The good and (very) bad news in the online distribution channel
Since the beginning of the current economic downturn, we have argued that in these difficult times, when travel supply outweighed travel demand by far, the online channel was the only distribution channel that could generate incremental revenues in hospitality.
In the first half of 2010, what was the good news in the distribution channel in hospitality?
Online travel distribution continued to dominate the hotel distribution space and proved to be the only consistently growing channel even during the recession:
- In Q2 2010, Internet bookings for the top 30 hotel brands increased by 1.7% over the same period of 2009 and reached 52.4% of the total brand CRS bookings (eTRAK Report).
- Share of GDS travel agent reservations dipped to one of its lowest points of only 21.8% of total brand CRS reservations. Clearly, there was a shift from the traditional, intermediary-dependent GDS channel to the online channel.
What was the bad news in hotel distribution?
Typical of economic times, when travel supply outweighs demand, travelers are shopping around and hoteliers are more susceptible to discounting and working with the online travel agencies (OTAs). Hoteliers lost market share to the OTAs ? the top 30 hotel brands did that to the tune of 7.8 basis points ? in just two short years since Q2 2008. Consider the following:
- In Q2 2010, only 67% of the online bookings for the top 30 hotel brands came from the direct online channel (i.e., the major hotel brands own websites: Marriott.com, Hilton.com, etc.), while 33% came from the indirect online channel (the OTAs), according to an eTRAK Report.
- In comparison, in Q2 2009, 70.1% of all CRS online bookings came from the brand website, while 29.9% came from the OTAs (eTRAK).
- There is a significant increase of OTA contribution, compared to Q2 2008, when 74.8% of all CRS online bookings came from the brand website and only 25.4% of the online bookings came from the indirect online channel (OTAs).
Why did it happen? During the recession, many hoteliers surrendered to the temptations of the indirect channel, resulting in a significant shift from the direct online channel to the indirect online channel (OTAs). Many hotel companies, including some major hotel brands, have been accommodating the OTAs with bigger discounts, unique promotions (24-hour sales) and, thus, jeopardizing their direct online channel and destroying years-worth of achievements such as rate parity, best rate guarantees and more.
As a result of this shift from direct online channel to the OTA channel, including the 7.8% loss in market share to the OTAs experienced by the top 30 hotel brands, revenue leaked from hotels to the OTAs in the form of abnormally high merchant commissions will reach $5.4 billion in 2010 alone. Read more in my recent article D?j? Vu: The Billion Dollar ?Leakage? Continues to Drain the Hospitality Industry.
Here are some of HeBS? findings for Q2 of 2010, based on the latest eTRAK benchmark report, surveys and industry data from PhoCusWright, ARC and HeBS? own research.
The shift from offline/traditional channel to online channel is permanent:
? 52.4% of overall CRS bookings for the top 30 hotel brands come from the online channel, which is an increase of 1.7% vs. Q2 2009 when online channel contribution was 50.7%.
? As a reminder in Q2 2008 online channel share was 47.4% (eTRAK Report).
? 45% of hotel bookings in 2010 will be via the Internet (direct + indirect online channels) (HeBS).
GDS channel share is in steady decline:
? GDS travel agent contribution to the total CRS bookings of the top 30 hotel brands declined to 21.8% in Q2 2010 from 22.7% in Q2 2009. This contribution was 27.6% back in Q2 2008 (eTRAK).
? In retrospect, back in 2006, GDS CRS reservations constituted 31.3% of total CRS bookings for the top 30 brands (eTRAK, industry data).
? Travel agency share from the total travel market in the U.S. dropped from 41% in 2006 to 33% in 2009 (PhoCusWright).
? U.S. travel agency locations have been decreasing at an average rate of 4% every year and their number has declined from over 35,000 in 1995 to less than 15,405 in June 2010 (ARC, HeBS).
The voice channel contribution Is decreasing:
? In Q2 2010, voice channel contribution to the total CRS reservations of the top 30 hotel brands declined by 3% compared to Q2 2009 and amounted to 25.7% of total brand CRS bookings (eTRAK).
? The voice channel is in decline for the sixth consecutive year (HeBS). Back in 2006, the voice reservations constituted 31.3% of total CRS bookings for the top 30 brands (eTRAK).
The bottom line for hoteliers: focus on the direct online channel
Hoteliers do not have many options when considering other non-OTA distribution channels. In our view, the only viable option to drastically reduce reliance on the OTA channel is for the industry to embrace the direct online channel.
Many hoteliers claim they cannot afford to market themselves via the Internet and that is why they resort to the OTAs since their services are ?free.? Many industry case studies, including HeBS? own, clearly show that the OTA channel not only is not ?free,? but is in average 10 times more expensive than the direct online channel. This confirms why focusing on the direct online channel provides meaningful savings that go straight to the bottom line.
In economic downturns, a comprehensive direct online channel strategy can help hoteliers continue to generate much needed incremental revenues and out-smart their competition.
Hoteliers need a robust direct online channel strategy, accompanied by adequate marketing funds to be able to take advantage of the steady growth in the Internet channel and shift from offline to online bookings in hospitality due to declining GDS and voice channels. Hoteliers must carefully employ ROI-centric initiatives, including website redesign, website Web 2.0 optimization and SEO, search engine marketing, social marketing, mobile marketing, email marketing and proven online display advertising initiatives.