While it’s been a challenging period for the entire hotel industry, many brands have been using this period to trumpet the fact that they have their built-in distribution platforms to buoy performance during the downturn and into the recovery.
Independent hotels, however, are by necessity more reliant on online travel agencies, and Hotel News Now reached out to operators of independent properties to see how the COVID-19 pandemic and its associated downturn have affected that relationship.
So far, hoteliers say, they have not grown overly reliant on the third-party booking engines.
Johnathan Capps, VP of revenue at Charlestowne Hotels, said the pandemic hasn’t changed his company’s distribution strategy.
“Our approach has always been mass distribution and we’re dialing that in based on compression/demand,” he said via email. “There’s no doubt OTAs have a loyal customer base, and during a time like an international pandemic, it’s hard to justify to an owner that you weren’t willing to take an extra room or two in the effort to cut down your usage/reliance.”
Harry Carr, VP of revenue management for Pivot Hotels & Resorts—the lifestyle and luxury division of Davidson Hotels & Resorts—said while the mix has changed, the approach hasn’t.
“In general, leisure bookings are a larger part of the business mix and with a few exceptions, hotels are not yielding out third-party channels,” he said via email. “We are participating in more promotions, but always staying in parity.”
Here are some other takeaways on the current environment with OTAs.
How much of your demand share is coming from OTAs as opposed to other channels?
Carr: “It varies wildly by market. The resort properties are seeing an average of 25% of the business coming through third parties. City-center hotels are seeing contribution up to 60%.”
Capps: “Demand share from OTAs hovers around the 22% mark. This year is tough to gauge as a hotel management company, as we’ve had properties with staggered openings and closings, so the percentage is tough to compare from a year-over-year perspective. From an individual property perspective, we’ve had all but two properties see a decrease in demand share over the last eight months, and those two properties are flat year over year and saw a somewhat high-volume summer.”
What do independent hotels need to do to avoid over-reliance on OTAs?
Carr: “Avoid the ‘race to the bottom.’ If hoteliers participate in spiraling rates, it will be harder to get back to 2019 levels. Use ‘fenced’ rates that are based on length of stay or qualified discounts. Increase value-added offers for parking, hotel credits, etc. (to) increase a lower rate.”
Capps: “Great tracking and reporting are crucial to avoid an over-reliance on OTAs. Hoteliers need to have a firm grasp of how much business each OTA is producing down to the rate type on each OTA by day, understand the year-round impact of that business, and the demand levels behind the overall hotel. There could be opportunities to scale back specific rate plans or opaque rates year-round, turn off promotions, decrease advertising spend, turn off a particular OTA partner that may not produce business via ‘creative parity,’ or turn them all off for particular time periods. On the independent hotel’s end, there needs to be a balance in marketing/brand spend. None of the above can be done without having the foundation of a good website, booking engine and rate distribution strategy in which the hotel is equal or better than what is being distributed to OTAs.”
How would you describe the current state of the relationship between OTAs and hotels?
Carr: “Everyone is scrambling to fill rooms with little demand.”
Capps: “My opinion of the OTA-hotel relationship is that it’s status quo. With both parties operating with limited resources and staff, OTAs and hoteliers are in survival mode, just fighting to make it past the pandemic. If anything, there’s the potential for the dynamic to worsen with a lack of service response or general contact while both parties are focusing on rebounding as fast as possible.”
What needs to change for the better?
Carr: “OTAs and directors of revenue management should focus on building consensus. Instead of unilateral actions, work as a market team. “
Capps: “Hoteliers need to get their footing back and a new contract from the OTAs. As an industry, we conceived too much long ago, and we haven’t demanded any type of change or better controls of governance. While OTAs aren’t going to agree to sign individual contracts with every hotel, hoteliers should ask for more of what can and can’t be done on their side, and work that into addendums. This includes how their commission can be manipulated in relation to rate, how the sort order can be affected, and how they can act and buy certain things within the naming/marketing of the hotel.
“One potential change could be a penalty model in which the OTAs are monetarily penalized for proven parity violations. Parity issues from a hotel side are responded to with rate adjustments and/or commission adjustment from the OTAs. OTA violations are often filed under caching and/or a response to another OTA’s parity issue; ultimately this creates an unfair playing ground for the hotel, especially as there’s potential for the hotel to lose a full-rate booking. This type of change may require our longstanding industry organizations to form a task force to sort this out, or a technology partner to provide transparency proofing of where the issues are stemming from.”
Have OTA commission structures changed at all during the downturn?
Carr: “Not for our hotels. Expedia has pushed discounting programs like Accelerator and Travel Ads. All third-party channels have tried to push special offers or margin enhancements but no permanent margin changes.”
Capps: “I haven’t seen OTA commissions structure change, more the opportunity to spend advertising dollars at a reduced cost. While I didn’t expect OTAs to jump out and cut commissions for three months for all hotels, I did expect them to dial back the push for deals and promotions, as creating a false sense of opportunity to capture demand could be impacting the overall rate integrity of the market.
It’s important to understand that rate integrity is crucial at a time like this, where the entire hotel industry is at the mercy of a pandemic that has no definitive end date in sight. There have and will always be instances in which OTAs promote how heavy their demand is coming back and how a big promotion could really capture and/or steal hotel share. Knowing that there are under-informed operators out there, these tactics can mislead hoteliers and ultimately have a compounding effect on that hotel’s competition and maybe even their market as a whole.”
How do you think the independent hotel-OTA relationship will evolve as the industry rebounds?
Carr: “Without group or corporate negotiated business at the brands, the OTAs will have more inventory. Independents will need to fight harder for placement and overall exposure. I think OTA value-add packaging will become more prevalent.”
Capps: “I’m not sure the industry rebounding changes the relationship; it’s already so broad that I think in some ways you will always have some form of it. A healthy hotel-OTA relationship boils down to defining what type of partnership should be had to bring about success for the hotel. Right now, most hoteliers have a ‘surface-level’ relationship with OTAs, the way one would with a mechanic or mailperson—it’s cordial, at best, with minimal interactions that occur on a need-to-know basis. While I’m not looking to have a cocktail and watch ‘This Is Us’ with my OTA counterparts, in order to help this relationship evolve, I am looking for a little bit more of a personal relationship with OTAs—one which prioritizes transparency, honesty, and the success of its hotel partners.”