Many hoteliers undoubtedly let out a collective “huzzah!” when news broke Tuesday that American Airlines is pulling its inventory from online travel agency Orbitz. American Airlines executives cited cost as the main reason for the boycott—something with which the hotel industry is all too familiar.
For years hoteliers have had a love-hate relationship with OTAs. Though an incredibly effective tool for selling room inventory, the channels also prove costly, as platforms such as Orbitz, Expedia and Priceline cut fairly sizeable commissions off each hotel booking they capture.
Hoteliers don’t have to make rooms available to these third parties, but they’d be foolish not to. OTAs generate far too much traffic for them to pass up.
Thus, hoteliers sit beholden to these booking-site behemoths, secretly dreaming of the day they’ll be strong enough to cut ties and rely on brand.com to capture commission-free (read: more profitable) bookings.
That day is here for American Airlines (or so executives think) as well as the other three major U.S. air carriers, which now control 87% of domestic air travel. With consolidation comes control—and the ability to disrupt the booking landscape with a boycott.
American Airlines executives are betting on the fact that their pulling inventory from Orbtiz will hurt Orbitz more than it hurts them, thus pressuring the OTA to offer more favorable terms. This is the second time American has performed this song-and-dance routine. The carrier in December 2010 pulled its listings from Orbitz and Travelport websites as part of a larger legal battle with Travelport Worldwide Limited. In that case an Illinois judged ruled in June 2011 that American had to make its flights available through Orbitz, a legal victory for OTAs.
Who will be left standing after this most recent bout? I’m no betting man, especially in fights with two heavy hitters each boasting an equal shot at the title.
I will say this, though: Hotel executives itching to follow American’s lead and jump in the ring should restrain those urges.
Remember what I said about the airline industry: It’s incredibly consolidated and gives the four major carriers a lot of power.
The hotel industry is on the other end of the spectrum. It’s as fragmented as can be. Thus, hotel companies sit at the negotiation table in a much weaker position than do their airline brethren. Both sides know this, especially OTAs. That’s one of the reasons they draw so much of their profits from hotel bookings.
For a hotel company to pull out of Orbitz or another major OTA, as InterContinental Hotels Group did back in 2004, would be folly today. A better approach would be to effectively yield room availability and use OTAs as they were meant to be used: as one of many tools on the distribution tool belt.
Now on to the usual goodies …
What’s making me happy this week?
This analysis from Hotel & Leisure Advisors’ Laurel A. Keller, which details how the hotel industry is piggybacking on a downtown revitalization in my hometown of Cleveland, Ohio. (Winning the bid for the Republican National Convention one week and then a contract for NBA superstar LeBron James the next certainly helps.)
There are more than 2,000 new rooms on the books for the city, highlighted by a 600-room Hilton convention center hotel. Yet the supply influx won’t hold back revenue per available room, which is expected to increase during the next three years.
Stat of the week
3 cents: The difference in house profit for every dollar in revenue earned between union hotels compared to the average hotel. (In other words, union hotels are indeed less profitable than non-union hotels.)
STR Analytics’ Carter Wilson reveals several other fascinating data points in his analysis “Union hotels take a hit on profits.”
Quote of the week
“Customers don’t know the difference between a hard brand, a soft brand or a collection. That’s our jargon.”
—Dianna Vaughan, global head of Curio-A Collection by Hilton, during a panel discussion at the 6th annual Hotel Data Conference, hosted by STR and Hotel News Now.
Reader comment of the week
“In some sense, securing high rankings on TripAdvisor should be easier than it is on Google as search engines use 100s of factors and links from authority sites are crucial.”
—Reader “scottishinnsv” in response to “How to get to No. 1 on TripAdvisor.”
Email Patrick Mayock or find him on Twitter.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.