Hospitality Industry

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The Looming Battle of the Travel Titans

Without Digital Transformation, Hotels’ Lobbying Efforts Are Shortsighted

The Threat

Hotel operators are getting squeezed. Online travel agencies (OTAs) are dominating hotel bookings, eating into the margins of hotel companies. OTA commissions have risen from 5% to as much as 25%-30% over the last decade and a half.

Hotel brands still possess strong loyalty programs, but they need new ways to offer value to hotel owners or they face being left behind by OTAs and other online platforms.

However, with supply still relatively fragmented (no one company controls more than 20% of the industry’s rooms), the OTAs have all the leverage. Most OTAs even extract a rate-parity clause from hotels that makes it impossible for operators to offer better direct-to-consumer rates. Hotel operators need the demand to stay in business and simply can’t afford to walk away from the relationship.

The life of the hotel brand is equally perilous. While they used to benefit from scale, today, they look small in comparison to the leading OTAs. When it comes to distribution, even the biggest brands today look kind of like subscale versions of OTAs.

Hotel brands still possess strong loyalty programs, but they need new ways to offer value to hotel owners or they face being left behind by OTAs and other online platforms.

Finally, when the OTAs own the customer relationship, both hotel operators and brands miss out on key customer data that might help them satisfy their guests and win repeat business and brand loyalty. When customers come to these hotels through OTAs, the operators and brands are left to piece together that customer’s identity and past stays based on siloed data like credit-card information.

However, this system leaves big gaps that translate into missed opportunities for operators and brands. For example, if the same customer pays with a different method across two different stays, or if they book one trip and their spouse books the other, the hotel or brand may not know they’ve previously visited.

With new platforms like Airbnb growing at an alarming rate, both hotels and brands lack the data they need to optimize their guests’ stays that will enable them to compete with alternative lodging and hospitality experiences that are becoming increasingly popular.

The Opportunity

A hospitality company could centralize much of the fragmented inventory in the industry with a platform business.

However, rather than squeezing operators by charging large commissions as the OTAs do currently, this platform has the opportunity to earn its revenue by extending value added services, such as mobile check-in, “single sign-on” for hotel bookings, and improving on the existing loyalty programs.

Existing platform competitors such as HotelTonight operate like OTAs in that they don’t integrate well with the hotels nor do they offer relevant data on consumers. This situation creates a significant opening for a platform that can bridge the gap between the booking and the stay, while also creating significant demand for hotel operators.

The Endpoint

A platform would grow to compete with the OTAs and Airbnb by leveraging the value-added services that only a top hotel brand can provide and extending them to all providers in the network.

Better rates and access to loyalty programs will attract hotel operators that are happy to have a better outlet than the traditional OTAs. They’ll also receive access to a host of enterprise-level services and technology infrastructure that’s provided by the platform, significantly reducing back-office costs and improving consumer loyalty for hotel operators.

At scale, the platform would continue to grow by integrating directly into Property Management Systems (PMS) like Opera and incorporating real-time access to hotel inventory.

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