Editor’s note: This is the final installment in a three-part series compiling the musings and insights of Randy Smith, co-founder and chairman of STR. Read his take on the key data points and benchmarks driving the hotel industry. Read his thoughts on market volatility, pricing and oversupply.
NASHVILLE, Tennessee— Although many hoteliers view Google’s steady march into the distribution landscape with a sense of trepidation, Randy Smith thinks there’s some benefits.
“I do think the existing (online travel agencies) could have a little competition. … That’s what that segment needs more than anything else, competition,” said the co-founder and chairman of STR, during a breakout session at the 5th annual Hotel Data Conference, hosted by STR and Hotel News Now.
OTAs simply charge too much right now, Smith said. For most of the hotel industry’s history, travel agents were partners who took a standard 10% commission. But OTAs, which elbowed their way into the industry within the past two decades, are charging fees upward of 20% or 25%.
“They really made tremendous inroads in our industry during first downturn (in 1991 and 1992), when they first started getting creative,” he said. “That’s when they got a foothold. Then when the 2001-2002 downturn hit, they ate our lunch.”
Google will create competitive pressure to lower those fees, Smith said.
Increased demand is also swinging the pendulum back in favor of hoteliers, he added. “As we increase our occupancies, that means we can start pulling more and more rooms away from the OTAs. … They’ll be much more amenable partners at that point.”
Smith also credited brand companies, which have improved their websites to drive more bookings directly to their properties.
Building booms
Sometimes the laws of economics don’t apply in the hotel industry, Smith said.
Take supply and demand, for instance.
“Supply and demand have virtually nothing to do with each other,” he said. “We build hotels when money is available, and that’s pretty much the end of that issue.”
That’s what contributed to the savings and loan crisis two decades ago, when in the preceding years borrowers could get 120% financing, Smith said.
That’s also what helped get STR off the ground, he added.
“The chickens came home to roost about 1990, 1991 when the whole thing collapsed. … We really felt that the industry needed a much better idea as to what was being built.”
STR has been tracking the hotel development pipeline ever since.
Smith shared his thoughts on a number of other topics during the session.
The future of full service
When it broke at the NYU International Hospitality Industry Investment Conference that the New York Hilton Midtown was pulling its roomservice, the news spread through the industry like “wildfire,” Smith said.
“Is this the death of the full-service hotel? They killed off roomservice. Don’t read too much into that,” he said.
At the same time, expect changes in the traditional full-service offering, Smith said.
“Several of the big brand head people openly discussed the fact that they are rethinking the entire food-and-beverage offering,” he said. “That is something they’re going to have to redesign, rethink.
“I think that we will see over the next couple of years something our industry is absolutely outstanding at: We will do a whole lot of trial and error. … The big brands will try out a variety of ways in which they can make food and beverage operate a little better than it does now.”
So don’t expect the end of full-service hotels, Smith concluded. “But they will definitely be reconfigured.”