2015 was a boom year in Irish tourism. Recent Tourism Barometer reports from Fáilte Ireland have shown that accommodation providers displayed their most positive sentiment since the pre-boom era, with 70% of providers overall indicating that business is up. This figure rises to 79% among hotels alone.
Most providers benefitted from an increase in tourism numbers and a particularly strong influx from GB and USA. Overall spend is also up, and exchange rates have certainly helped Ireland to be more attractive. Repeat business has shown improvement, the domestic market is yet again on the rise, overall occupancy has risen. The Average Daily Rate (ADR) in all segments has also risen fast, which is generally good news for the hotel industry (but a worry if allowed to progress unchecked).
Sustainability of this growth is another question. But so far things remain positive, with Tourism Ireland aiming for another record year for Irish tourism in 2016 with a target of 4% growth to 8.2 million visitors.
But even without further growth in visitors, a strong opportunity exists to see further and continued growth in profitability if the existing numbers alone can be focused more on direct booking at the hotel rather than through more expensive distribution channels. It’s really time for hotels to rethink what this means and seize the opportunity.
According to Phocuswright (see Figure 1), online bookings in Europe will grow from 36% of overall bookings in 2015 to 39% in 2017. That same report shows that online travel agencies (OTAs) are taking 71% of the online booking value in Europe, versus a more balanced 52% in the US. (Peter O’Connor, the lead author on that report, is among the lineup for the Bookassist Distribution & Revenue Management Seminar on January 19th in Dublin.)
The challenge therefore for European hotels is to simultaneously seize the online growth opportunity in the coming years while reducing their reliance on OTAs to help shift the balance more towards what is already achieved in the US. Tapping in to this could make a massive change to your business. The stars are aligning for this, with considerable legal pressure in the EU on OTAs through 2015 to desist with anti-competitive practices and provide a more level playing field for online competition. OTAs of course retain a critical and necessary role for distribution, but their use should increasingly be strategic and if possible secondary, not a primary focus. The high rates charged for OTA business are often justifiable for that first booking you could not otherwise attract, but there are many segments where their excessive use is simply not necessary.
Repeat business and domestic business in particular is something that no hotel should be ceding to OTAs. These are customers who undoubtedly already know your hotel name and are likely searching online for your hotel. Targeted advertising on your hotel name is needed to ensure they engage directly with you rather than OTAs when searching online, and every one of them should see better value on your website and a well-presented offering online to ensure they book direct. Repeat business should additionally be encouraged through the proper use of Customer Relationship Management systems for targeted and relevant email communication.
Avoid Silo Thinking
Part of the issue with effecting change for the better in a hotel’s distribution pattern is that elements of distribution may be handled by different people who do not fully coordinate or who are not incentivised to do so. The approach to each channel or segment may be looked at in isolation, as a “silo” distinct from others. FIT business, Corporate segments, OTAs and “the website” may all be viewed in isolation rather than as a strategic whole. Even if the people responsible are the same, the thought process itself may be siloed. Optimising each within its own confines is not the same as optimising your total business.
You need to look across the business as a whole to ensure that redistribution towards direct becomes the priority of all involved. One could argue for example that the remit of anyone looking after FIT business should be to ensure as little business as possible goes that way and that as much of it as possible is shifted towards direct online channel! Accordingly, you can easily see how incentives based on targets for each silo may actually be counterproductive and encourage a status quo in your distribution strategy that is difficult to shake. Where all your key business managers are working together however toward a common goal of more direct business and therefore higher profitability, a more dynamic approach to redistribution will occur naturally.
Invest Now To Reap Rewards
The intention to push more to direct business and higher profitability must be met with real actions or it will fail. In particular, it is critical to invest in digital marketing and in web presence to ensure that the traffic is captured and is then converted. It is unfortuante that many hotels are still not prepared to make this leap and put the money behind their aspirations. This shows a lack of foresight that will trap a hotel in the distribution patterns of old.
The beauty of building your online strategy and customer engagement is that it is a bootstrapped process that gets cheaper over time with success. Initially, it may cost to fund online campaigns, a professional and dynamic web presence, proper analysis of your customer base, segmented targeting etc. But as the direct booking numbers grow and savings are made on each booking versus other distribution channels, the cost per booking of the ongoing investment actually diminishes.
This is because many of the necessary outlays, like website costs and software such as CRM or revenue management tools, are largely fixed or annual costs and as direct bookings grow those costs are not increasing. Conversely, the cost per booking of FIT or OTA bookings continues to grow linearly with volume and will never give you a cumulative advantage.
Technology in the travel space continues to develop apace and brings real advantages to the modern hotel. Profitability is driven by a capability to deliver, and delivery is driven by being forewarned and forearmed. Never has their been more opportunity for hotels to analyse and understand their business in order to improve their strategies for growing profitability.
Analysis is difficult, and interpretation even harder. Technology can take the pain out of this and many tools can provide real actions that generate business improvement and more than justify their costs. Three technology areas that are blossoming are in revenue management, customer relationship management, and data analytics.
Revenue Management: Revenue management as a skill is of course invaluable in your hotel’s team and further insight can be gained through the use of many tools now on the market. Understanding the dynamics of price flexing and its drivers is not necessarily simple and good tools can take the donkeywork out of the process, helping you see your real competitive set more clearly and patterns in their behaviour that you might otherwise miss.
CRM: Real analysis of your customer data is also critical and something that OTAs do exceedingly well. There are many tools on the market that can now help hotels to really optimise what is already their greatest but perhaps most underexploited asset. Many hotels are not capturing sufficient data to make their customer lists truly useful, and structuring your approach through the use of a specific tool or service can help turn lost customers into won customers, and turn your existing data into repeat business and improved profit. The area is worth looking at.
Analytics: True analytics and the promise of “big data” for the masses is finally coming to hotels also, combining revenue and customer views and taking a macroscopic view of the market. What use to be within the reach of large hotels only is becoming more and more affordable at independent hotel level. Watch the space carefully for developments in 2016. (One such offering comes from SnapShot, and VP Strategy Brendan May joins the Bookassist Distribution & Revenue Management Seminar on January 19th in Dublin.)
Take These Five Steps
So make it a resolution at your hotel strategy meetings to focus on what can grow your profitability and not just take complacent views of growing your ADR and occupancy. With the current positive sentiment, hotels are throwing away considerable opportunity to drive margin and generate the cash needed to invest in their property and thus secure sustainable rate levels through improved offerings and higher ratings. Adopt these five simple steps to improving your hotel’s profitability:
1: Make sure your team is thinking more broadly about your distribution mix as a whole and is resisting the trap of “silo” thinking. Ask of every booking, how could I have made that occur directly?
2: Focus more on redistribution away from other other online channels and FIT and towards direct. What does it take to achieve that? Set yourself goals.
4: Put digital strategy front and centre of your hotel’s entire strategy. Other routes may fill the gaps but direct to web must be the primary aim.
3: Be ready to capitalise by investing now, and indeed continually, in your web presence. You need to spend more to make more so beware of a budgeted approach that may place artificial limits on your ability to realise profit when it is there for the taking.
5: Embrace technologies that can help you analyse your position and give you the correct key performance indicators (KPIs). Are the KPIs you’re using now really helping to monitor your drive towards profitability or are they just affirming the status quo?
Above all ensure that you, and not just your distributors, are tapping into your fair share of the profitability that your industry is already delivering.
Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.