The ‘fragmented’ nature of the hotel sector means many are taking advantage of the chances available
Everyone in travel wants to be in the hotel and accommodation game. Retailers, tour operators, distribution platforms, technology companies, review sites, deals and flash sale specialists, all want a piece of the action.
The reason is obvious
Unlike aviation, in this industry there are more players, there’s fragmentation, which always leads to opportunity, and maybe most crucially, there’s more money to be made.
At a recent Barclays Travel Forum held in London, Paul Evans, Lowcost Travel Group chief executive, said: “Look at Booking.com and Hotels.com and the relative scale of the hotels market. In the long-term, people will be more comfortable booking airlines direct.
“The hotel market is much more fractured and it suits tablet and mobile, so we are much more focused on growing our hotel business.”
Also, unlike the aviation sector the hotel room distribution system is not underpinned by powerful and efficient, but arguably outdated technology as embodied by the GDSs.
This means that simply getting hold of the product – stacking the shelves – has in itself been problematic.
So there’s been something of a land grab with business to consumer giants such as Booking.com and Hotels.com signing up hotels and accessing content left, right and centre.
Although in some countries more work still needs to be done to bring the long tail of suppliers into the fold (southern Italy is said to be one of those) that work has, in the large part, been done.
So much so that GDS Travelport now claims that its Rooms and More hotel booking engine includes 450,000 of the 500,000 hotels that exist on the planet, and more than one million individual offers.
Travelport’s president and chief executive Gordon Wilson has claimed: “I think it has the most complete offering of hotel properties bookable than any other tool in the market. We want to have the most complete offering of anyone in the marketplace.”
This aggregator of the aggregators pulls in content from multiple sources including the likes of Booking.com and Hotels.com as well as other large bed banks.
One of the results of this land grab for content is that the route to market of a single hotel bed can pass through a bewildering network of many layers, each looking for its slice of the action.
Share and share alike
Bed banks all have reciprocal deals meaning they share all their content with each other, some contract none of their own rooms at
all, but simply package up other people’s content and agree distribution deals with retailers.
True exclusivity of either deal or property is hard to come by, so retailers look for volume so they can cut costs down to the bare bone to be £1 or £2 per night cheaper than the opposition.
Tour operators, such as Thomson and First Choice, have achieved exclusivity. They use their power to agree absolute exclusivity, a successful strategy as long as you are able to deliver on the promise to fill the hotel.
Ultimately, the consumer has no idea that the hotel room he has booked has wended its way through this complex process.
It’s unlikely this will continue to be the case. As we’ve seen recently in the food processing industry and the horse meat scandal long, complex and convoluted distribution chains are not necessarily healthy.
And just like in the aviation sector, hotel owners are also waking up to the fact that they too can be retailers and take back control of the merchandising of product they invest huge amounts of capital in.
Marriott International, for instance, is now among the world’s top retailers on mobile having been an early adopter of a platform that is proving to be such a boon in the last-minute booking window.
Roomkey.com is an intiative launched by some of the world’s biggest hotel chains to drive direct sales.
The hotel owners are also increasingly looking to bring in more sophisticated forms of yield management, product differentiation and marketing targeted to the customer.
So while the hotel room distribution system that has emerged pushed the sector towards greater commoditisation, hoteliers and some third parties are finding ways to resist this.
The dynamic packaging tour operator iVector system from Intuitive, which was owned by the Lowcost Travel Group until last December, was created to bring hoteliers into the market and proactively tweak their offering to remain competitive in the marketplace.
Andy Keeley, Intuitive commercial director, said the firm had responded to hoteliers’ demands for more control, in particular with the rise to prominence of channel management companies such EZYield, RateTiger and Siteminder.
“If you look at the way our system has evolved it used to be just about connecting, getting rates and getting content,” said Keeley.
“Then along came the bed banks and wholesalers – we now have 70 integrated with our system. That was a big change four or five years ago and that keeps growing, we are still getting asked to add more.
“But the big switch for us this year is the rise of the channel manager interfaces. We have about six. A few months ago we were only integrated with about two.”
Keeley said the big impact of the channel managers is that the retailer, be that an online travel agent (OTA), a tour operator or traditional leisure or corporate agent, can have a more direct relationship with the hotelier or supplier.
Working through an aggregation intermediary such as a bed bank breaks that link, meaning the retailer is only able to work with the fixed allocation and prices that these middle men negotiate and pass on.
Channel management opens up the possibility of hoteliers establishing a much more dynamic and sophisticated link with its retail partners.
As well as a fixed best available rate, hotel room suppliers are able to make variable types and amounts of inventory available to different channels according to their expertise in retailing.
Tailor your offering
As bookings are made the volume of inventory available in each channel can be increased or decreased so inventory can be effectively yield managed on-the-fly.
In this rapidly emerging model the most effective retailers can be targeted with particular room types, specific deals and partnership agreements tailored to them.
The emergence of channel management is allied to a more general adoption of open forms of API technology that promises much more collaborative ways of doing business.
Mark Lenahan, vice-president of product strategy of Irish travel technology firm OpenJaw, said: “It’s a way for the hotelier to push inventory in to retailers, but also to claw it back again. The more effective retailer is the one who gets the most inventory in the long run.
“It’s a push model, with the hotelier saying this is how much inventory I have and these are the rates, rather than the retailer sending availability requests and getting a reply. It gives channel distribution control back to the hotelier, potentially it cuts out the middle men.”
OpenJaw regional manager Riccardo Navorro Alés, agreed new data standards being brought in through Hotel Technology Next Generation protocols allow hoteliers to bypass the bewildering number of middle men.
“This allows the OTA to get closer to the hotels. You can implement protocols so you get inventory and prices in your local system – it’s performance based – and you don’t have to go off and ask someone else.
“You, the hotelier, gives me the inventory, I, the retailer, store it in my own data systems and I synchronise with you when I get bookings. The hotel chain retains control, it’s win-win for the OTAs and the hotel chains. That’s very powerful.”
The role of the likes of OpenJaw and Intuitive is to establish the integration to this product supply so retailers are able to market the right product at the right time at the right price.
“We do not suggest every retailer has relationships with thousands of hotels, but we do suggest that there are critical products in your shop front you must have the best price for.
“Establishing that deep integration is very desirable and is very important as a competitive differentiator,” Alés said.
Hotels today have little choice but to be available on Booking.com and Hotels.com. But few hotels will ever be able stand out against the small percentage of suppliers that represent the majority of business for these sites.
So the more sophisticated form of merchandising this evolution of the distribution system promises should see retailers rewarded for their expertise within niches and ability to retain margin while hotels reach their ideal target audience more effectively.
Signs of where this may lead are already there in the innovative start-up part of the accommodation sector with firms such as Airbnb and Room 77.
The third party retailers’ strongest suit is always going to be the choice within its product offering and then the ability to hone this down to something super relevant to the consumer.
Increasingly technology is going to be able to deliver this product from a long tail of suppliers and then allow it to be marketed at a granular level, maybe down to the individual room.
It might not be possible for every bed on the planet to command its own specific price depending on the time of sale or the type of customers, but things are moving in this direction.
Could prepayment become the norm?
Hotel and accommodation providers’ desire for greater yield management capabilities could make prepayment for rooms the norm.Payment on check-out is the preferred option for many retailers, including global giant Booking.com.
But, while ensuring there is no risk to the hotelier of them not getting their money from the retailer, it means the hotelier knows very little about its customer.
With full payments details passed on by the retailer, the hotel has much greater visibility as to what type of traveller, such as business or leisure, has booked a room and for what reason.
This enables the hotelier to personalise the customer’s experience and potentially to earn more money from them.
Prepayments for hoteliers also guarantees it has received the payment for the booking and is likely to cut the number of no-shows and cancellations.
The rapid rise in last-minute bookings, driven largely through the mobile channel, which often require payment up-front is also adding to this trend of prepayments.
However, prepayments present many issues and increase costs and complexity, particularly when international business is transacted on different payment platforms.
To address this, new systems have been created that generate a single-use virtual payment card.
US firm, Wex, which acquired CorporatePay in 2012, has been a pioneer in this area having created the Single-Use Ghost Account, a precursor to virtual cards, in 2000.
It said: “Payment models over the years have all fallen victim to inefficiency and the biggest challenges currently facing the industry are travel booking fees and the impact of credit card surcharges on profit margins.
“The sheer complexity of travel distribution, and the variations in business models, along with this squeeze on margins has led to a need for back-office payment processes to be as streamlined and efficient as possible.
“Another major issue for many is the ability [or lack of] to reconcile supplier payments with customer orders, as maintaining an essential clear audit trail is problematic when using traditional payment methods.”
Payment technology firm eMerchantPay has added real-time transaction analysis technology to its fraud protection mechanisms.Iris Analytics provides fraud prevention solutions and risk management consulting services.
This gives eMerchantPay a centralised point of transaction monitoring, which it said would lead to a reduction of the fraud-to-sale ratio, and instant decision-making on the transaction flow.
Hotel and accommodation suppliers or retailers would be able to exert control through specific rule-setting capabilities to maximise the processing of non-fraudulent transactions.
Iris Analytics’ flagship product Iris will be used to monitor the eMerchantPay user activities, such as payments, pay-outs, user registrations etc, in real-time.
Iris will also be used to consolidate information from eMerchantPay’s other fraud tools, and give a consistent, reliable and instant recommendation for each payment transaction processed by eMerchantPay.
The analytics and the flexible decision-making mechanisms of Iris will help eMerchantPay’s travel industry merchants to convert unknown customers into secure customers.