The short answer to this question is: it looks like a tie.
Increased levels of direct booking has had positive outcomes for major hotel chains, but that doesn’t mean online travel agencies will necessarily lose anything with those changes. In fact, OTAs might just see a shift occur which puts them slightly ahead.
OTAs make more commission from small or independent hotels than they do from big chains. If they lose larger hotels but gain more small entities, this could result in a shift of revenue rather than a decrease. Direct booking could become common practice for all hotels. But OTAs have much in the way of inventory and marketing budgets; pairing that with the higher commission on the increased number of small hotels could actually result in slightly more revenue for OTAs.
It would be expected that the shift from OTA use to direct booking would result in a significant change in earnings. But hotels report success, and Expedia reports no impact. This doesn’t seem logical, but the numbers back it up.
Hotels are reporting gradual increases after moving to direct booking. Hilton reports a 2 percent channel shift in the 3rd quarter. CEO Christopher Nassetta stated, “Guests continue to prefer our web direct channels with share increasing to 28 percent of the distribution mix in the quarter, our highest level ever.” He also reported that the HHonors loyalty program saw a 60 percent increase year-to-date.
Expedia was up 11 percent for the third quarter; while this seems like substantial growth, it is actually low compared to that of Priceline (up 18-23 percent in the 3rd quarter). While Expedia may have to change the angle from which it approaches growth tactics, it can be deduced that direct booking is not having a negative impact on online travel agencies at this time. (At first glance, these numbers make it look like Expedia is being negatively affected by direct booking while Priceline is not be affected at all. But the more likely factors are Priceline’s international presence, and Expedia’s merchant model business strategy).
Expedia CEO Dara Khosrowshahi reports that there is no real difference to be seen with these changes. He reports that “…in general, the players who are giving us the best inventory are growing faster in our marketplace, both in terms of direct bookings and … the traffic that they’re acquiring.” He went on to say that the shift is resulting in positive margin and that the RevPAR trends are improving, attributing this to the shift toward increased commission.
Both players can continue to succeed if they don’t focus on out-competing one another in pricing wars. There is enough opportunity for both direct booking hotels and OTAs to continue experiencing upward growth and economic success.
Airbnb has filed a lawsuit against New York State’s attorney general, New York City and its mayor Bill de Blasio after a law was enacted which penalizes residents who violate laws pertaining to short-term rentals.
A New York State law dating back to 2010 prohibits residents from renting out their residences for less than 30 days when they are not present. This bill, signed into law by New York Gov. Andrew Cuomo, adds to that by authorizing fining residents as much as $7,500 if the violate this law.
Airbnb claims that this is a violation of hosts’ free-speech rights and due-process rights, and demands to know whether Airbnb or its hosts would be held responsible for violations.
This is not the first such lawsuit filed by Airbnb against a city. Last June, the company sued San Francisco over a bill which stipulated that all hosts must register with the city, or else be fined as much as $1,000 per day for each listing. Anaheim imposed similar punitive measures on its residents in July; Airbnb sued that city as well, and Anaheim ceased its efforts to regulate the listing practices within 2 weeks of the lawsuit being issued.
New York Hotel representatives allege that Airbnb hosts aren’t subject to the same regulations as hotels, and together with New York Attorney General Eric Schneiderman they claim that Airbnb is responsible for “full-time hosts” who illegally rent out unoccupied units. Residents renting their homes for at least 360 days per year generated almost 25 percent of the total revenue generated by all New York’s Airbnb hosts.
Airbnb’s effect on the New York hotel market has been hotly debated. In February, a hospitality research firm reported that the rentals did not decrease Manhattan hotel demand, due to Airbnb units’ rates being considerably lower than those of the city’s hotels. Another report stated that Airbnb is responsible for about 5 percent of New York City’s total lodging revenue per year.
Is Google planning to become an online travel agency?
Not any time soon. While it seems like it would be easy and profitable for Google to take the next logical step into the realm of travel agency, the company actually makes more annual profit from travel advertisement than Priceline, and generates more per year than OTAs than Expedia, Ctrip and TripAdvisor combined. In short, Google’s travel business is already larger than that of any major OTA as it is. Google believes its place in travel is with the advertisement of travel agencies, not competing alongside them.
Competing with OTAs would isolate its biggest advertisers (Priceline and Expedia). These companies, along with growing companies like Airbnb, would need to continue using Google for their advertising even if Google did make the switch to being a travel agency.
While Google has all the tools needed (minus the customer support) to start its own full-fledged travel agency, along with already having many travel-centric apps (such as Google Flights, Maps, Trips, and Book on Google), it’s just not the company’s goal to switch the role they currently hold in the travel industry.
Google’s Vice President of travel, Oliver Heckmann, very clearly articulated that Google regards itself as a link between customers and businesses; while it facilitates booking for Lufthansa, Virgin America and WestJet, it will not sell flights by itself. And while it connects travelers and agencies via free and paid links, it will not become a trip-planning site. Doing so would have negative consequences for the most major travel advertisement business on the planet. Heckmann stated that Google wishes to maintain the positive relationship it has with its online travel agency affiliates.
It is probably that one of the biggest reasons for this misguided speculation is the app Book on Google. Customers are not booking with Google on this app, rather Google is facilitating (processing) the booking while the customer’s transaction occurs with the affiliated airline or travel agency.
The moral of this story is that Google isn’t thinking of killing its extremely lucrative relationship with partners like Expedia and Priceline to become their competitor and stop advertising for them; there simply is just no reason to do that right now.
In March 2016, Facebook’s research platform, Facebook IQ conducted a study on travel loyalty, and the results are telling. 14,700 U.S. adults (aged 18+) were surveyed on brand loyalty in five industries – hotels, airlines, auto insurance, restaurants, and grocery stores. Respondents were divided into 3 types: brand loyal, repeat purchasers, and disloyal. Note: Repeat purchasers make repeat purchases from companies but I are not loyal to them – but, they could eventually become loyal.
Out of the response categories of cost, quality, experience, and consistency, the results reveal that traveler loyalty is largely based on experience overall. This means that people are willing to invest in memorable experiences more than anything.
Brand loyalists said that service and trust are most important. Repeat purchasers find price, flight availability and hotel location most important. Millennials (ages 18-34) are less brand loyal, but say they would be more loyal minus the current barriers they experience (cited as difficulty contacting hotels and airlines).
This past year has shown a shift in the way brands and companies are changing their loyalty programs to better align with changes in traveler preferences and complaints.
Hyatt Hotels will be completely replacing their loyalty program in order to better serve their high-end travel customers; they will be giving members the option to earn points for spending with a hotel in order to redeem things like dining experiences and spa treatments. Wyndham Worldwide recently expanded their program to sync up with the preferences of repeat purchasers; with location being a repeat purchaser’s deciding factor, Wyndham made it possible for members to redeem their points at 17,000 additional hotels, rental and timeshare locations than were previously available.
Airlines have also started changing their loyalty programs. Delta recently announced that it is experimenting with new pricing, which will accommodate airline repeat purchasers (whose deciding factors are low prices and flight availability).
The results of this study will provide companies with the knowledge they need to make changes which will benefit their existing customers, attract new customers, and better secure loyalty to their brand over time.
Keeping Up With the Times
Society now operates on the seamless pairing of mobility and connectivity, and hoteliers should follow suite if they wish to experience continued success. While this era is evolving to be digital in every way possible, hotel stays are just not able to be replaced by computers. However, communications and operations can and will be replaced by digital, streamlined applications; by changing with the times to marry old traditional practices with new communications, hoteliers can continue to grow and remain relevant.
Revenue managers have already started experiencing the technological changes, which dictate how they perform their jobs and make their decisions. Price changes can be done instantly with the click of a button, and promotional offers on social media platforms can reach millions of people in a matter of seconds. Coupling new technology with the millennial workforce presence makes it apparent that managers will need to keep up with the rapidly changing mobility trends in order to ensure their companies’ place in the industry.
Advances in technology render the need for staff in offices more obsolete, and globalization of industries means more employees are traveling. It is imperative for traveling staff members to be able to make or change reservations on the go and in seconds. Cross-platform technology enables hoteliers to form processes and make decisions around the current technological trends, and managers should be using this to their advantage to accommodate the ever-increasing need for instant booking and communication capabilities.
Communication, Communication, Communication
Customers and employees alike now want communication at their fingertips. Snapchat, WhatsApp, and Skype for Business are examples of messaging applications which can be used to a hotel company’s advantage. They enable personalized customer interactions and instantly sync up staff; this increases efficiency, leading to better customer service and satisfaction overall.
Hotels like the Marriott are increasing their usage of chat applications with customers to streamline and improve communications. Internal chat applications such as Slack enable even the most global teams to communicate instantly and therefore increase efficiency and quality.
Putting It All Together
The layered nature of the various and ever-evolving applications creates the need for personalization so as to stand out to the customer and keep hoteliers ahead of the curve. Integrating mobility and connectivity will allow for heightened functionality and better, faster decision making. Improving communication both internally and externally will facilitate great performance and satisfied customers. Companies must keep their platforms intelligent, intuitive, creative, and rapidly evolving in order to remain engaging and competitive. Entire businesses and lifestyles are now run from a user’s phone, and hoteliers should adapt to this new norm to remain successful in this new and innovative era.