Will the hospitality industry tango with Tingo?
The press release announcing the launch of Tingo.com had this provocative title: “Travelers Overpaid Millions for Hotel Rooms in 2011: Tingo Comes to the Rescue.” It further proclaimed, “In 2011 alone, Americans could have saved nearly $314 million if they had had access to a site like Tingo.com.”
How anti-industry is a statement like this one? It makes the industry look like a bunch of corporate thieves who are cheating and overcharging the traveling public to the tune of hundreds of millions of dollars. Tingo.com to the rescue, indeed!
This past February I published a blog post titled, I argued that after its “divorce” from Expedia, TripAdvisor still remained a foe of the industry and had to make a clear choice: continue its anti-industry, pro-OTA, one-sided pro-travel consumer policy and business model or dramatically change its corporate attitude toward the industry and its business model.
I argued that TripAdvisor needed to overhaul its business model and make the site industry- and advertiser-friendly. It needed to dramatically improve its perception in the industry and invest in online self-serve campaign management technology to enable micro-campaign management for the highly fragmented hospitality industry, including opening the “Show Prices” functionality to smaller and mid-sized hotel companies, independent hotels and resorts.
My old business friend Frances Kiradjian, founder and chair at the Boutique & Lifestyle Lodging Association, provided the following feedback to my article: “Agree with your synopsis and hope that TripAdvisor takes your suggestions seriously. This was actually very generous of you to point them in the right direction.”
So how does Tingo.com fit into TripAdvisor’s strained relations with the hospitality industry?
With the launch of what de facto is another OTA website, it is clear that TripAdvisor has not paid any attention to my advice and continues on its path as a pro-OTA and anti-industry player.
The viability of Tingo.com
To begin with, Tingo.com has no unique content, pricing or inventory of its own. Its only value proposition — refunds when and if a lower hotel rate becomes available — is based on factors that are at the mercy of the other OTAs and the travel marketplace as a whole. Expedia could replicate Tingo’s offering within five minutes or less. Orbitz already offers and widely publicizes similar automatic refunds.
Tingo.com’s business model does not take into consideration the following:
- Hospitality is experiencing rising travel demand and miniscule new supply, which results in increases in all three performance metrics. As reported by STR, in February 2012, which by default is the lowest of the low seasons for most of the country, the U.S. hotel industry’s occupancy rose 3.5, its ADR was up 4% and RevPAR increased 7.7%.
- With travel demand rising, how many hotels will lower their rates to begin with? Increasing rates over time as occupancy rates rise is the prevailing trend today, not the other way around.
- In addition, booking windows — how far in advance people book hotels — have shrunk to their lowest point ever due to the full transparency of the online channel and the exploding mobile channel, where 65% to 80% of all mobile hotel bookings are made for the same day!
There is a bigger picture here that involves the fierce battle of the industry with the OTAs. Rising demand means OTAs’ merchant commissions are already shrinking due to fierce pushback from the major hotel brands and the industry as a whole. Contracts with the OTAs are up for renewal this year, and the major hotel brands will be pushing for commissions below 15%. Hilton has already suspended its merchant agreement with Orbitz over commissions, last room availability, etc. Independent hoteliers would not be willing to pay merchant commissions above 20%.
Sooner or later, to counteract decreased merchant commissions and the growth of travel demand as the economy improves, OTAs will be forced to re-institute booking fees that were dropped back in 2009. How would the Tingo.com business model work when there are non-refundable booking fees involved?
I am not even discussing how the paltry 7% to 8% affiliate commission would allow Tingo.com to be a sustainable business venture. The cost of establishing a new travel consumer brand is staggering! In my view, Tingo.com will most probably not “explode” as a new travel site, but merely linger out there.