The American Hotel & Lodging Association’s new lobbying and PR campaign against the online travel agencies is another front in the group’s ongoing advocacy, but it likely won’t shift hotel distribution dramatically on its own. Properties should not wait for OTA commissions to improve; they should continue to control what’s in their power, namely pricing rooms for maximum profit.
Undoubtedly, several parts of the AH&LA’s campaign are important to hotels, including highlighting OTAs’ hidden service fees or the unscrupulous practices of “rogue OTAs” disguising themselves as a direct-booking channel. Hotels should also support the trade group’s plans to market the hospitality industry as one of technology innovation and to lobby for pro-hotel appointees to the Federal Trade Commission.
As for the marketing campaign to paint Expedia Inc. and Priceline Group Inc. as “monopolistic”? It may be good PR, but I don’t see it having a substantial impact on any hotel’s bottom line in the near future.@AHLA’s campaign against OTAs won’t affect your bottom line but a solid #revenuestrategy will Click To Tweet
I will certainly grant that the duopoly of Expedia and Priceline has grown the past two years, via acquisition, consolidation and organic growth, into massive and very valuable companies. They also continue to diversify, such as Expedia’s acquisition of rail service distributor SilverRail, in ways that will keep them dynamic as travel continues to change.
But the AH&LA is over-rating the OTAs’ ability to collude, diminish competition or set prices. On that last point, hotels must remember that they alone control their room rates — even though, admittedly, there’s little they can do about OTA commissions.
As Douglas Quinby, vice president of research at Phocuswright, recently put it, OTAs don’t set retail prices: “A central tenet of a monopoly is the ability of the monopoly entity to set pricing,” Quinby wrote. “But it is the hotels that set pricing, based on their revenue management practices, competitive pricing strategies, forecasted demand, etc. OTAs may set commission and contracting terms, but not pricing.”
Hotels Already Responding to OTA Consolidation
There are a few signs the monopoly argument will not matter much to hotels.
First, the federal government has not shown much interest in breaking up the two largest OTA companies. Major acquisitions like Expedia’s 2015 purchase of Orbitz did not face much scrutiny on anti-competition grounds.
There are companies with more significant market share over their industries than the OTAs, making them more likely break-up targets (Expedia’s CEO recently pegged its share of total lodging volume in the United States at 10%).
Second, hotels are already responding to OTAs’ growing scale, and many of their initiatives appear to be working.
Marriott and Hilton, for their part, seem less concerned about the OTAs’ business practices than they do about controlling what they can control. The CEOs of those companies demurred when asked during earnings calls to weigh in on the lobbying campaign against Expedia and Priceline. But Marriott indicated its merger with Starwood Hotels & Resorts is helping the new company fight scale with scale. Both Marriott and Hilton reported that their direct-booking campaigns positively affect their share of bookings made through direct channels in their most recent fiscal quarters.
All through the chain scale, hotel companies are trying to differentiate their loyalty programs as a way of winning more direct bookings. Some brands have also experimented with partnering with the OTAs in mutually beneficial ways, such as Red Lion’s agreement to publish loyalty rates on Expedia.
No Substitute for Service or Revenue Management
I reiterate that hotels should not expect regulators to do their jobs for them in managing online travel agencies. The AH&LA’s campaign makes sense as a lobbying strategy, but it won’t take the place of hotel Revenue Strategy addressing pricing, distribution and marketing.
The story remains the same for hoteliers, from the major brands down to independents. The hotel is in control of the physical assets, the service it provides and, perhaps most importantly, the price of the room. If you manage the room rate correctly, you can maximize the profit flowing through to the bottom line, even if it comes by way of an OTA and involves a hefty cost of sale.
There are several ways hotels can drive more direct bookings, via dynamic pricing strategies or effective marketing of a loyalty program. Other times, OTAs may make sense as the best partner for filling a high-need period.
It’s a complicated job, but it’s up to hoteliers alone, not regulators.
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Tags: AH&LA, big data, cost of acquisition, Duetto, expedia, federal trade commission, FTC, hotel commissions, hotel digital marketing, hotel distribution, hotel intermediaries, hotel pricing, Hotel Revenue Management, hotel revenue strategy, hotel sales and marketing, hotel technology, hotel yielding, monopoly, OTA, Priceline, RMS