I am certainly not the first person to remind you what happened after the September 11, 2001, attacks led to an economic downturn with particularly devastating effects on travel and hospitality.
When I note that hotels, desperate to fill rooms at almost any rate, turned over inventory to new online partners that promised (and delivered) head in beds, it’s not meant to be a cautionary tale.
The fact of the matter is hoteliers are going to find themselves in the exact same situation again as we exit the current COVID-19 pandemic, and there’s not much any of us can do about it. Much of the early returning demand will come through third parties - even wholesalers. Like it or not, the fate of your hotel - whether or not you can recover - is in the hands of the online travel agencies.
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Managing the situation appropriately this time around - analyzing deeply segmented booking data, optimizing channel distribution mix and preventing rate leakage – will be critical moving forward. OTAs are again in a position to dominate and, as hoteliers, you need to make sure they’re playing fair.
Here’s why we predict OTAs will provide a key source of near-term bookings and what hoteliers can do to ensure they’re capitalizing on the right opportunities.
1. The new price-conscious consumer
It’s no secret that hotels across the world are sitting empty. Travelers are already on the hunt for deals, itching to book a getaway when we return to some sort of normalcy. From a price-sensitive consumer’s perspective, dynamic pricing works two ways, and they’ve seen plenty of “surge pricing” over the past few years.
As corporations and families alike tighten the purse strings, expect many travelers to “trade down” from full-service to select-service, for example.
The new consumer will undoubtedly be more price conscious, meaning they will shop more sites looking for deals. Expect them to go to OTAs in a hunt for lower prices and take advantage of promotions and loyalty program features.
2. Your marketing team is likely at home
Because business is going to come back gradually, marketing teams and budgets will likely not return all at once, either. This means OTAs are going to be a less risky, and sometimes more cost-effective, way to get people through the doors.
While hotels had been shelling out big bucks over the past few years in hopes of driving travelers to book direct, those budgets have likely dried up. Expect OTAs to come knocking on the doors first with low-cost ways of obtaining business.
3. OTAs will have more power
Hotel distribution is a cut-throat business in the good times and we expect it to be even more so over the next few months. Typically, in times of high demand room suppliers have an upper hand and rely less on third-party distribution, while in times of low demand OTAs tend to carry more weight.
Expect OTAs to develop more innovative ways to get travelers to your doors, albeit at high margins. While a disparate rate may have slipped by a year ago, be sure you’ll get a call about every nickel and dime moving forward.
One OTA strategy we see gaining momentum is increasingly differentiated pricing across all channels and all points of sale as OTAs try to woo new business. More specifically, geography has become an increasingly popular “fence,” meaning travelers to London from France, for example, will be shown a different rate than a traveler coming from the English countryside.
Demand will return in corridors
Particularly in Europe but increasingly globally, hotels are accustomed to serving travelers from a wide variety of countries. For at least the medium term, we see hotels’ source markets collapsing drastically based on how each of those regions has reacted to the COVID-19 pandemic.
For example, hotels in London will see German travelers bounce back before Italian travelers. Travel among secondary cities in the United States will increase before travel to coronavirus hotspots like New York. As these new travel “corridors” emerge, it will be critically important for hoteliers to re-analyze their source markets for segmenting, marketing and distribution purposes. When working with OTAs, hoteliers must be increasingly aware of how their rates and inventory appear to travelers in different regions across the world.
Many anticipate that the majority of hotels’ early returning business will come via “drive markets.” These won’t be travelers coming for a full week, but rather one- or two-night business trips. Next will be local leisure, driven by people who are tired of being cooped up and want to get away for a night or two. Even when planes get back in the air, people will be hesitant to pack themselves in and will likely opt for driving to their next vacation.
Hotel distribution is a cut-throat business in the good times and we expect it to be even more so over the next few months.
Dori Stein
Reaching these markets with appropriate messaging will be essential to a recovery. To determine your typical drive market, consider covering 150 to 200 miles around the property, allowing the guest to spend 3.5 hours or less in the car to reach their destination. Collect this data from your guests and store it in your CRM to begin actioning the analysis.
Every step will be gradual. Hotels won’t be full all of a sudden, but they’ll reach 10% occupancy, then 20%, then 30%, and so on.
It’s going to be difficult for hotel owners and operators to avoid the temptation of higher occupancy, no matter the cost of acquisition. For these reasons, we’re undoubtedly going to see the pendulum swing back toward the OTA channel. However, hoteliers cannot lose the solid momentum they’ve gained over the past few years in driving business through their own supplier channels.
The key here will be unrelentless monitoring of your hotel’s presence on the OTAs and daily strategy meetings between revenue and marketing around channel management. You’ll need to know exactly where your bookings are coming from and what rates are being shown to different segments of travelers across the web. And you’ll need all of this information on your competitors, too.
Use competitor channel data to ensure you’re deploying a healthy distribution strategy. Ensure that not only are your publicly available rates in parity but your fenced and promotional rates are accurate and being seen by the consumers you intended. Should you see leakage – or an unintended rate in the marketplace – take action against distribution partners who are undermining your strategy.
Booking.com, Expedia and the like are incredible marketing organizations that are able to segment promotions to very specific groups of travelers, sometimes with fenced rates. This can be a great strategy, so long as you’re aware what these rates are and where they’re appearing.
Unfortunately, the coming few months aren’t going to be easy for anyone. But hoteliers who better understand their detailed channel data will be well-equipped to navigate the current environment, and forecast and prepare for returning travel demand.