While location remains the most important element of a hotel, having thorough knowledge of all distribution platforms is essential for success, according to investors speaking at The Hotel Distribution Event in London.
LONDON—Investors are keen to know more than ever the ins and outs of hotel distribution—but it still doesn’t trump the tried-and-true notion that the most successful hotels are all about location, location, location.
Investors speaking at The Hotel Distribution Event in London told attendees that the complete distribution landscape from brand.com to online travel agencies to sites for short-term accommodations such as Airbnb can be lucrative if correctly used.
“(The industry is) more focused these days on not only when do we deal with the OTAs, but on what basis do we deal with the OTAs,” said Mike Jones, managing director of Hospitality Impact, who served as moderator of the “Investors panel.”
The use of third parties has been around for a long time, but the difference now is that through the internet, consumers have access to these rates across multiple markets in a matter of seconds, he said.
“That is something very different when the issue raised its head in the wholesale market—it’s the speed to market,” Jones said, adding that establishing rules of engagement is the key to successfully using third-party distribution vehicles.
“A lot of it comes down to what hotel (inventory) you’re giving to these guys,” said Nick Chadwick, SVP of hotel asset management for Starwood Capital Group. “It would be good and healthy if the kind of relationship with OTAs developed … was more the hotels were paying the most when they got the best of what they wanted from it and less as they used it for a commodity. How that works, I don’t know, but that would be my kind of view of where to push it rather than concentrating on driving down commission—having a more dynamic kind of pricing model.”
The case for working with OTAs
Stephen Walker, principal, strategic operations for KSL Capital Partners, said all parties can co-exist.
“The OTAs and Google, are they really our foes?” Walker said. “I guess we ask that question a lot. Don’t we have the OTAs in part to thank for generating demand and travel and popularizing on a global level?”
OTAs provide valuable exposure for first-time guests at hotels—but it’s up to the properties to convince those guests to book directly and to spend money on ancillary goods and services, Walker said. “The OTAs are continuing to be very focused on purely delivering rooms, and that’s not the maximum profitability in our hotels. Our focus has always been on how you take that customer on their second visit off the OTA channel … once we have the CRM relationship, we can attach more revenue through amenities and experiences.”
Peter Tengström, partner and managing director for Stockholm-based asset-management firm Midstar, said OTAs are more friend than foe to hotels, and all properties must be at the top of their game when managing inventory on third-party sites.
“That’s your window to promote your product and keep it in line with what you actually deliver,” he said.
Panelists gave a couple of examples about successful forays into hotels that only use OTA sites as distribution platforms.
Jacob Rasin, director of business development for Stockholm-based Pandox, said the company converted a 100-room leased hotel in Brussels’ city center to a system that relied solely on OTA reservations from Booking.com.
“It worked out well—it increased volume and increased rates. It gives the general manager less headache,” said Rasin, whose company owns 143 hotels. “The reservations department is not there so he can focus on the product. The guest sees that.”
The distribution costs remained about the same but it was a good choice for an independent hotel, Rasin said.
Meanwhile, Starwood has listed an independent hotel in London on Airbnb “to roll the dice and see what happens,” Chadwick said. “We’ve been surprised how many rooms we’ve sold. The commission to us is less. All our guests have been delighted in the service they’ve received because it was better than what they were expecting (from an Airbnb rental).”
However, there are downsides to such an arrangement, including “it’s still not the easiest tool to use in terms of connectivity, control of length of stay, blackout nights, that kind of thing,” Chadwick said. “It’s early days.”
Walker said some of KSL’s holdings have been successful at taking large suites that don’t sell often, renovating them and listing them on Airbnb.
“It’s a great way to list something that’s been hard to distribute in a traditional hotel,” he said.
The X factors
Technology and distribution—and what levers can be pulled by revenue managers—are factors when considering owning a hotel, but it still boils down to location and the choice between becoming a branded or independent property, according to Chadwick.
“If you get that wrong, no matter what you do you’re always going to be fighting to catch up,” he said.
Sometimes that boils down to the basic decision of whether to brand the hotel or operate it as an independent, speakers said.
“Brands for us are supposed to add the extra mile,” Tengström said. “I would trust them to be at the leading edge of distribution. But still, if we had a choice, like our property in Copenhagen that is unbranded … it’s interesting to see how well one can manage an unbranded property in the world as it is today.”
Knowing the cost of each booking through the various distribution channels is an important data element, he said.
“I don’t think a lot of hotels are on top of it,” Tengström said. “Some people are managing and coping with it, but a lot of hotels are still struggling trying to figure out how to do it the right way.”
On the distribution front, Pandox considers distribution a never-ending cycle and looks at whether a brand—whether it be through franchising or management—or independent status will make it the most money, Rasin said.
Walker said each of the five lodging-related companies KSL has in its ownership portfolio has a deeper revenue-management team than ever, and that’s essential when considering distribution strategies.
“The skill set and specialization around pairing up technology with the user of those tools is important,” Walker said.
However, it can create discomfort, he said.
“The traditional sales and marketing, revenue practitioners within our organizations tend to clash with the new age of distribution technologists,” Walker said, adding that there is some given-and-take among both sides to be the most effective.
An easy-to-use system is an important part of the process of developing a quality distribution machine, according to the investors.
“Something that seems to be extremely frustrating is that there’s so much knowledge out there, it’s overwhelming to the user, it’s overwhelming to the local office,” Tengström said. “There’s got to be some kind of consultation happening in that platform arena in order for it to be more user friendly for not-a-super-tech-educated person. If you don’t understand the system, then you can’t use it, and if you can’t use it, there’s no point in being in that system.”