GLOBAL REPORT—Although large-scale hotel brands have denounced online travel agencies in recent years, instead focusing their efforts on driving travelers directly to their own websites, there seems to be a shift in attitude of late.
Hotel brand executives are beginning to embrace OTAs again, even calling them partners, as companies such as Expedia and Priceline work through complex negotiations with many of the major brands.
OTAs are “a definite part of the value chain,” said Pat Pacious, executive VP of global strategy, distribution and technology for Choice Hotels International. “When your hotel is looking to discount, they’re a viable channel.”
Accor Hotels recently signed a long-term global agreement with Expedia; Jean-Luc Chrétien, Accor’s executive VP of sales, distribution and loyalty programs, called the relationship “fruitful.”
“Accor has not a very strong hotel presence in North America, a very important emitting region for the hospitality industry,” Chrétien said. “Expedia, among other partners, has helped us increase the visibility of our brands and hotels in these markets and consequently driven a lot more American and Canadian guests to our properties in Europe, Latin America and Asia.”
The change in tune could be pinned to a number of driving factors.
First, hotel suppliers typically rely less on third-party intermediaries during times of high demand. With occupancy nearly back to pre-recession levels and U.S. hotels selling more roomnights annually than ever before, suppliers could find themselves in the driver’s seat having to rely less on OTAs and therefore write fewer commission checks.
Similarly, high demand gives suppliers more leverage when negotiating commissions with partner distributors. According to sources, new brand agreements with Expedia in particular are at lower margins than in the past.
While lower commissions could be a direct result of less dependence on traffic, some argue increased competition in the OTA space is driving down margins.
“They’re competing with each other, which I think is helping bring down the cost of that channel, which is good for hotels,” said Pacious, of Choice, who itself is currently at the negotiation table with Expedia.
Choice inked a deal in March with Booking.com, which is trying to close the gap on Expedia’s dominance in the U.S. with a recent marketing push and its acquisition of metasearch site Kayak. At the time, Choice said in a news release the agreement provides it “the opportunity to diversify global relationships with leading OTAs.”
However, while Expedia representatives said negotiations with suppliers have become more complex, they do not attribute it to increased competition in the space or to the fact that suppliers are holding out for lower commissions.
Instead, Melissa Maher, senior VP of Expedia’s global partner group, said suppliers are getting more sophisticated in trying to capture the type of business they want and are looking to Expedia for more tailored deals. For example, some chains want more global business, some want more package business, others want more weekend business, she said.
“They have more sophisticated revenue management systems today and more technology as it relates to a direct connection,” Maher said. “We have done contracts where the chain has said, ‘We want to utilize OTAs to build business further out,’ so we’ve tailored our deals for that.”
For Accor, Expedia’s increased footprint in Asia is important as the hotel company is developing aggressively there. “In markets like China,” Chrétien said, “they represent an important complementary channel for our hotels in the region.”
Pacious said Booking.com is strong in Europe, which is accretive to Choice’s future plans in the region. “We wanted our European hotels to be able to plug in at a good rate and under a good agreement and they wanted entry into the U.S. so it was a good partnership for both of us,” he said.
Another complexity adding to the deals between Expedia and hotel suppliers is the OTA’s introduction of the Expedia Traveler Preference program, which allows guests to reserve a room on Expedia but delay payment until they check into the hotel. The new model shifts much of the payment processing burden to the hotels and therefore suppliers are reportedly asking Expedia to shave a few points off their margins to make up for that.
Accor, the most recent hotel chain to sign on with ETP, said the new model wasn’t critical to its agreement.
“This model is clearly aimed at mainly improving Expedia’s reach in European markets where Accor has already a strong position and strong Web sales,” Chrétien said. “However, from the North American and Asian markets, we do expect to see additional and incremental revenue being driven by this new model.”
Perhaps another reason hotel brands and OTAs are seeing more eye to eye these days is the collective hurdles they face with Google, which has made a grand entrance into the travel research and booking space. Google is capitalizing on the fact that many travel researchers start with a search engine to drive up the cost of keywords and cost-per-click revenue.
Getting traffic from Google is a costly proposition hotel brands and OTAs fear will only rise.
“The group that’s making out the best is Google,” Pacious said. “This is an unbelievable price war that’s going on; they’ve got the better asset-light model than we do, which is around a keyword that you buy for a certain period of time. It’s unbelievable.”
“But that can only go so long,” he continued. “At some point, they’re going to stop spending billions of dollars on it because there’s only so much on that first page that can be monetized. And you see TripAdvisor heading in that same direction. It’s just something to keep up with. They’re a necessary player in the industry but you want to make sure they’re playing fair.”
Maher said advertising and marketing in general are at the forefront of what Expedia does and they will continue to spend with Google as long as the traffic flows.
“We spend over $1 billion a year and we’ll continue to do that,” she said. “We’ll look at all the avenues to make sure we’re driving demand to our hotels.”