Big news on the hotel distribution front: Amoma has gone out of business. The company blamed “unsustainable financial conditions” for the sudden closure.
In our latest parity report, Amoma was often the most-discounted channel when comparing the average percentage discount to the direct booking rate.
This meant that it was repeatedly undercutting hotels’ own rates, usually by selling uncontracted inventory from wholesalers.
As wholesaler inventory is resold on OTAs and metasearch platforms, it leads to a double-edged impact for hotels: they lose out not just on the original lower rate sold to the wholesaler but then again to the lower rate sold to the end consumer.
Since rate disparity has a significant impact on profitability for hotels, the demise of a channel with a negative parity history is noteworthy.
But is it going to change anything? Not really. Here’s why.
It’s easy to start anew
OTAs come and OTAs go. It’s the nature of the business.
Since it’s relatively easy to ramp up supply via third-party affiliate networks, there aren’t as many hurdles to start as there once were. And when one OTA finds its supply cut off, it can simply shut down and re-open elsewhere.
Amoma certainly wasn’t the only culprit playing hotel room arbitrage.
The brand may be gone but there are plenty of existing brands waiting in the wings to soak up the demand. And there’s no telling if/how Amoma’s management team plans to set up shop elsewhere.
Earlier this year we conducted analysis specifically into which wholesalers were selling inventory to non-contracted OTAs.
Many of the worst offenders are much smaller players that haven't been around very long. This trend is likely to continue, but if hoteliers get smarter at monitoring and taking action on this issue, there's a chance the practice will decline.
It’s not just the wholesalers
Rate disparity isn’t really the result of bad actors trying to siphon off dollars by arbitraging hotel rates. (OK, well, maybe somewhat!) The reality is that the industry is structured in a way that enables this behaviour.
There are many brands, lots of independents, and fewer direct connections between all of them. There’s also intense competition across all types of accommodation.
As the hotel pipeline grows and matures, adding over 27,000 rooms in the U.S. alone since 2015, it joins a dozen newly-minted “alternative” lodging brands that sell apartment hotels mostly on Airbnb. The intense competition is what encourages bad behaviour.
Our latest parity analysis, which covers activity from January to June this year, shows that even contracted channels aren’t meeting parity in both Europe and North America.
Much of this undercutting is a result of OTAs acquiring inventory from wholesalers who on-sell it to them, breaking the contractual chain with hotels. Clearly, the parity issue won’t be solved with Amoma’s departure.
It’s more about making structural changes
While hoteliers might breathe a sigh of relief at the news that an OTA known to be at the heart of disparity has gone, the market battle isn't over just because a major player is potentially bowing out.
OTAs continue to dominate as a top demand-generation channels for hotels, and metasearch remains popular among consumers, putting economic pressure on all parties to deliver the lowest rate to consumers.
But change won’t come from the demise of a single entity.
What will change is the relationship between hotels and wholesalers. As awareness around the disadvantages of the wholesale model increases, more hotels will protect their inventory.
There’s a growing realisation that over-reliance on wholesalers undercuts pricing to a potentially disastrous degree.
Case in point (and with impeccable timing, given the Amoma news): Marriott announced a deal with Expedia that makes Expedia Partner Solutions the go-to for all non-contracted wholesale rates.
So, for anyone without a direct agreement with Marriott itself, they must now develop ties with Expedia to continue accessing inventory.
After heavy investment in direct booking and member campaigns, this is a big strategic move by Marriott to take back control of their rates and inventory… by developing closer ties with a major OTA.
Ceding control of the inventory still requires a lot of trust; Marriott wants to take control of their inventory - but has chosen to do it by offering that control to a third-party gatekeeper and intermediary. It’s a twist on the whole “frenemy” approach of previous years.
One potential outcome is that OTAs become more sensitive to their own not-so-secret usage of wholesale inventory; after all, if hotel brands become interwoven more deeply across an OTA’s other lines of business, it makes sense that wholesale inventory will appear less often.
Wholesalers may find fewer channels for onward distribution.
And other OTAs aren’t going anywhere… right?
There are many good actors in the industry. But it's a crowded and volatile market, and revenue and distribution managers must remain ever vigilant when monitoring parity. Even with Amoma out of the picture, plenty of other OTAs will be eager to take their place.
And, of course, there’s Booking.basic. With the largest brand in online travel maintaining its wholesaler-friendly channel, hotels still must be on guard for parity violations across the distribution value chain.
In the wake of Amoma’s ending, many other OTA competitors remain that that sell onward distributed inventory. It’s just that Amoma was the most visible among them.
So that leaves the question of how Booking.com and other major OTAs will respond to the Marriott/Expedia deal. Does this put some pressure on them to respond in kind and work harder to help hotels fight non-contracted rates?
And what about independents - who has their back in all this?
This doesn’t signal an end to wholesale OTAs
We can’t know exactly what happened at Amoma. Businesses cease trading for all kinds of reasons.
While the business blamed the major OTAs for its downfall, it’s impossible to be sure of the specifics. So it’s not really a forward indicator or early warning signal of the end to wholesale OTAs.
The question is whether the other "wholesale OTAs" will face the same fate? Does this mean that we’re seeing the results of our awareness building campaigns and services to help hotels deal with this onward distribution… or are they just folding the Amoma name with plans to resurface under a new brand?
This seems especially likely, as a string of lawsuits and a terrible online reputation are hard things to shake. It would make more sense to sunset the affected brand name and start fresh elsewhere.
And, when the major OTAs themselves resell wholesale rates, there’s really no end in sight when it comes to onward distribution.
That’s the future as it stands today, which The Points Guy rightly concludes in its coverage of Amoma’s closure: "Is this the future of OTAs? One site after another cannibalizing its sales in order to capture as much of the market as possible? What does that mean for profits, for competition, and for hotel chains themselves?
"Though hotels are already trying their hardest to steer guests away from these agencies, they’ll be hard-pressed to make a case if the big OTAs are offering rock-bottom, wholesale pricing — even at their own expense."
In the end, the Amoma news doesn’t change the reality of rate parity in today’s environment: the only way to be certain of your rate integrity is to monitor regularly, have a plan of action to rectify any issues, and be vocal with your account managers about parity issues.
With continuous vigilance, hoteliers can stay on top of rate parity and keep rooms priced as they should be. Often, it’s that consistent pressure that gets the best results.
About the author...
Gino Engels is co-founder and chief commercial officer at OTA Insight