HOTEL ANALYST CONFERENCE COVERAGE 2017
OTA Impact Flattens
Has the hotel sector reached “peak OTA”? There was speculation at this year’s Hotel Distribution Event, hosted by Hotel Analyst in London, that this may be the case.
In the strong UK market, the OTAs’ share of bookings has not increased according to data from Travelclick, reassuring many, as fears over the impact of Airbnb were also played down.
Hotel Analyst editorial director Andrew Sangster opened the conference quoting Phocuswright figures that the OTAs’ share of the online travel market was expected to rise from 39% in 2016 to 41% by 2020.
Steffen Doyle, managing director, co-head of European real estate investment banking, Credit Suisse, told attendees that online penetration in general was expected to continue, to reach 40% in 2020, but that it was not expected to climb “infinitely” given that much of the market using it was leisure oriented and that the corporate market continued to use a wealth of other methods to acquire its rooms.
Sangster also pointed to a lot of travel still being “transacted offline and a lot of B2B, which [potential entrants such as] Amazon cannot disrupt”.
Doyle described a buoyant market, which put hotels in a strong position when selling rooms. Doyle said: “Demand is far outstripping supply – in Europe supply is at 0.9%, very low, with demand at 4%, driving revpar growth.” He added that, echoing the US, the brands were “going to increasingly penetrate Europe and that will change the OTA penetration in the region”.
Faith in the ability of the brands to drive revenue was shared by Jerome Wise, VP, enterprise clients, TravelClick, who said that the direct and OTA channel mix in the UK were the same this year as last – with brand.com bookings up by 0.2 percentage points. A small, but, he said, not insignificant increase.
Counting “reasons to be cheerful”, Wise said: “In a strong market hotels should be taking control of their rates and channels, hopefully hoteliers are leaving enough inventory to be able to provide rooms right up to the last minute without having to drop rates.”
Both Doyle and Wise warned that hotels were far from being able to rest on their laurels, calling on them to employ the customer data they had to drive loyalty and pull the consumer back from the OTAs.
Doyle said: “Hotels have been very poor at using the data that they have – but the good news is that, culturally, change is coming.” While Wise said: “Where the battle can be won with the OTAs is CRM, providing a personalised offering. It doesn’t happen yet but hotels should use the data they have it’s not big data, it doesn’t have to be scary.”
The issue of hotels not sharing data within the organisation was raised throughout the day. Wise commented: “There is not enough alignment across the departments, still. It’s wrought with problems. Is your organisation aligned with where the business is coming from? Are you aligned with your cost of sale? If you can get to a position where your cost of sale is truly aligned, it doesn’t matter where it’s coming from.”
There was some hope that an increase in the number of distribution platforms in the market would help cut costs, with Doyle adding: “The business models of the disruptors are built on them expanding their markets, by pushing down prices. The new aggregators – Airbnb and the like – are more of a threat to the OTAs than to the hotels.”
Looking at the influence of the additional supply emanating from Airbnb, Doyle took the three million rooms on the platform and cut them down to 1 million “once you take out the shared bathrooms”. He commented: “I don’t see this getting out of control,” describing how the platform represented 10% of rooms in London, but 4% of the revenue. “They’re not destroying the market, you would see an impact on occupancy and we have a phenomenal market,” he said.
Doyle looked at the sector’s response to the sharing platform, highlighting Hilton’s launch of Tru, which he said was designed to take on Airbnb, but at a premium price.
HA Perspective [by Katherine Doggrell]: No need to panic then, the OTAs have said their piece and, as several speakers pointed out over the course of the day, they can hardly be described as disruptors any more, but more established players, partners if you will.
But really, the kind of partner who charges a perky rate for access to the market and won’t fork over your customers’ contact details seems like a partner who could yet stand to modify their behaviour and, really, hotels would be better off without them. Plus, if there’s anything that hotels haven’t learned over the past decade, it’s that the OTAs are always up to something and most likely that will be snaffling away the business market. During the event rumours started to swirl that Airbnb was doing a deal with WeWork, making those evenings in hotel rooms working in silence at a desk with an occasional break to stare at the wall look even less appealing.
Hotels can be prone to dramatic responses when under duress, but Hotstats’ co-founder Jonathan Langston warned later in the day that, when facing falling profits, finding ways to edge them up 1% here and there was the best way to see a 10% increase and the message of the event was that suddenly replacing all your staff with robots wasn’t going to see a rapid return either, but employing the creativity and emotional intelligence which is expected to see us remain employed when the machines take on our grunt work. For hotels, this is about relationship building with customers with meaningful loyalty schemes and decent service. Lacking in glamour, perhaps, but heavy on incremental gain.
Additional comment [by Andrew Sangster]: I think it should be made clear that the hotel industry has not reached “peak OTA”. Whilst there are challenges to the hegemony of OTAs, these challenges are not coming from hotel companies.
The message remains the same: hotel companies know how to brand the hotel product but they are very much on the back foot when it comes to being the main distributor, particularly online. The online retailing is done much more effectively by technology companies and it is very hard to see how, given the vastly superior resources of technology companies relative to hotel companies, hotel groups will be competitive.
As product brand companies, hotel chains will find it useful to maintain an effective retail channel but more and more volume looks set to be transacted by the retail specialists. There is a big difference between investing to create an effective retail channel and investing to be the dominant retail channel: the former is achievable but the latter, in my view, is not achievable for hotel companies in the long-term.
Profits Slip As Managers Miss Opportunities
Hotels too often watch the wrong metrics, and miss opportunities to improve profitability. The pursuit of revpar and bedroom revenues can lead to fundamentals being overlooked, warned speakers at the Hotel Distribution Event, hosted by Hotel Analyst in London.
Jonathan Langston, founder, Hotstats, declared revpar an outdated measure of performance. “Much of the gains in revpar have been due to better occupancy,” he said, adding: “The industry is slowly catching up with trevpar and goppar as valid measures.” Langston noted that while revpar figures delight those measuring them, they don’t tell a true story around profitability: “Hotels are working harder for less returns.”
And the warning of watching the wrong ball was reinforced by Paul Slattery, co-founder & director, Otus & Co, who noted that many hotel professionals suffered from “the fatal flaw” of believing that hotels are only about renting bedrooms. Too many properties have meetings and events space that is very poorly utilised, delivering woeful returns. London hotels are particularly poor, when compared with other mainland European city markets, he said; though all in all, the niche was poorly benchmarked, with few comparables available.
Despite the perceived growth in revenues, profits were currently harder to come by, said Langston. Many hotels were spending more than ever on third party marketing costs, notably with the OTAs, while non-rooms revenues have largely diminished. “Revpar has its place as a tactical indicator,” he warned, but didn’t give the full story. He illustrated that city markets such as Vienna and Prague had barely recovered to the profitability peaks of 2007, despite apparently good revpar growth in recent years, and strong occupancy.
The cost of going to market was clearly noted as owners and operators debated the current marketplace. Tom Magnuson said his Magnuson Hotels brand had a clear focus: “Our job is to provide the most effective, lowest cost business platform for the owner.” And he sees OTAs “as a partner channel, but I think it’s not a sustainable strategy to rely on them long term.”
Genevieve Materne, regional VP of distribution strategy, Hyatt, said the OTAs were part of the marketing mix. “We all have to recognise where we sit in the ecosystem”. She said the Hyatt loyalty programme was a big part of the group’s marketing effort, but it could be challenged for a smaller player, with patchy global coverage among the sub-brands: “To the loyalty members, we are selling the overall brand.”
Simon Teasdale, managing director, Lapithus Hotel Management, called Booking.com “a phenomenal brand”, and noted that the hotel sector “has always been behind – where we are today, you have to accept the cost of the OTAs.” But he is optimistic about the future. “I think the bigger brands, where they are with technology, are going to catch up.”
Stephanie Gosling, head of revenue, Amaris Hospitality, wondered whether Booking.com would become a rival for corporate business. Assembled solution providers on her panel had bad news, all noting the OTA is agnostic about the source of its customers. “I can’t see why Booking.com won’t go for corporate business, they want to process more transactions,” summarised Cendyn’s John Seaton.
Back in the conference room space, Slattery said the blame for excess meeting room capacity was partly down to hotel brands, which insisted on certain facilities in branded properties. They were also facing changing user habits, plus other rivals in the space such as serviced offices. But the problem was compounded by the analogue nature of space rental, and opaque pricing. His research suggested a large hotel would only win 5% of quoted business, in a process that was highly inefficient. David Taylor, chief commercial officer, GLH Hotels, agreed that selling conference space could be a challenge, with inquiry levels in London falling.
Often, the true costs of a meeting event, and associated bedroom and food sales were poorly split between departments. Slattery suggested some hotels would be better off converting underused meeting rooms into more bedrooms. Ciara Crossan, founder of WeddingDates, noted that hotels have failed to effectively market their wedding venues, something that led her to create a web-based platform making it easier for engaged couples to find venues. And Felix Undeutsch, head of MICE and groups for Expedia, wondered: “Maybe it’s too early to speak about digital distribution.
HA Perspective [by Chris Bown]: Langston’s warning is a stark one – chasing occupancy at the expense of selling at the right price, is killing profits. That and failing to sweat the other assets in the building, from meeting rooms to the food and beverage offer, means many opportunities to make money are being missed, every day.
Some of this starts with accounting systems that prioritise what is easy to measure. But it is also symptomatic of the owner/manager/ brand split, where responsibilities are split: the brand earns commission for getting punters to the door, when the manager’s work starts trying to get them to spend at the premises. And in the process, those lost bits of real estate that are not bedrooms, don’t get any focus at all.
Contrast this with an integrated operator such as Whitbread, where Premier Inn room sales sit on the balance sheet a few lines up from food and beverage volumes, both receiving similar management focus. Breakfast and evening meals remain a key part of the offer, a profit opportunity and not simply a “grab’n’go” option.
The problem of working out where the profit is, is not unique to hotels. New hostel brands, for example, spend disproportionately on common areas and they see this as key areas for driving profitability. This is not going to show up on a revpar measure. Senior executives have previously opined that a measure of revenue per sq metre of an overall building might be a sensible metric to compare.
Taking a look specifically at meeting rooms, hotels have once again stood still as the market moved. Online booking options are plentiful – and enterprising serviced office companies have muscled in alongside hotels, to promote their wares. Some hotels still cling to the idea that their conference space helps sell rooms, but in a big city, this is rarely enough to validate keeping underutilised meeting rooms on ice.
The brands need to wake up to this changing environment, in their brand standards. Time to take Slattery’s advice – call in the architects, and work out how many bedrooms could take their place.
Beware The March Of The Robots
Hotel operators still wrestling with optimising their online marketing need to prepare themselves to exploit the next disruptor in the space: artificial intelligence.
Euan Cameron of PwC told the Hotel Distribution Event that AI had the potential to help hoteliers work through the piles of data they currently hold in different silos.
“You need a lot of data to fuel machine learning,” he warned, but once processed, acted on and learned from, there was the potential to create considerable efficiencies.
Cameron said the view of robots taking people’s jobs was not a realistic way forward for AI implementation, with the real world improvements taking place as repetitive thinking tasks start to be managed by machines. One example he gave was in medical diagnosis, where machines are proving good at spotting disease in body scan images.
“The disruption landscape is multi-faceted,” he warned, and AI can potentially affect every part of the value chain. “We’ll see a huge amount of human turbocharging”. Human jobs will change, but won’t be lost. For businesses, he said the challenge is asking the right questions, and deploying machine learning on the right tasks, with a disciplined management approach that measures and reacts to outcomes.
Michael McCartan of Duetto applied the principles to the hotel sector, and noted that machines are already helping: “A lot of the repetitive friction is being replaced by machines.” Automated dashboards, for example, can scan information and point out the outliers. “That is freeing up the time for the revenue managers to be more strategic in nature – the revenue management function becomes more valuable.”
McCartan said in five years’ time, he would expect AI to be able to interrogate scenarios, allowing revenue managers to plan better. “From my experience, the biggest constraint is the access to data. Unless the industry comes together and breaks down the silos, then we won’t become more competitive.” Unless this happens, he warned, the OTAs will continue to have the advantage as they has the advantage of data across a range of brands. He called for a “common sense approach to the problem” – and that might involve the sector as a whole finding a way to share aggregated data.
“There are loads of friction points that you can use technology to solve,” he claimed, adding that “convenience is going to become the new loyalty”. He pointed to Uber as an organisation that has effectively solved many friction points around taking a taxi.
John Seaton, managing director of solution provider Cendyn, clarified the challenge. “We spend most of our time looking at how we can integrate data. Data has got to be actionable – that’s where hoteliers are struggling.” And Sameer Sinha of RateGain warned that a lot of data is not easy to use: “It could exist on Facebook, on Twitter”. In such cases, smart systems are needed to recognise patterns and alert revenue managers.
One keen experimenter with machine learning is Citizen M, whose director of distribution Lennart de Jong explained some practical applications. “AI is already a bridge too far – we are not there yet,” he insisted, but the company used smart learning to provide ready answers to guest queries. He said that currently, the machine aids the human – rather than the other way round – helping to respond when it detects a similar question has been answered before, such as driving directions to a particular hotel. And he argued it was for the small operators to gain the advantage over the big brands: “Independent hotels are in a much better position to gather data – you can learn a lot when a guest stays three, five days with you.”
Perspective [by Chris Bown]: So robots won’t be taking your jobs, but may help you work smarter, by doing the basic stuff for you. And, for those concerned about really delivering memorable hotel stays, it appears there is no machine substitute in sight for the engaging human at the front desk. Get them to spend less time issuing room keys, and they can spend more time making their guests feel comfortable.
However, as Cameron pointed out, you need lots of data for machine learning to crunch, in order to deliver real competitive advantage. And, not only is the sector’s data kept in silos within individual organisations, it is also never shared between rivals. Duetto’s McCartan fears the OTAs will maintain their lead, unless the sector can set pride to one side, and find a way to share data for the common good.
This is entirely possible. The Investment Property Databank, for example, aggregates mainstream property data, while Hotstats successfully teases information from many hoteliers, so that they can all benchmark their performance. If it happens effectively, the hotel brands could finally have a tool that will bring them up to speed with online distribution.
But, as Cameron warned, it is about asking the right question. Get it wrong, and it could be another Roomkey, the cash burning website that was supposed to help all the big brands sell more direct rooms online – and none of the big brands now wants to remember.