Hoteliers are holding out in the continued fight to lower OTA commission rates and bring more business in house, and representatives from both sides met during the first day of the Hotel Data Conference to debate distribution.
NASHVILLE, Tennessee—The conversation that concluded the first day at the Hotel Data Conference was always civil, but there was a tinge of feistiness when the topic turned to the topic of online travel agencies.
Panelists participated in mock-debate style during the “Red, white and brew debate: Dissecting distribution decisions and dilemmas” session, and the two hoteliers on stage— Bharat Patel, chairman and CEO of Sun Development & Management Corporation; and Doug Browne, president of Peabody Hotels & Resorts—were asked to specify their distribution booking mix and cost. Both executives hedged on exact figures, but agreed their companies paid too much to the OTAs.
“The (global distribution system) is the most expensive channel there is,” Patel said.
Patel climbed on stage wearing a large Donald Trump mask and hoisted a sign that said “Make hotel owners great again!” During the debate, Patel said the distribution issue keeps changing.
“The whole landscape has been analyzed as to what the cost is today and where it is going, and that is 25% or even 30%,” he said. “As the world has become more digital, commission and costs have gone up.”
Browne agreed that the distribution landscape isn’t as symbiotic as it used to be.
“Guests come in from so many different angles, but there’s a feeling among us that there’s a disparity on OTA costs between companies,” he said. “When I think back to when I was a kid, there was a love-hate relationship with travel agencies, but their commission was either 10% or 15%. With the OTAs, the costs are hard to get your arms around.”
Rebecca Bucnis, EVP and chief commercial officer of Kalibri Labs, said that in 2015, top-line hotel companies paid about 18% in customer acquisition on average.*
Melissa Maher, SVP of global partner group at Expedia, went a step further.
“Bharat (Patel)’s overall cost has been reduced by 25%,” Maher said, referencing Expedia’s research on commission levels. “We have been able to bring our compensation down, and we are listening to our hotel partners. And (Doug Browne’s) has gone down as well.”
“I feel we are doing our part,” Maher added.
Browne insisted that the distribution game isn’t fair to hoteliers.
“When OTAs came in, they said, and we thought, they would bring in incremental business, and there is a feeling that is not the case today, as we only see costs going up, and (average daily rates) are not going up as fast as they could to offset those commission costs,” he said.
Patel said he believed hoteliers needed to analyze all of their assets, and Bucnis agreed.
“There is a whole range of change going on out there ... and we all believe it is so much change that (we) cannot control it anymore,” she said. “It is not so much that channels are too expensive, but that the lack of knowledge is far more expensive.”
Patel and Browne remained convinced the push among hoteliers for brand.com was working.
“Brand.com is the same as 1-800 (phone numbers), and have hotels done anything that good since?” Patel said. “Where are the savings, and why have they not been passed on to us?”
Bucnis said the lack of success for this channel stems from the mindsets of millennial travelers. She also said that a good percentage of brand executives were not of that generation.
“Our numbers say that shift is happening, and if the question is are brands making a difference, then the answer is that brands are trying to make a difference,” Bucnis said.
Browne said OTAs were smiling at this lack of hotelier expertise among consumers.
“They get away with it because they can,” he said.
After two rounds of squaring up, the panelists began to find their range when the conversation turned to discounted loyalty rates, which have begun to appear on OTA sites.
Browne said he was not impressed with the new tactic.
“At the end of the day, I think it is a mistake,” he said.
“The fear is that once (hoteliers) start offering that rate on OTAs, then, well, here we go again,” he said. “It will mean less money in our pockets. I hope brands do not cannibalize brands, as the brands will lose value, and owners will lose money.”
Maher said the distribution landscape is in a period of evolution.
“Brands are trying to increase their proposition. … For us, it is about the consumer and supporting our partners,” she said.
Bucnis reiterated the notion that at the end of day, it was hotels that owned the hotel experience and thus had control if they sought to use it. Patel disagreed, and said OTAs are armed to do much more.
“Nothing stops the OTAs being a one-stop shop and undermining everything hotels do in regards to loyalty,” Patel added.
The sharing economy and other concerns
As the debate shifted to the sharing economy, Bucnis said that such peer-to-peer services will change things sooner rather than later, while Browne said hotels’ often-high rates did not help the matter.
“Without a doubt, Airbnb is a distribution channel,” Browne said. “In New York (City), for example, you cannot get a decent rate, so the next step is Airbnb. (Hotels) are no longer experiencing that icing on the cake they used to get for last-minute rentals, as it is going to Airbnb.”
Patel edged closer to his corner of the ring.
“Everything other than my hotels give me headaches, but the biggest headache is the lack of regulation against firms such as Airbnb,” he said. “Hotels are always reactive, never proactive. Brands have billions of dollars, too.”
Browne said his biggest concern is where the November election will next take the U.S.
“What scares me the most is government,” he said. “It contains people who have never run a business, and all those unknowns government does gives you that sick feeling to your stomach.”
* Correction 8 September 2016: An earlier version of this article stated that OTA commissions were 18% on average in 2015.