Agents feel the squeeze as hotels take up online sales
Friday 27th August 2004 14:29
The decision by InterContinental Hotels Group to ditch online intermediary Expedia is the latest sign that the balance to control room rates is finally tipping back in favour of the operators.
Other hotel groups are sure to follow. Companies such as Hilton are already investing heavily in their online operations and distribution networks and striving to ensure that the best room rates are available directly through them to ease their dependency on the agents.
The move caps what is turning into a terrible year for the once all-powerful Expedia and its rivals such as Lastminute.com and Ebookers. These companies, spawned during the internet start-up boom, have seen the recovery in the hotel sector and an increase in the number of rooms booked directly through hotel internet sites hit their business, forcing share prices to plummet and City confidence to fall.
Now that the hotel sector is recovering, operators have fewer rooms to fill through agents. And, as operators are getting better rates themselves, they have become reluctant to fill dwindling spare capacity at the low rates the agents have been selling at over the past few years. Increasingly, hoteliers are holding the cards and are able to drive better deals with the agents.
For many in the industry it's not before time. Robert Cotter, head of Starwood Hotels & Resorts, calls them at best a necessary evil, and at worst the biggest threat facing the industry. While it is true that they helped drive volume and improve yields in the bad times after 9/11, they also limited returns through discounts and charges, he said.
In the USA, consultant PricewaterhouseCoopers reckons operators lost $2b (£1.1b) last year to intermediaries in rate terms. The proliferation of online booking agents has also given rise to a customer base of bargain hunters whose loyalty is to their wallets rather than hotels. This, of course, is painfully at odds with hotel companies' twin goals of customer loyalty and repeat business.
It hasn't always been this way. Robert Barnard, hotel consultancy services director at PKF, points out that, for a while, the model offered a good way for operators to offload spare capacity that otherwise would have remained empty. The only problem was, they ended up releasing so much inventory through the agents that they were no longer in control of their own destiny.
But while hotel operators were initially caught napping by the rise of the internet - something the online intermediaries not only identified as an opportunity but successfully exploited - hotel groups have since invested in technology and embraced the online world.
Barnard said that another factor going against the agents was that customers have become more savvy in using the internet, and are increasingly navigating the web straight to hotels and hotel groups rather then stopping at the agents.
"It's definitely good news from the hoteliers' perspective," said Marvin Rust, managing partner in the hotels and resorts division of consultants Deloitte. "I wouldn't say the hotel operators were winning the fight - but at least they are having the battle, which is more than they were doing before."
It is still early days. A report from accountants KPMG, released earlier this year, showed that although more hotel companies were launching best-rate guarantees, only 28% actually delivered on them, and 58% of the cheapest room rates in the UK were still available from online firms. But the important thing is that the balance is being readdressed.
A recent US report showed that booking direct can benefit customers. The JD Power & Associates 2004 North America Hotel Guest Satisfaction Index Study showed that customers who book direct enjoyed greater satisfaction. It is notable that the best performer in this regard was Four Seasons Hotels and Resorts, which has shunned the online intermediary model.
The big question remains: what will happen the next time this cyclical industry takes a nose dive and the hotel companies are left with a mass of empty rooms to fill? In short, online intermediaries will still have a part to play. Even InterContinental is continuing to use them.
In explaining its decision to dump Expedia, the company claimed it had chosen to work solely with distributors that "do not engage in confusing and potentially unclear marketing practices... and clearly present fees to consumers".
Rust also believes the online agents are unlikely to fade away. "We may see the [online intermediary] model change, but there'll always be capacity, and it's another route to market. Online intermediaries are here to stay."