Direct Booking Wars

There is no doubt 2016 could be remembered as the year of the direct booking wars. At least if you’re hotel owner or operator of a branded hotel. All the big players, Marriott, Starwood, Hilton, Hyatt, and IHG have developed strategies that incent the guest to “book direct” with the hotel, versus the (expensive) online travel agencies (OTAs). Hilton’s ‘stop clicking around’ campaign featured multi-million dollar TV campaigns with the Rolling Stones tune ‘can’t get no satisfaction’.

The brands mentioned above all have come out with “members-only” booking rates. These rates are typically 3-10% lower than rates a guest is able to obtain by booking through the OTAs. Not bad (for the guest at least) and one still gets to earn loyalty reward points on their stay. Obtaining a brand for your hotel or resort generally costs between 8 and 14% of top-line revenue. When a guest books through an OTA, the average commission is 15 – 25%.

Let’s take a quick look at a brand like Starwood’s Westin. Westin carries up to a 15% brand fee.  Add an OTA commission of another 15% and things get very expensive for the Hotel owner. 30% marketing and brand fees off the top. A large part of the value proposition to pay for a brand is eroded by the power of the OTAs.

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In fact, Skift hotel news reported that Morgan Stanley Research estimated the global hotel industry saw revenues of $570 billion last year and of that amount, brands took home about $11 billion for branding fees. OTAs, on the other hand, collected $16 billion in commissions”.

What about Independent Hotels and Resorts? Well, most of them in North America had record years in 2014. Then another record in 2015. And another record or banner year in 2016. These great years make many hotels complacent. They have become reliant on the OTAs – and many just don’t care. Until they do.

2017 is looking like another good year. However, so did 2008 in early 2007. We’re probably not in for another terrible recession, but the hotel and resort industry are not unlike real estate and other cyclical industries. What goes up, generally cycles down after a cycle of hyper-growth.

When the current up-cycle turns downwards, tens of thousands of Independent Hotels & Resorts will be left scrambling for an edge over their competitors.

Brands are somewhat protected. The core of the brand’s defense are their loyalty programs. Love them or hate them, they work.

IndyKey creates guest loyalty. It helps keep guests coming back, in good times, and in bad. It provides a small but growing network of like-minded hotels & resorts, that are not direct competitors. Perhaps the best part? We’re not even remotely close to the cost of a brand.