REPORT FROM EUROPE—The hotel industry-online travel agency battleground over rate parity and other distribution and pricing has been raging for several years now, with national competition authorities, civil and commercial courts and even the European Union getting involved.
For many hoteliers, OTAs remain a major partner in achieving revenue and profit goals, even if they feel the price of technology, marketing and communication is not in their favor.
Following our recent article on the political situation swirling around rate parity, Hotel News Now spoke with four of Europe’s leading revenue managers on the complex situation in the continent and what they hope to see in the future.
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Clinton Campbell,
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Joanna Schröder, VP of revenue management, Deutsche Hospitality
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Gopakumar Menon, VP of revenue and distribution, Highgate Hotels
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Fernando Vives,
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Headquarters: Edinburgh Portfolio: 10 properties, all in the United Kingdom Brands: Apex Hotels |
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HQ: Frankfurt, Germany Portfolio: 104, 88 of which are in Europe Brands: Steigenberger Hotels & Resorts, Jaz in the City, IntercityHotels |
European HQ: London
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Headquarters: Madrid
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1. How do you regard the rate-parity clause/most favored nation situation now in Europe in terms of fairness to hoteliers?
Clinton Campbell, director of revenue management, Apex Hotels:
“Online travel agencies have said they have removed the larger aspect of this clause by not enforcing parity with other OTAs and only with the hotel website, but even that, in my opinion, is not right and not fair for the hotels. I believe that hotels should have the ability to sell their own rooms on their own website and direct channels at whatever rate they chose, even if it’s lower than what they give to OTAs. OTAs will always win with marketing spend and attracting guests at that first click. I don’t have an issue with that. Where it should be fair is for hotels to place a unique rate on their own website to get that sale, if they want to.
“Hotel booking engines are often compared, negatively, to the OTAs as a selling platform, but the sole intention of our websites is not only to sell, and we know through our analytics that guests visit and read those pages. Many hotels depend on OTAs to fill gaps in occupancy, and some hotels use OTAs much more to fill their rooms. Let those hotels that want to offer rate parity do so. Don’t force them to.”
Joanna Schröder, VP of revenue management, Deutsche Hospitality:
“At the moment the clause, and also the changes, is a challenge. While rates on OTAs may differ, the OTAs still need to have the same rate as the hotel’s webpage.”
Gopakumar Menon, VP of revenue and distribution, Highgate Hotels:
“Insisting on rate parity across all distribution programs, including loyalty program customers, in my opinion is unfair. The OTA world has undergone and is undergoing significant consolidation, where merely signing up to access exclusive rates has become a norm. Competing with these large loyal databases (of guests) with a rate higher than a rate they can access on an independent hotel website is extremely challenging and increases distribution costs.”
Fernando Vives, chief commercial officer, NH Hotel Group:
“We have entered a new era in which regulation will allow a more balanced negotiation between all the participants in the tourism sector and bring new opportunities to both hoteliers and intermediaries.
“This doesn’t mean things will change quickly as it will not be a short-term process. It is desirable to establish a common policy across Europe with the agreement of all the parties involved.”
2. France and Austria have banned rate-parity clauses; and Germany, Italy, Sweden and others via their national competition authorities have made moves to rein in Booking.com and Expedia. Do you see things moving in the right direction? Or, what do you feel needs to be done?
Campbell: “Yes, I do think this is the right direction. The duopoly that exists with Expedia and Booking.com is not healthy. They are a barrier for any new or existing OTA to enter or gain share in the market. They dictate their commission levels, which sets the bar for other OTAs, too.
“I can’t think of other industries where there are essentially only two main competitors, and this has placed them in a position where they have nearly an unlimited budget to keep attracting guests. Commission costs are now one of the larger expenses that a hotel has, and independents and chains alike are pushing for more revenue to maintain their profit margins. Consumers are paying for this.
“What needs to be done? I think that the clause should be stopped in total. Then let’s observe how the industry and guests react to it. I think the algorithms that rank hotels should be transparent for everyone to understand, and to ensure that hotels are not penalized for giving customers a better deal by booking direct on their website.”
Schröder: “Actually the real issue is not rate parity but the cost of customer acquisition. On the one hand, OTAs help single hotels and smaller hotel companies like us to reach additional target groups. They are our natural business partners.
“On the other hand, the commissions to have a hotel displayed on an OTA relevantly dilutes the hotel’s profitability. The ambition should be that OTAs and the hotel industry work jointly to create the best value propositions for the customers as well as for the respective companies.”
Menon: “From an independent hotel’s perspective, the hoteliers should have the freedom to price competitively using the same tools and measures adopted by OTAs, be it geo-targeted prices, members-only opaque pricing, package pricing, et cetera. Best-available rate should not be the only rate plan that’s measured to validate parity.”
Vives: “The rules must be clear, common for all actors involved in all markets and under fair conditions of competition.”
3. The European Union also is working on the issue. Do you think it could do more, and do hoteliers really want to see the end of rate parity?
Campbell: “I think the EU should have stood together, without bickering, for a single decision on this rather than prodding at certain OTAs in certain countries. Hotels want to see an end to rate parity. This doesn’t mean that all hotels will offer better rates direct compared to the OTA 100% of the time, but we want to have the ability to decide and implement a strategy that dictates when we want that source of business and when we don’t. We don’t want to see the end of the OTAs, just a good balance.”
Schröder: “The EU is not an equivalent of a United States of Europe. Each country has its own legal system, taxation or compliance rules. But, yes, an evolving EU arouses the expectation of the industry for a more homogeneous legal basis.
“Deutsche Hospitality is committed to rate parity, since we strongly look at this from a guest perspective. What we are looking into, however, is adding tangible benefits to those loyal guests that are booking directly with the hotel’s own channels, which is expected to evolve more in the future.”
Menon: “Independent hotels want to reduce distribution costs and induce direct business. The union should support this. OTAs have been getting away with ever-increasing commissions paid out by independent hotels because of the EU’s policy on online rate display.
“Unlike the U.S., the EU and United Kingdom insist on displaying tax-inclusive rates in the continent, hence commissions paid out on rooms sold are on the gross amount inclusive of taxes. With VAT (sales tax) at 20% in the U.K., that commission amount is amplified, driving distribution costs. Paying commission on government-imposed taxes is just unfair. The union must compensate.”
Vives: “It’s a midterm process. It is logical for the European countries with the highest business-tourism volume, such as France and Italy, to have been the ones to start to state the issue and take actions. Nonetheless, this process will probably flow to other countries in the continent and at some point, Europe will have to establish a common framework.”
4. In a Europe still dominated (in terms of property numbers) by independent hotels, what will be the effect of country-by-country regulation change on the strength of Booking.com and Expedia?
Campbell: “Many of those independent hotels will continue to provide rate parity for the majority of the time. Many hotels don’t have the budget to drive that same traffic to their own sites, so I don’t see the change being sudden and dramatic. It would mean that Booking.com and Expedia in particular will have to work harder for the properties to improve their share of revenue at those hotels, and that’s a good thing.
“OTAs need to realize that without the hotels they don’t have a product to sell. They need to work with them more to be creative in what they are able to offer. I think that the compensation/commission to OTAs should be capped, which would curb their spending and give hotels a better chance of competing digitally. This would allow the hotel to price their channels independently (without implications). This also wouldn’t impact the guest at all; if anything, they could stop clicking around.
“We need to work on many other clauses, too—things like last room availability, bidding on proprietary names, undercutting on metasearch to win the click. All these clauses, along with rate parity, give OTAs an unfair advantage.”
Schröder: “Booking and Expedia will always have their place in the distribution world because they fill a gap by offering destination search.
“The industry has to start looking at this much more through customers’ eyes. For a guest, using a platform where a) hotels can be compared (OTAs) and b) hotels and rates can be compared (meta-search), an OTA is the best way to fulfil their needs. And most of all, it is quick. Looking at many websites of hotel chains, individuals, they are either not up to speed or it is difficult for guests to book. There are so many possibilities nowadays to do this better and to become more attractive for guests to book.
“And if the hotel industry wants to strengthen its own position, the players have to overcome the fragmentation they are now in. Bundling resources and distribution sources to create serious competitive chances against the OTAs.”
Menon: “OTAs have been growing exponentially in the EU and U.K., still shifting shares from the traditional wholesalers and travel agencies. Their growth will continue.
“They have heavily invested in e-commerce to not just make the user experience intuitive and easier, but the amount of money spent on pay per click is unfathomable. In my opinion, policies altering best rate guarantees will not have a large impact on OTA growth, but will put independent hotels on an even playing field.”
Vives: “It is not incompatible to aspire to grow in terms of direct channels and intermediaries. We are talking about complementary objectives. What is involved is that the channel, whether direct or intermediate, has to provide value to the final customer, who is the king and chooses in what way and through which channel he wants to buy our product.
“I consider that intermediary travel agencies offer a clear added value to customers for their ability to advise on which destination to choose according to their budget or needs, and also they bring a huge capillarity in multiple markets where a hotel company doesn’t have a high brand awareness and presence. We in NH remain convinced that the distribution is necessary, and that is why we try to cooperate to the maximum in that sense. At the same time, we do not give up growing by our own channels, and we boost them by improving the user experience continuously.”
5. What is your company doing to strengthen your own hand in the distribution landscape?
Campbell: “We are investing heavily in our digital marketing activity. We have a very clear strategy about which guests and audiences we want to attract and from which countries, and we’re backing this up with a significant cost. While we still have these clauses in place, we are working hard with the OTAs to optimize our performance where we need it and to push their channels when we can.
“We know that traffic to our listing on an OTA does support traffic to our own webpage, and we are continually making small adjustments to win those bookings direct. We have worked with our digital agency to target very specific guests, and we are using technology, alongside our customer relationship management data, to drive our conversion. It takes a lot of time from a very skilled team at head office to make small gains, but it’s working.”
Schröder: “Deutsche Hospitality is the only hotel company in Germany that offers discounted train tickets combined with hotel rooms in one single transaction. Together with other partners like SIXT, we are also offering this for rental cars.
“Deutsche Hospitality over the past years has invested heavily in the digitalization of the guest journey, looking at it strictly from a guest perspective. This has helped us generate more and more direct bookings. Recently we have implemented the option of a digitalized check-in, check-out and payment as mobile solutions. And most of all, we are investing substantially in a state-of-the-art CRM system in order to understand and fulfill our guests’ needs better.”
Menon: “We are learning from the OTAs. If someone has got it right, copy it. We are investing in simplifying our online web content so translations into multiple languages (critical in the EU) becomes simpler, cheaper and less time-consuming.
“We will continue to fight the OTAs to not bid on our branded keywords by better contract terms and conditions. We price optimally using as much market-driven and search-driven demand data, as we feel hotels are subsets of broader markets. We are heavily invested in growing our own loyal database to grow our business internally, driving down distribution costs.”
Vives: “The last years have been marked by a rapid growth of intermediary channels’ sales due to their investment in technology and marketing. Nowadays, hotel companies have also started to invest strongly in these same two fields in order to develop and boost their direct sales channels (loyalty programs, better user experiences, etc.).
“By 2020, regulations will result in a more flexible relationship between these agents and ultimately push the tourism sector towards delivering an even better experience right from the start of their decision to travel.”