Business

Hotels chafe at online travel firms

  • 7 November 2014
  • From the section Business
Expedia logo on display in New York City

When you last went on away on a trip, how did you arrange your accommodation?

Chances are that you found a hotel room on the internet. Perhaps you booked it through an online travel agent (OTA) such as Expedia or Booking.com.

Maybe you checked out hotel reviews on a site such as TripAdvisor.

Or possibly you didn't even consider staying in a hotel, preferring instead to find somewhere to stay via Airbnb or another home-letting company.

All these developments are taking their toll on the traditional hotel industry. But for now, the one that worries hotel bosses most is the increasing power that online travel firms wield over them.

The hotel trade is highly fragmented. The biggest operator worldwide, Intercontinental Hotels Group, has about 4,500 hotels. In contrast, Booking.com lists 500,000 hotels worldwide.

As a result, OTAs are able to charge ever higher levels of commission. If you booked your hotel room through one of them, they could easily be receiving a quarter of the money you paid for it.

This week, Best Western UK chief executive Richard Lewis sounded off at the World Travel Market in London about the effect of this on the hotel business.

"The customer will not pay the rates we are having to charge if 25% goes out of the window before the guest even arrives," he said.

Botched reform

Of course, the online agencies argue that they are doing a lot of promotional work on behalf of the hotels. Any independent family-run hotel can have its own website, but it will not have the same online presence as Expedia, which invests heavily in advertising.

In return, OTAs want the right to offer the cheapest rates and take a sizeable commission.

It's a complicated business, as UK trading watchdogs have found after a botched attempt to regulate the issue.

Image caption IHG, which owns Holiday Inn, has been at the centre of efforts to regulate hotel price deals

In July 2012, the Office of Fair Trading (OFT) ruled that discount deals struck by Intercontinental Hotels with Booking.com and Expedia were contrary to competition law.

Then, in January this year, it changed its mind, saying that consumers could benefit from price cuts, either from an agent or the hotel itself, as long as they signed up to a membership scheme and had previously booked a room at the full rate.

These discount offers could not be shared with anyone outside the "closed group" of people entitled to benefit.

But in September, that messy compromise was thrown out by the UK Competition Appeal Tribunal after hearing objections from Skyscanner, a price comparison service that trawls the web to find cheap deals.

Skyscanner argued that it could not offer its customers the best price available if that price was not to be found on the internet, available to all. So now the Competition and Markets Authority, which has replaced the OFT, has been told to reopen the investigation.

Repeat visits

You may be wondering where the customer fits into all this. Well, the good news is that hoteliers are thinking about that as well.

Best Western's Richard Lewis says that people may visit as many as 17 different websites before booking a room online.

"If they only spend 10 minutes on each website, that's not very long," he said at the World Travel Market. "But they're going to spend a minimum of eight hours in that room. There's an opportunity there."

Essentially, the hotel industry is realising that it needs to do more to encourage repeat visits: to ensure that a guest who discovered a hotel through an OTA will book directly with the hotel next time.

Cho Wong, managing director of Supranational Hotels, says 30% of bookings at the 800 hotels in his chain come from Booking.com.

Image caption Supranational Hotels' boss thinks the hotel trade can woo customers better

"We need to learn from other retailers," he says, pointing out that supermarket chains have long used promotional offers to build a loyal customer base. "If you have a voucher so that next time you get 20% off or free drinks at the bar, you will come back."

Another way for hotels to regain the initiative is to offer what Mr Lewis calls "price parity, but product disparity".

In other words, since the OTAs will not let hotels offer lower prices to customers who book direct, the hotels could offer other sweeteners, such as free breakfasts, a free bottle of wine or some other incentive.

But the travel industry is a fast-moving business and the impact of "disruptive" technology may not yet have run its course.

Industry insiders reckon it is only a matter of time before internet giants Google and Facebook enter the online travel business in their own right, putting Expedia and Booking.com under pressure from a new direction.

Right to review?

Meanwhile, so-called "peer-to-peer" travel, which allows travellers to stay in other people's homes rather than in hotels, is also growing.

According to a survey of 1,011 UK holidaymakers carried out for the World Travel Market 2014 Industry Report, 9% have booked a holiday through a peer-to-peer site such as Airbnb, Housetrip or HomeAway.

Of that admittedly small percentage, 86% say they would do it again.

Dorian Harris, founder of discount booking website Skoosh, sees Airbnb and its rivals as "the biggest threat or challenge to the hotel industry of all".

He sees them as "absolutely primed" to grab market share from the hotel trade, thanks to what he calls "infighting among hotels at the cost of customer service".

And talking of customer service, disgruntled hotel guests now have online outlets for their frustration, with sites such as TripAdvisor giving them the chance to write reviews after their stays.

Mr Lewis says TripAdvisor has raised people's expectations of hotels, "and that's a good thing".

He warns that there is now "no hiding place" for bad hoteliers.

But users of Airbnb should be wary: just as they have the right to pass judgement on the accommodation provided, the people whose houses they stay in have the right to review them as well.

Technology is forcing the travel industry to be more transparent in many ways, but as a consequence, travellers themselves are likely to come under more scrutiny.

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