Joseph Foo, managing partner of Trip Affiliates Network, asks how the COVID-19 pandemic will impact the relationship between hotels, OTAs and traditional distribution channels
In an environment where international travel is almost non-existent, hotels are turning to OTAs, with their global access to domestic travellers, to drive business.
This has raised doubts over the long-term viability and usefulness of traditional agents and wholesalers for hotels.
However, hotels that ignore or downplay the strategic importance of traditional channels are making a fundamental mistake. And this is why.
Pre-COVID, traditional channels averaged around 50%-70% of total distribution, despite the surge in popularity of OTAs and the shift in mindshare among B2C consumers.
Post-COVID, however, the percentage has swung substantially in favour of OTAs.
Countries are attempting to support local tourism by funding marketing campaigns designed to encourage domestic travel.
These campaigns are usually dominated by a few global OTAs with their online B2C distribution service.
Local travel agents are not engaged or supported by their incumbent tourism authorities at all.
In a matter of less than six months the traditional business of hotel distribution has almost disappeared.
Importance of online supplier connectivity and payment services
Disruptions to traditional channels are due in the main to their reliance on largely offline contracting and payment mechanisms.
They are often restricted to static prices and allotments fixed for a period of six months to two years.
OTAs are equipped with online hotel connectivity which gives them access to often cheaper tactical promotional rates sold online by hotels to address lower than expected occupancy, particularly during this crisis.
Travel agents typically operate either as a local inbound or outbound agent but these traditional boundaries don’t work in the current environment where international flights are disrupted around the world.
OTAs have online access to suppliers and customers abroad and at home.
Without that accessibility, local inbound agents are dependent on overseas agents/visitors buying their local contracts, while local outbound agents are dependent on overseas suppliers for travel deals selling to their extensive base of local customers.
As a result, only OTAs are equipped to take full advantage of the inevitable surge in domestic travel initiatives post COVID given their online access to both local suppliers and customers.
Rising resistance by suppliers to credit payment
Hotels are pushing towards online prepayments to reduce credit risk, particularly for dynamic contracts.
Traditional channels rely largely on credit arrangements as they lack the same access enjoyed by OTAs to online prepayment mechanisms such as virtual credit cards.
If traditional channels fail to catch up with OTAs in terms of hotel online connectivity and payment, they risk being overlooked and the channel could be wiped out altogether.
So, will the COVID crisis signal the end of traditional B2B channels, and if so, why does it matter?
Strategic importance of B2B channels for suppliers
To suppliers like hotels, B2B will continue to be strategically important distribution channels.
They can provide hotels with a more robust base of business 14-30 days from arrival. OTAs generally have a short lead window of seven to14 days.
Agents provide quality travel care which helps improve the overall travel experience for the customer throughout their trip.
In a post-COVID environment, travellers will also be more assured under the care of a travel consultant.
Hotels also have the option of executing more creative or differentiated pricing strategies with local champions without affecting online pricing.
This allows hotels to reduce their reliance on OTAs by diversifying their distribution channels.
There is a need for change among travel agents and wholesalers who have generally been slow to embrace technology.
This is changing, however. New travel technology companies are helping B2B partners transform their distribution and partnership networks.
A wave of new technology networks like ours, which is driven by a deep understanding of the industry, is providing B2B partners with easy access to requisite direct hotel connectivity and various online payment solutions like virtual credit cards.
Many, like Trip Affiliate Networks, are offering additional benefits such as comprehensive FIT and group booking and turnkey operation automation solutions for travel operators.
Levelling the playing field between OTAs and operators
This crisis presents an opportunity for IT savvy travel operators to recapture consumer mindshare as travel providers of attractive deals with a service.
They will be empowered to rival OTAs’ product and price offerings as well as operations automation and efficiency.
This will allow the travel operators’ team of experienced travel professionals to focus on providing quality travel care and improve the overall travel experience for customers, particularly where consumers have more complex travel requirements in pursuit of experiential travel.
In a post-COVID environment where health and safety considerations are hugely important, travel operators, with their human agents, are better positioned to provide personalised travel care and suitable arrangements, including FIT, small group or large group tours.
By levelling the playing field with OTAs in terms of their breadth and depth of product pricing, travel operators will be able to recapture travel market share.
Focusing on delivering differentiated experiential travel through superior customer service will drive this industry when people are ready to book their next trip.