knew what we were getting into, but certainly we were not happy.”
That unhappiness sparked at least a couple of public spats between the players, including one in 2004, between InterContinental Hotel Group and Expedia, in which Expedia pressured the chain to confront the question: which is more important to a hotel, its brand or Expedia’s role in selling it? That conflict saw IHG withdraw from Expedia, and stay out for two years. More recently, Choice Hotels International had a war of its own with the online behemoth, but it’s also since signed back up.
The pendulum swung the other way in the middle of the past decade when the industry insisted on introducing certain limitations to the OTAs’ powers in the form of a price-parity guarantee. Here, OTAs are obliged to ditch their aggressive pricing policies and commit to selling their products at a price not lower than that on offer through the brand’s own website. “Hotels, little by little, realized the public had to be assured that the best rate a hotel was offering on its website was the best rate consumers could get, or else they’d never go to a hotel to purchase,” says Pollard. This way, the OTAs’ activities don’t “undermine what we’re trying to do from a pricing point of view.”
The move had an impact. “Once the OTAs saw their volumes eroding and going back to the branded websites because of the guarantees,” says Gadbois, “they realized their business model was not necessarily as perfect as they originally thought.”
Further, this hand-tying move deprived OTAs of the ability to jostle each other on price. In theory — though some resentful buzz still permeates the industry regarding the heavy-handed role some OTAs play in this area — precisely the same deals were now available across the board. In its absence, they honed in, instead, on the promotion of properties’ general availability, along with the ability a consumer has to price-compare easily.
Gadbois foresees a future in which this stripped-down marketing approach will reach its nadir. Hotel suites will simply become commodities, he predicts. “It really won’t matter what the brand is. It’s not a future I look forward to.”
No need for such alarmism, says Pollard. After all, less than five per cent of hotel rooms are actually sold through OTAs, a fraction that’s actually declined. “We’ve learned how to manage our inventory better.”
Eric Schmidt, chaiman and CEO of Google, once said that “The Internet is the first thing that humanity has built that humanity doesn’t understand,” and to that effect, the hotel industry, OTAs and most recently, meta search providers like Kyak.com are very much in an evolving relationship. Undoubtedly, there will be continued jockeying for position, control and profits and probably a few more public spats. But one thing is certain, the scene won’t remain stagnant for long.