LONDON—In a rapidly evolving distribution landscape, hoteliers are employing a number of strategies as they struggle to navigate their surroundings, according to a panel speaking last week during a session titled “Disruptive Business Models” at EyeforTravel’s Travel Distribution Summit Europe 2013.
“In a hotel 15 years ago we knew how to do things. There were no systems and no big data. Distribution was also very simple; it was relatively easy to manage with one-to-one contacts,” said Lennert de Jong, director of distribution and business development for CitizenM Hotels.
Lennert de Jong
Things are more complicated today, he added, as hoteliers must tackle the complicated field of distribution on top of their pre-existing responsibilities.
“If you look at a hotel now, they still need to do breakfast, check people in, have a call center and do all the things you used to. However, now it has become a distribution landscape. For hoteliers, it is becoming truly confusing,” de Jong said. “New models are emerging all the time. Sites like TripAdvisor mean all of a sudden you can’t control the guests. Then there are new business models—discounting, distressed inventory—all fighting for business with a new level of aggressiveness.”
Hoteliers often are left feeling helpless or annoyed, he said.
“Commission levels have increased. Hotels pay a big chunk to third-party sites. Customers are no longer our customers, they are other people’s,” de Jong said. “You can’t always talk to them by email as you don’t get their details. People are going after your business. Most of the (hoteliers) don’t really understand what they have to do to get in front of their clients.”
New business models emerge seemingly every day, which only adds to hotelier’s confusion, panelists said.
Closed user groups, for example, allow hoteliers to break from their parity agreements with third-party platforms by offering special deals or discounts to a specific subset of target consumers, such as loyalty members.
“We find it’s a lot of work, as you need to dedicate quite a lot of headcount to such things. It certainly disrupts the market, but we don’t feel it is a viable long-term way of working and we don’t particularly want to invest in it long term. If you’re going to discount, you probably want to do it more directly to your consumers,” said Alex Gisbert, international managing director for Low Cost Travel Group, which for 2013 projects approximately 2.5 million customers using 150,000 hotels.
Low Cost Travel Group
Gisbert also highlighted pre-packaging (in which travelers purchase a pre-set travel package that can include hotel, flight and car rental) as well as dynamic packaging (in which consumers create packages themselves).
“What is complicated about dynamic packaging is just the ridiculous amount of data caching as it involves so much engineering and hard work to put together,” he said. “The most disruptive part of dynamic packaging is making it scalable at a cheap cost. It is worth it, but it is incredibly expensive to produce.”
Perhaps the most disruptive business model, however, is mobile, Gisbert said.
“The biggest disruption affecting the travel industry is mobile, which has completely changed the distribution and cost models. In the U.K., 46% of searches in Q1 on Google are now happening on mobile. … The shift has been so brutally fast,” he said.
“No one is building mobile sites fast enough. For those of us who rely on direct business, that is a problem. But it also means if the third-party sites are not adapting quick enough, they are also losing you traffic. It is getting more expensive and putting pressure on margins,” Gisbert said.
Trying to adapt
De Jong said CitizenM is trying to address and embrace new technologies.
“We are working with TripAdvisor to try to show up directly. We have found Facebook advertising very profitable, with 16 million impressions a week and a 6% commission. We also integrate our acquisition efforts in one place, managed through one dashboard. … We have spent 25% of our total spend on advertising,” he said.
“(Hoteliers) need to invest in knowledge, systems and of course your online guest experience,” de Jong added. “Otherwise you lose people to the (third-party) bookings sites.”
Economy chain Tune Hotels is addressing potential disruption by adopting some of the pricing models of successful budget air carriers in the Asia/Pacific, said CEO Mark Lankester.
“We will discount out, up to a year in advance, at deeply discounting prices. Book online in advance and that will be the best rate,” he said.
Tune also has adopted the air carriers’ practice of charging for “extras” such as towels, shampoo and other products.
“In 2012, the airlines ancillary income was worth approximately $36 billion, making money from baggage and extras rather than selling seats,” Lankester said.
The budget chain puts a heavy emphasize on driving bookings direct over third-party platforms.
Avoiding such intermediaries is the ideal approach, CitizenM’s de Jong said, as it allows hoteliers to retain higher profits and more information about the incoming guest.
But a booking lost to a third party does not mean crucial information about the guest is lost as well, he explained.
“(Hoteliers)s have the potential to get a lot of data as we spend a lot of time with guests. They don’t stay at the website, they stay at the hotel,” de Jong said. “We are now working with a company to integrate all this information and want to educate our fellow hoteliers. What hotels need to do is change your silos, change your mentality and start analyzing real data.”
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