Introduction:

In this article, we look at the hotel industry and the importance of online travel channels. The parallels to the vacation home industry can be drawn.

We will contend that hotel brands dropped the ball when it came to Online Travel Agencies (OTA’s) in the 1990’s. Given the OTAs first mover advantage, hotels have never been able to recover. We will also explore how important online travel brands have become and why hotel branding is losing some of its iron grip on providing consumer quality assurance.

We will conclude hotel franchise companies must change how they view themselves as hotel brands and develop into online travel brands offering the consumer an interactive quality assurance experience.

Same Old Story

Like an old penny, a similar online story keeps turning up. Recently Choice Hotels has come to loggerheads with Expedia (1) .

A similar battle erupted with “Holiday Inn” a few years back (2)

There are various concerns that exist between some hotel companies and some OTA’s regarding inventory availability and a hotels ability to have 100% control over its own revenue management, but the core issue is typically:

The markups required by some OTAs (often 20-30+%) are too excessive in the opinion of some hotel companies.

First Mover Advantage

Expedia (formerly Travelscape) began out of an apartment by a UNLV college student with ads in the LA times for discounted last minute hotel reservations in Las Vegas. As an idea he and his partner tried to sell rooms on the internet which at the time was a new medium. It is hard for any large hotel company to experiment with technology the way a small nimble company can with no preconceived notions as to how hotel rooms should be booked. All of the thousands of jobs that exist in online travel technology today had not even been invented ten years ago. This shows us how quickly the means by which hotels get booked can change.

Online travel was a commercial revolution that caught all hotel companies off guard. As a result, the OTA’s obtained a major first mover advantage that the hotel industry has never recovered from. As the industry has evolved, the power of online travel agencies (OTA’s) has dramtically increased while the power of hotel brands appears in some circumstances to be diminishing (3).

The Expedia/Hotels.com channel is perhaps the most powerful independent distribution channel in the entire world today. In some destination markets, it can literally be the difference between a hotel making budget comfortably and not making budget at all.

The Power of Online Reviews

In addition, as review sites flourish and provide insightful quality assurance desperately sought by consumers, the need to franchise a hotel is being questioned by some note-able operators. For example, Harris Rosen of Rosen Hotels and Resorts in Orlando defranchised two major convention hotels (approximately 2300 rooms) and was able to very successfully create his own hotel brand.

Some Destination Hotels Depend on OTA’s

Choice Hotels noted that Expedia delivers approximately 3% of its bookings (4). Not a make or break situation, but if you dig a little deeper there could be additional concerns.

If you are a hotel in a major destination such as Orlando, turning off a major spigot such as Expedia/Hotels.com could cripple your business (some of which are already imploding financially in the wake of the economic crisis (5). Some hotels in Orlando work closely with the Expedia/Hotels.com channel and can receive as much as 15+% of all rooms sold through this channel in certain months during the year.

When losing a major OTA, hotels may want to take a close look at their STAR reports and see how this loss impacts their relative business.

OTA’s Drive Direct Bookings

In addition, many hotel bookers – group travelers, meeting planners and individual guests will review/find a hotel on an OTA first and then contact the hotel directly once they find a property they like – a huge driver of direct hotel bookings.

Your Loss Our Gain

The problem is further complicated when a major distribution channel such as Expedia is dropped by a hotel as other hotels in the market will gladly mop up all the demand.

In Conclusion:

In our opinion, hotel companies need to become interactive online travel brands with seamless channel technology in an envirmoment dedicated to quality assurance and reviews.

Percieved “reasonable” margins can only be obtained by hotel franchisors from the powerful OTAs when they can compete with the OTAs core coptency – well marketed and interactive online booking technolgy. Currently, OTAs typically offer superior marketing with a more informative and interactive booking enviroment for the consumer.

This is a complex and frustrating issue for all parties concerned. Hotel franchisors may have to change how they think – are they no longer hotel franchise companies, but rather travel distribution and quality assurance channels? The OTAs must also be careful – technology advances so quickly the shoe could one day be on the other foot. There are thousands of “techies” today already trying to develop the booking technology for tomorrow and it only takes one idea to once again revolutionize the industry.

Companies that work well together can grow together.