We’re at Ground Zero
The ramifications for the travel and tourism industry are still not clear following the Covid-19 pandemic, but for sure business as usual is not something we should expect. Many things will change forever, creating a new normal. Hotels will need to reposition, reinvent and realign their strategies in line with the radically changing consumer behaviour we are witnessing and what is to come in cautious recovery.
Following 9/11, air travel for example changed dramatically and forever, with new security protocols, additional queuing, limitations on liquids, and so many other smaller restrictions and changes that we now take for granted. So too will this event bring permanent change, though what it looks like is not yet fully clear.
What is clear, is that currently much of the hotel industry is in a state of paralysis. Many smaller hotels may never open again. Even if local law permits opening, many hotels remain closed – uncertain of how to open or how to generate the cashflow needed to begin to open. Those hotels that are open find themselves dealing with unfamiliar segments: frontline medical staff, the self-isolating, displaced persons and the homeless. Traditional streams of revenue have all but disappeared in the short term. But thinking now needs to move to the upturn and how to seize the potential when it arises.
A rare opportunity to regain control
In the face of such adversity comes opportunity. A clean slate – a complete industry reset – offers hoteliers the very rare opportunity to redefine how they do business and to disrupt their traditional distribution relationships.
The industry knows that hotels have been overly-dependent on online travel agents (OTAs) such as Expedia, Booking.com and others for far too long. Initially in the early 00s it was the inability of many hotels to leverage technology that led to OTAs rapidly gaining market share at their expense. OTAs delivered online for the digital-savvy traveling customer in a way that hotels were slow to grasp. As a result, a power struggle has existed ever since, and while hotels have become digitally mature themselves, they have never organised enough to face down the clout of the large OTA distribution model or to redefine the relationship to bring sufficient balance.
Hotel organisations and representatives have made it clear that some OTAs have not treated hotels fairly in the Covid-19 crisis, especially where cancellations are concerned. If it was not obvious before, hotels must certainly recognise now that the OTAs are firmly on the side of the consumer alone. The hotel is not a partner of the OTA, but merely a supplier, with all the interdependence that this entails. However, as the supplier it is important now for the hotel industry to realise that they and they alone hold all the sellable stock. Without that supply of rooms, OTAs have precisely nothing to sell and no income to generate. Reliance on suppliers also brings its weakness.
Never before (and likely never again) has there been such an opportunity for hoteliers to stand firm and to regain control of their distribution by redefining the relationship they have with their 3rd party distribution partners. Yes, it is a crisis, but this is the best opportunity hoteliers have had since the 90s to redefine the balance of that relationship. You will never get this opportunity again.
Profit is critical for spinning up your business
When new bookings start again, hoteliers will need every cent of their revenue to generate cashflow and help rebuild their business. Every cent counts to help bring back staff and to deal with the expense of the hygiene regime that will be necessary to spin up your business in the new norm. Unnecessary expense needs to be eliminated and finances need to be scrutinised to ensure efficiency.
So in such a situation, ask yourself this simple question: why would you hand 20% (average OTA commission) of that very first recovery booking income to OTAs? Is that really necessary right now, just when every cent counts?
Maximising profit per room is critical. Hoteliers need to focus on profit more than ever in the coming upturn, and that means focusing on getting business direct to your website, where you can retain as much of the room price as possible and cut out distribution overhead.
Hotels must take advantage of the opportunity this crisis brings to restart such relationships on their terms. Now is the time to take action, to take control. If not, hoteliers risk handing the upturn to the OTAs and making them stronger than ever as a consequence – because you can be sure that OTAs will be fighting for every last cent in the upturn too and their only opportunity is to increasingly take it from the hotels’ profit line. If hoteliers let that happen now, it’s game over.
Are you building someone else’s business?
Hotels need to think about the endgame and not just the current move they are making. Getting the hotel’s distribution strategy wrong at this critical time can bleed any profit from the business if hotels are not careful.
Driving ever-stronger margin is the only way to generate much needed cash. OTA costs per booking do not fall with volume – they grow linearly with booking volume and never give hotels a cumulative advantage. A direct booking strategy on the other hand is a bootstrapped process that, on a per-booking basis, actually gets cheaper over time the more successful and optimized it becomes.
Having the right information on distribution costs is critical to strategic decisions. Any lack of visibility on the real costs can negatively influence strategic decisions. Hotels should use the time they likely have in the downturn to probe and properly understand their numbers and forensically examine their true cost of acquisition on a per-booking basis per channel. They have time to think and reshape their future and information is power in that regard.
While occupancy and rate are obviously key performance indicators, continuing to focus on these alone while being oblivious to the real costs of acquisition blinds will blind a hotel to the true picture of their business’s underlying performance. In particular, if hotels that rush to OTAs to try to fill rooms at bargain prices as a way out of this crisis, then they and their teams are working harder than ever to fulfil somebody else’s strategy. They are working to build the OTAs’ business and hand them the recovery profits while treading ever-deepening water in their own business.
Grasp the domestic recovery via direct
So where should you start as a hotelier? The early stages of recovery post Covid-19 will see a lot of pent-up demand for “safe” travel and initially that demand will be domestic. This business opportunity should be carefully guarded by hotels and can be channeled direct to hotel websites. These customers undoubtedly already know your hotel’s name/reputation and will likely search directly for your hotel’s name rather than search generically. They are, therefore, already your customer and only you should be serving them online. This is a segment that simply does not need to be ceded to OTAs.
But you have to work to ensure this is the case, it won’t just happen. Your messaging, your website, your email marketing, your search marketing, all must focus now on reaching the domestic market and showing them that you are there, you are ready and you want to welcome your guests with your unique offerings in a calm and safe environment.
OTAs of course retain a critical and necessary role for distribution and their use is needed and totally justifiable for getting those bookings a hotel could not otherwise get themselves. But they should not be used for business that the hotel can readily get themselves.
Repeat business and domestic business in particular is something that no hotel should be handing to OTAs. There will always be a need for OTAs, but you must continually ask yourself: are they bringing extra business or just replacement business, business I could have got myself?
The Achilles heel of an OTA-reliant strategy is lost data
The ease of doing business via OTAs is often the reason why many hotels end up being over reliant on them. But now in the cold face of Covid-19 these over-reliant hotels are especially vulnerable. With the bulk of their business coming from OTAs they are unable to communicate directly with the majority of their past patrons. But customer ownership is the key to business longevity and stability.
OTAs very successfully encourage loyalty to their brand and not to any one specific hotel. Your past customers are right now being targeted by OTAs (as they always have been) to stay at other hotels because it does not matter to OTAs which hotel a guest chooses as long as the booking is done via the OTA.
In contrast, hotels that had less OTA reliance pre Covid-19 will undoubtedly begin their recovery in a much stronger position because they have the ability to communicate directly with their past guests, especially in the domestic market. They are in total control once the booking is made. From pre-stay to post-stay contact they own that relationship, in contrast to the booking that comes via an OTA.
Don’t think for one minute that the OTAs are not hatching aggressive recovery plans of their own. The more customers of yours they have, the more customers they have to sell other hotels to. Undoubtedly, they will be pushing hotels to lower prices also in order to encourage booking on their sites and via their loyalty clubs, even though pent-up demand would indicate that lowering prices is not necessary in order to fuel recovery.
Reducing your dependence means increasing your independence and that can only be done with a strong and properly-resourced direct strategy. Some hotels have the in-house resources and expertise to do this, but many don’t. Companies like Bookassist play a critical role in the recovery process by partnering with hotels to empower them to compete with the heavyweights, all the while reducing booking CPA.
Hotels handed power to the OTAs once before. Now, in the midst of this crisis, they have a real and tangible opportunity to regain that control. Unlike before, hotels are now much more digital-savvy than they were when OTAs first appeared. With the help of partners like Bookassist they have access to the technology and expertise to allow them to reach customers directly, far more effectively than they could years ago.
Resetting the distribution relationship to a fairer balance is within the industry’s grasp and within each hotel’s grasp. This can retain more profit within the hotel industry itself. This opportunity will not arise again.
If you are ready to commit (with total organisational focus) to a direct strategy then read Part 2: must-do recovery checklist.