WebBeds' Sun on rate parity, credit and distribution shifts

Just as its hotel partners had to pivot to domestic during the pandemic, so did WebBeds as it re-deployed resources towards domestic content, closed its Taiwan office and ramped up its domestic distribution network that works with local travel agents. Kok Sheng Sun, president, APAC, for WebBeds, speaks to Web in Travel founder Yeoh Siew Hoon about what changes the bedbank has seen in the hospitality distribution landscape and the emergence of new social channels in some markets like Indonesia, and how it sees the new world.

Webjet Limited, your parent company, returned to profit in 2H22. Similarly with WebBeds, which was profitable in 2H22 driven by North American and European markets. How is APAC tracking currently?

We have started seeing significant effects of the opening of Asia (Australia and Southeast Asia) in April, business has come back strongly. There is a great improvement in this quarter from April to June, as compared to previous quarter. Keeping in mind that one of our largest markets, China, which accounts for a significant portion of APAC business, is still not open, so there is good potential ahead. Even though China has not opened, destinations that have reopened are moving to near pre-COVID levels, and some markets like Australia have exceeded pre-COVID levels.

What signs of recovery are you seeing, and what key trends are you seeing in terms of booking patterns? Any discernible change in customer behavior?

I think in the next few months, there will be some transitioning of trends. There’s a big change in the landscape, travel now depends on border restrictions, how easy is it to get there and availability. During the pandemic, everything was last minute and domestic. In this initial stage of re-opening, it’s still very much the same because of the extra documentation needed for travel, but people are booking further ahead. We are seeing long lead time booking especially for peak periods – there is very strong demand for December. In fact, capacity is not catching up with pent-up demand for some destinations.

Things will continue to be erratic for a while. If China opens, it will disrupt the trend quite dramatically. And then there’s Japan – we are seeing bookings even though its borders are not fully opened at the moment, so we are expecting a rush when their borders fully open.

For us, the strategy is about making sure we have enough supply – whether for last minute or advance bookings – and match supply to the demand. The advantage we have is being able to spot a trend – for example, we are seeing strong demand from India and the Middle East for July, and we want to help our hotels gear up for that.

How much of your inventory is direct contract?

Of the 400,000-plus hotels we supply to clients, we are directly contracted to over 30,000-plus hotels. Though majority of our trading volume is through direct contracts, we see value in third party distributors – they connect us to places that are out of reach for us.

Traditionally, bedbanks like WebBeds relied on inbound and outbound business. During COVID, that stopped and domestic came into play. How did that impact you and what changes have you made to the business – are you now deeper into domestic? And how does that change inventory sourcing and management?

COVID has been an opportunity to work with domestic specialists. Pre-pandemic, domestic was about 11% of our business. During the pandemic, we pivoted our resources towards domestic. We changed the role of some team members – from sales to contracting more products for the domestic market. We went to Tier 2 and Tier 3 cities and approached boutique hotels that appealed to the domestic market.

Current domestic sales are around 37% of our business and with travel recovering, we are helping these partners expand their business to international inbound. For example, in Indonesia, some domestic agents are now our top international sellers.

In terms of staff cuts, our workforce was reduced by 22% at group level. For WebBeds APAC, we closed our office in Taiwan and are managing our clients and hotel partners out of the Hong Kong and Singapore offices. (Currently, its team in APAC is about 250 strong.)

An age-old challenge is rate parity across different channels – did that get worse during the pandemic? And is it even worse now with recovery and hotels anxious to recoup?

It hasn’t gotten worse. During the pandemic, rate parity issues are minimal due to the low booking volume. Most hotels still value rate parity – how they distribute their rates and according to their rules. Over the past few years, we have improved the way we manage this – how we segment the clients, how we distribute and now have better control. Hotels acknowledge and appreciate the effort and have more trust in us now.

But there is still leakage though – wholesale rates appearing where they should not be?

Yes, some amount of leakage is inevitable even with stringent checks and controls. But to be frank, yes, rate parity is high on hotels’ agenda, but it’s not the highest. The highest item on the agenda is the resource crunch – manpower to turn around rooms, to restore capacity. I was in Malaysia and hotels there were telling me of the problems they have with getting staff and staff costs.

Do you ever see the rate parity issue being solved?

It depends how hotels strategize their business. If you look 10 years’ back, rate parity wasn’t a thing. But online distribution changed all that and rates became open and transparent. Agent partners are also expanding channels to sell – Instagram social commerce is huge in Indonesia. In South Korea, you see increasing distribution through online and e-commerce players like Naver and Tmon.

I don’t think rate leakage will be eradicated totally. If you want to sell your product at volume, there will be some imperfections.

I see you have signed a partnership with AirAsia super app. Are you looking to work with e-commerce platforms like Lazada?

We are not working with e-commerce platforms yet, but we are always exploring new channels to sell to consumers. We can work with any business that can distribute the product. On the back end, we have to make sure we segment the products that we have, distribute the right product to the right channel.

Online (including social media) is part of the business, but wholesale and retail are still growing. In fact, wholesale and retail are coming back strongly, their recovery is as strong as ours, and they are also evolving and using social channels to be in contact with their customers.

Another key issue with bedbanks and hotels is credit – and the pandemic was rough on cash flow. How has the pandemic impacted credit terms with hotel partners? What kind of new arrangements are you seeing as each player in the value chain strive to maximize their cash flow and credit terms?

For Webjet Limited, when the pandemic hit, it impacted our share price, and we went out to the market to raise AUD346 million. That fund put us in a comfortable position to invest in our people, our technology, and our business. We were able to trade normally with our partners which instilled confidence and allowed us to strengthen relationships.

Before the pandemic, we were trading with the virtual credit card system. Partners are paid upon check-in, and that hasn’t changed.

Credit control is indeed tighter now, and hotels are not keen on giving credit. If anything, they are looking out for pre-buy deals – you pre-buy the rooms and pay them straight up. They are looking for fixed security deposits and floating deposits with intermediaries. These are quite manual in nature, and we prefer the virtual credit card system as it’s much more automated.

There is talk that during the pandemic, bookings to hotels went more direct but with travel recovery, OTA distribution remains as strong if not stronger. What key trends do you think will influence hotel distribution in the next three years?

The pandemic washed down some of the players, but those left behind will come back stronger. The intermediary business is still growing, and it’s an important part of the ecosystem. The recovery for intermediaries has been pretty strong – they have low costs, been in business a long time with strong reputation, they went dormant during the pandemic, but they are nimble enough to re-start business very quickly.

There are new startups now that offer hotels the opportunity of direct connectivity to the customer without having to go through intermediaries such as OTAs or traditional travel agencies. How do you think these startups will change the distribution landscape and how will bedbanks respond?

There is a lot of interest from hotels to explore different ways of distribution, to see if they can get higher yields. We are monitoring these developments, but we will focus on what we do well. We address hotels’ pain points by making use of our technology and data to allow hotels to access and make better commercial decisions.

In your view, what has the past two years done to travel technology, distribution and marketing in the different sectors such as aviation and hospitality? What trends are you watching as a travel industry leader?

In the past, travel was not that easy. You needed more planning, more help from travel agents. Technology has helped make things easier and given more power to the consumer to self-help. The pandemic has moved it backwards in certain ways. People who are usually confident travelers had a setback.

From my own experience, I went to Kuala Lumpur recently, and it took me quite a while to download and fill in the local app. Currently consumers may not be as confident and powerful as they were but as things normalize, the power will swing back to the consumer.

This trend will influence our strategy, which includes the types of distribution players we work with. Hotels are our core and will be a very important accommodation option but there are changing trends such as alternative accommodation. We are very keen in exploring opportunities to work with and invest in startups, especially in travel tech.

*This article first appeared on Web in Travel.