HOTEL ANALYST CONFERENCE COVERAGE 2018
HDE18 offered a roster of the leading opinion formers in the hotel technology sector.
Hot topics in 2018 included:
- How hotels address the product vs retail dilemma
- The impact of changes in distribution on investment
- How important technology is to investors
- Whether the current software available was fit-for-purpose
- The latest developments in rate parity
- Expedia’s evolving relationship with hotels
- Understanding China’s outbound market
- The latest distribution strategies
- The future of metasearch
- The real potential of blockchain technologies
- What the future looks like for hotel brands
Airbnb joins distribution ranks
The rising role of Airbnb as a distributor came to the fore at 2018’s Hotel Distribution Event in London.
An additional route to market was seen as further challenging the brands, with a number of owners questioning the need for a flag.
Jacob Rasin, director of business development, Pandox, said: “I would love for Airbnb to succeed with distribution. They are one of the super-brands of travel.”
Nick Chadwick, SVP hotel asset management, Starwood Capital Group, said: “We’ve put one of our hotels on Airbnb and we’ve been surprised at how many rooms we’ve sold. All our guests have been delighted with the service they’ve been receiving, which is more than they were expecting. The commission is less, but it’s not the easiest tool to use and we don’t have full control of pricing.”
Later in the day Steven Howe, digital manager, Apex Hotels, told attendees of the group’s experiments with the platform at one of its hotels, where it had bought in new customers and, he pointed out, at a cheaper rate than the cost of an OTA.
The cost of the OTAs was a frequent topic of debate, with Chadwick calling for an evolution, potentially driven by new challengers coming into the market. He said: “It would be good and healthy if the hotels were paying the most when they got the most out of the OTAs. Maybe there’s an evolution, a more dynamic pricing model.”
Access to distribution was a factor in choosing – or not – a brand. Stephen Walker, principal, strategic operations, KSL Capital Partners, said: “When we look at operators we ask to what degree can they control distribution and to what degree are they managing distribution. The OTAs are very focused on just delivering rooms, but that’s not the best way to deliver additional revenue sources.”
Rasin was as happy to go it alone, telling attendees: “The first thing we do is to look at which concept will work for which hotel, do we need a brand? Then which type of structure and then net rate – can we run it ourselves? It’s case-by-case but branding is not top when we start looking at hotels. First and foremost we look at what we can do with the hotel, branding is not the first thought – If we keep independent we can be flexible and keep our options – consumer trends change fast – we like options.”
Peter Tengstrom, partner & managing director, Midstar, pointed to the distributors as a method of gauging how successful branding choices had been. He said: “OTAs are more friends now than foes. You have to manage the brand on the OTA’s website, that’s your window to promote the product. The OTAs help show the naked picture if you can’t perform.
The level of business OTAs bought in has changed since their inception, Tim Ramskill, managing director, pan-European travel & leisure equity research, Credit Suisse, said: “Since 2011 the OTAs have move from delivering lower-yielding to premium-yielding business.” They were also continuing to hit costs, with Ramskill commenting: “By 2021 OTAs will have generated USD30bn in fees. OTAs equate to 5.6% of global hotel room revenues this year [estimated] against 2.2% in 2012.”
Ramskill underlined the supply threat posed by the sharing platform, adding: “In my world there has been a remarkable level of complacency about the impact of Airbnb. A revolution is what we’ve experienced in distribution over the past few years. The OTAs are a potential cost challenge, whereas Airbnb is a revenue challenge [to the hotel sector]. There are more than two times as many people searching for Airbnb as searching for Expedia, but the level of search activity this summer was similar to last summer, maybe there is a levelling off.”
Looking at the impact on performance, Ramskill said there had been: “No massive obvious impact on US weekend occupancy by Airbnb, but there has been a surprise about how limited room rate rises have been given how high occupancy has been.
“Airbnb now accounts for around 9% of global hotel room count, having doubled over two years. It’s expected to generate USD30bn in gross booking value this year.”
HA Perspective [by Katherine Doggrell]: Airbnb has made no bones about its interest in the distribution space and, while it has been all very chummy in its attempts to play nice with assorted jurisdictions being allowed to operate, it has been scathing of the costs of the hotel brands and how much cheaper it can do things.
The platform has made a business of branding the transaction and not the product and that works well for the independent hotels it has been looking at. Yes, the technology of the platform is not as flexible as it could be, but hotels have no real credentials here themselves either.
As Howe said, what Airbnb can do is what the OTAs first purported to do – bring in new customers. Chadwick also hailed the platform, pointing to how it was able to shift extended-stay rooms, another product well suited to Airbnb. The platform is therefore likely to find a niche distributing the out-of-the ordinary, something with which is has much practice.
Where the brands might like to observe is not whether it is bringing their independent rivals to market more cheaply, but what variety of rooms they are offering. The more consumers have access to products which make it easier to travel with friends and family, just two groups who we hear also like to travel, the more hotels will find the demand on them to provide the same grows.
Additional comment [by Andrew Sangster]: The demise of the hotel brand has been forecast many times and has so far prove unfounded. This does not look set to change any time soon.
But there is no doubt that hotel brand companies are under pressure. At HDE, Credit Suisse’s Ramskill put up a scary slide that showed IHG’s system delivery increasing over time but how the delivery through the parts of the system that it does not control directly, primarily OTAs and GDS, is taking an ever-larger share. Ramskill called the directly controlled part “true IHG own distribution” and he showed how this has slightly shrunk in recent years.
For owners this is a real bone of contention, often referred to as the fee-on-a-fee issue. IHG claims that sales made through GDSs and OTAs are part of its own distribution as it has negotiated preferential rates. While the IHG argument has some merit, the reality is that its own distribution efforts are undermined by the success of these third-party players. And of course, the big one is the OTA part as GDS is not showing growth (although this has confounded the much-expected contraction).
The Hotel Analyst argument in support of hotel brand is that it is vital for the product, much less so on distribution (retailing of the product). When pushed on this point, Hilton’s John Rogers said in a panel session that Hilton would always come down on the side of product ahead of distribution.
There is no expectation that the big hotel brands are going to quit the distribution game but they are quietly reinventing their role. They know that the marketing muscle of the OTAs and the superior technology of these focused online retailers cannot be beaten.
The whole distribution landscape is in a state of flux and the apparently invincible OTA duopoly is coming under pressure from other technology companies. Airbnb is disrupting the OTAs just as much, perhaps more, than hotels brands. Waiting in the wings is Amazon, Alibaba and maybe Apple.
Being nimble and adaptable is what matters in this climate, not always sheer size and scale. But this latter helps when it comes to going head-to-head with OTAs. This autumn, Marriott is going to take on Expedia. Rumours suggest that Bethesda is on a war footing and is already warning owners that properties may be delisted from Expedia. It is going to be one to watch.
OTAs extend reach
The online travel agents were extending their sights from ownership of the guest to ownership of the property, delegates at the Hotel Distribution Event in London heard.
While caution was urged in adopting such technology, panelists were in favour of harnessing the budgets of the OTAs and their investment in innovators who could bring improvements to the sector.
Toby Herbert, group IT director, Rocco Forte Hotels, said: “I would be wary of a one-stop shops, but where it gets interesting is when OTAs are investing in new entrants. I am in favour when it’s a partnership.”
Iain Cowieson, IT director, Malmaison & Hotel du Vin Hotels, warned: “We gave away a lot of advantage when the OTAs came in, so you would be cautious when adopting their PMS as well,” while Alan O’Riordan, business development manager, UK & Ireland, Apaleo, added: “It’s better that people focus on what they do best, I’m not not convinced by OTAs offering PMS”.
Driving the possible adoption of solutions offered by the OTAs was the complexity of the offerings currently in the marketplace, with Cowieson commenting: “In Europe there has been a complete under-investment in usability”.
Joe Cripps, MD & co-founder, Trailapp, called for more leeway for IT. He said: “We don’t have a lack of tech in the hospitality industry, but a lack of diffusion. Those in IT should have the chance to play around with tech. A lot of these companies have been on the marketplace since the 1990s, which mean there are constraints in the system Joe,” but, he added: “We are seeing an emergence of companies that base their business around that – middleware, looking at integration – which is a shift in the industry.”
Herbert agreed, telling delegates: “We need to bring life cycles of systems down, because competition moves on quickly. Look at the technology you’ve put in on a regular basis.”
O’Riordan was hopeful of innovation, commenting: “As products attempt to become all things to all men and then the user interface can become too unwieldy. With open API integration can become easier and as a hotelier you can build your own hotel stack. The cost needs to be melded into the stack, which is a blocker. But there are changes, our buying behaviour is driven by our experience as consumers. I am seeing sea change. Innovators must spread the word.”
On the consumer-facing side, Herbert said that the innovative advantage claimed by the OTAs was abating as the operators caught up. He said: “As a consumer I have been forced to use brand’s own booking tools after the OTAs have fallen away. It’s not rocket science to have an easy booking experience. We’ll catch up to the OTAs and then where is their advantage?
“Brands are trying to use choose-your-own room etc to keep their customer base in their own environment, but ultimately that will fade away once everyone has these technologies. Then the emphasis will be on making your solution open to all customers. You should have your guest as your single customer view – AI can help with that, because you may well be able to bring down the amount of human time invested in that process.”
Later in the day James Lemon, COO, Hostmaker warned that hotels had “perhaps become worse-than-home experiences. They must become more nimble in their offerings to compete with Airbnb”. Prior to his comments, Cripps said: “Since 2008 and the launch of the iPhone there has been a backwards waterfall in consumer tech – you have an Alexa in your hotel room because you have one in your house”.
Herbert commented: “We like to put as much technology as is necessary into the rooms but it must be part of the decor, not a differentiator.”
The issue of how much demand there was for technology that, in some cases was also being used to set apart loyalty programmes was raised by panel chair Mark Regensberg, head of information security, Zappi, who, when commenting on the vogue for keyless entry into rooms, using mobile ‘phones said: “Would it really be so much effort to put your hand in your pocket and get out your key?”
HA Perspective [by Katherine Doggrell]: The ‘really so much effort’ part of this debate served to underscore the state of hotel technology investment in the sector, which, at times can come across as having shades of home improvement programmes, where the hapless homeowner is persuaded not to spend all their budget on illuminated fountains which dance to Ravel’s Bolero. These consumer-facing technologies can be so very alluring.
What the people want, it turns out, is an effective room booking system rather than, as one enterprising hotelier suggested, your family portrait displayed on the TV, not that lovers up and down the land don’t enjoy getting a look at their rivals. Much was made over the course of the day of the impossibility of being able to book adjoining rooms, or accessible rooms, or rooms away from the lift.
Eagle-eyed readers will recall that OTAs have built a business on making things easier for hotels in terms of finding consumers to fill their beds – at a cost. They are now eager to help them manage those rooms that much better with their own PMSs. This hasn’t yet extended to being able to book adjoining rooms – although demand is clearly there and the OTAs have become very nifty at meeting hotels’ demands. This offering will be very tempting to many hotels, who are, in the main, still properly foxed by distribution and associated management systems. But should they sign up, what is left? Are they freed up to concentrate on service, or, like those of us who would use Apple products, have they learned that if you want to change ‘phones, you are sacrificing the connectivity you’d been seamlessly enjoying?
Online marketing challenge remains complex
Hotels continue to face massive challenges in getting their distribution right. The OTAs continue to innovate with new tools, in a highly dynamic landscape.
Regulators across Europe are ruling against rate parity agreements, leaving third parties to undercut hotel websites, on a regular basis. And delegates at the Hotel Distribution Event heard that the next wave of outbound Chinese visitors will require a fresh marketing approach.
And the scale of the challenge was laid bare by James Parsons of OTA Insight. He said other research has suggested that OTA market share of bookings in Europe will rise to 66% by 2021. Yet a growing number of competition authorities are banning rate parity, encouraging competition.
Many hotels are being caught out, spending for online marketing that is not paying off. “This is one of the realities of metasearch, that we see all the time,” said Parsons, providing an example of how a branded hotel paid for an online ad, yet was undercut by third party listings immediately beneath the ad, on the same webpage.
His company’s research across Europe, from earlier in 2018, suggests around 44% of major brand chain rooms are sold at rates cheaper than the brand’s own website. For independents, the figure rises to 52%. “The figures give an idea of the scale of the issue – it’s a mammoth task.”
New OTA channels are popping up regularly, warned Parsons, and they end up undercutting the brands as they sell off rooms that wholesalers are keen to shift. These wholesale shifters simply want to make a turn, and don’t care about brand image or margin differences. He said one tactic that helps to reduce the problem is a move to dynamic rates.
Expedia’s Sue Spinney said the OTA is “shifting to bring more value to our partners” and has invested USD1.4bn in tech over the last year. Among the innovations is a revenue management solution, which in client trials has shown a 10% growth in revenues. The group is also working hard to persuade site visitors to book complete trips, and experiences, rather than just a hotel room. She stressed that hotel customers need to be savvy about using OTAs, saying acquisition is about being clear on those market segments they desire to build market presence in: “We’re here to help”.
Expedia is also testing a new loyalty programme, with the aim of hooking more brand agnostic bookers: “We’re still in the early stages”. It will also support those smaller hotel brands that don’t have their own loyalty offer – something that might appeal to companies such as 10-strong Apex Hotels. Its digital manager Steven Howe explained his company had closed its loyalty programme in May: “Basically it didn’t cover enough of our guests,” he said, noting his emphasis had been upended: “I’m probably more interested in disloyalty.”
Howe revealed the group’s GDS channel, useful for picking up corporate business, is ultimately more costly than the OTA commissions it pays. “For us, it’s a mix,” he said, with the aim of incrementally increasing direct bookings year on year. “We compete with the OTAs, and we do very well.”
Apex is testing out Airbnb for distribution, though that avenue has to date produced few bookings. Howe also expressed frustration at the lack of a decent off-the-shelf booking engine, saying he had opted to go bespoke instead.
Metasearch continues to play its part in the distribution mix for some, with Suzie Thompson of Red Carnation Hotels declaring herself a fan, albeit one with a disciplined approach. “Metasearch is very much part of our online strategy.” Google and Tripadvisor deliver good business for Red Carnation, while “25% of the business we get through meta is remarketing.”
Nikhil Gupta, co-founder of startup ScoTrav and a former executive at Skyscanner, warned: “Hoteliers need to be cautious. It is driving traffic to your site, but at a cost. Hotels should control their pricing and their inventory – and if you have a website that is crap, it won’t work.”
Google’s Satayan Joshi noted that not all customers are clear on the differences between metasearch, OTAs or direct booking sites, and his group’s entire focus is on understanding and delivering precisely what the customer wants. “The reason I would use a meta is to ensure I get the best rate.”
Roy Graff of agency Dragon Trail, said the massive and growing outbound Chinese market is another challenge that hotel marketers need to be aware of. Forget groups who travel together and only eat Chinese, he said, as the more enlightened, younger independent traveller now represents half of the outbound market. But, with Google blocked from China, other platforms have prominence. “If you don’t exist on social media in China, you don’t exist,” he warned.
In addition, WeChat is a massive presence, combining many of the attributes of Facebook, Twitter and online marketing all in one. “There’s no need for a native app for your brand,” he explained. Instead, hotels need their own WeChat presence, in Chinese, to drive traffic and reviews. Social influencers are also more powerful than in the West, “and working with them is extremely efficient”. Other fundamental differences he noted are that the Chinese are keen users of price comparison sites, and around three quarters of bookings come from mobile.
HA Perspective [by Chris Bown]: So this online selling stuff is complicated. But that’s no excuse to give away your rooms on the cheap, or pass them to the online equivalent of Del Boy, who’ll undercut you to turn a few pennies. OTA Insight’s Parsons intimated to Hotel Analyst that the actual financial numbers are even more scary in volume, than the percentage figure of undersold rooms, by several noughts. There is mishandling of inventory management, on a massive scale, by both the big brands as well as the independents. High time hoteliers got their heads round the right strategy to get sales volume, ahead of time, and cover all the different market segments they think will want to stay in their hotel.
Thankfully, hotelier representatives from Red Carnation and Apex revealed that it is possible to comprehend online sales and marketing, and to pick out the right tools that deliver profitable business, while protecting brand standards. Rocket science it does not appear to be.
For those using OTAs, Expedia’s Spinney was at pains to point out their attitude towards supporting hoteliers. They are constantly testing new ideas and tools – and only launching those that appear to meet a client need.
The quick primer on Chinese outbound travellers was an eye-opener, demonstrating the need to comprehend a completely different marketing infrastructure to capture oriental visitors. Their numbers are growing, and the reach of their social platforms is astounding. Graff told Hotel Analyst of a fish and chip shop in Brighton, which has become the go-to place for Chinese visitors to the area. A bemused chippie owner discovered – by asking one of the growing throng – that a Chinese visitor had reviewed his shop on WeChat.
Brands and blockchain drive innovation
The sector is continuing to see a proliferation of brands, as hotel groups attempt to match changing consumer demands. Technology is impacting at the property level, while delegates at the Hotel Distribution Event also heard how blockchain technology has the potential to drive lower costs throughout both customer acquisition, and real estate management.
James Bland of BVA BDRC said brands now need to respond to a changing world. Gone are the days of strong brands with uniform standards and the individual no longer adapts, but rather expects their world to adapt to them. “I think that has a real implication on what hotels will look like.” He expects to see the growth of soft, collection brands, which offer the promise of uniform brand quality standards, yet deliver unique and more locally connected individual properties.
The change was echoed by brand specialist John Rogers from Hilton. He said the additional brands Hilton has introduced, many of them within the last five years, answer the need of different audiences to find something that resonates. It also provides Hilton with internal rebranding options, and he noted several instances where traditional Hilton properties have been relaunched – and delivered greater returns – as a DoubleTree or Hampton. The group’s Curio brand, designed to incorporate strong local connections and currently represented in just a handful of locations, was tipped by Bland as one to watch.
Part of meeting that need for choice and individuality is the roll-out of new tech. Hilton claims the lead on the deployment of smartphone door locks, and now gives its loyalty members the option of choosing a specific room in a hotel, when they make a reservation.
But perhaps the most exciting innovation – and one that delegates struggled to get their heads around – is the potential blockchain revolution. David Brillembourg, chairman of Brillembourg Holdings, has studied and invested in a number of startups in this nascent niche, which promises to use distributed ledgers to share information. The shared platform promises to do away with costly intermediaries, with improved online security, bringing down transaction costs and improving information flow between business partners.
The technology of the distributed ledger has already been deployed by those who created the leading cryptocurrency, bitcoin. While bitcoin has seen limited use as an exchange of value, and been seen more as a speculative investment bubble, Brillembourg said there was the potential for other tokens to be issued in future.
“Potentially 10% of hotel bookings could be on the blockchain within ten years,” he suggested. Blockchain remains a concept rather than a practical option as yet, and Brillembourg acknowledged he is in at the early, high risk stage: “I predict that 90% of startups in blockchain will fail.” He said part of the impetus driving blockchain is the distrust Millennials have of centralised banking systems. And, to the sceptics in the audience, he noted that 20 years ago, few would have believed that the early, stumbling attempts to create the first OTAs would have had such a major impact on the hotel industry.
One hotelier who has taken a close look at blockchain is Rajesh Vohra, director of Sarova Hotels. “We have had some discussions with potential vendors, but I’m not sure we’re there yet.” And to those wondering what a blockchain transaction would look like, he noted the mechanism should deliver a seamless experience, in order to succeed. “It’s not about how the consumer sees it, as it should be transparent to the consumer.”
HA Perspective [by Chris Bown]: Hype or a step change? Only time will tell whether blockchain becomes a key part of the hotel landscape in the future. And, as Brillembourg pointed out, two decades ago many ignored or dismissed the early attempts by a bunch of IT nerds to try and sell hotel rooms online, and crowdsource reviews for sharing.
Blockchain has become somewhat entangled in the wider public perception with bitcoin, the exciting new virtual currency that you can’t do much with, except speculate. But beneath the froth of bitcoin, it is the technology it uses to manage its transactions that is on the secret sauce of blockchain – and it is blockchain that holds out the promise of delivering another streamlining that cuts out intermediary costs, and improves information sharing. Other sectors, such as mainstream commercial property, have done well from sharing information (albeit that was via an old-school information exchange). The hotel sector stands to gain much from greater transparency.