REPORT FROM THE U.S.—Managing the slew of distribution partners that drive demand to a hotel is a full-time job in any segment of the hotel industry, but for independent hotel operators the task can prove overwhelming.
Revenue and channel management are evolving into more bottom-line disciplines and even independent hoteliers are increasingly charged with exploring the calculation of cost-per-acquired-customer.
“If you don’t have a management company, there are companies out there for a fee who will ensure you have representation across all the channels and have parity,” said Drew Salapka, director of revenue management for Hotel Equities, which operates two independent hotels within its nearly 40-property portfolio. “It amazes me that independents are trying to manage that themselves; God forbid they want to launch a promotion.”
Salapka said often when Hotel Equities takes over management of an independent property, the first step on the distribution front is to address the “low-hanging fruit,” such as costly agreements that aren’t producing results. Second in line is strengthening the relationships with several online-travel-agency market managers.
“A lot of times we’ll take over an independent and they’re not even listed (on the major OTAs),” he said. “They are such a large distribution channel. The commission you have to pay is substantial—sometimes 25% to 30%—but if you have open inventory, would you rather not sell it?”
For Lodging Hospitality Management, which owns and operates 16 Midwestern U.S. hotels including two independents, demand from OTAs can be significant.
“Our boutique, the Cheshire Inn, did a full renovation recently,” said Todd Hotaling, corporate director of revenue and marketing. “We’re getting about 18% of total share from OTAs, which is down from 25% in 2012.”
Hotaling compared that to LHM’s branded, full-service properties, which realize about 5% to 8% of demand share from OTAs, also down a bit from 2012.
“It’s very significant how much we really depend on it,” he said.
However, Hotaling is not blind to the fact that the “flow-through,” or amount of profit that hits the hotel’s bottom line, is much less on a booking from a third party than on a direct customer. One of his key initiatives in 2014 is increasing flow-through profitability.
“It used to be about capturing demand and managing it,” he said. “Now it’s about flow-through and profitability.”
How will LHM accomplish the goal? “It’s a fine line because what you’re really talking about is shutting down certain channels and only taking direct business,” he said. “We are comfortable with that and already have strategies in play.”
Third-party relationships
However, Hotaling knows third parties play a significant role in driving demand, particularly at the Cheshire. “What we’ve got to be careful about is the relationship,” he said.
Both Hotaling and Salapka said cultivating relationships with OTAs is critical for independents. “Build the right relationship with your market manager and they’ll do all of your merchandising for free,” Salapka said.
Another reason those relationships are so critical is because independent hoteliers typically don’t have negotiating power when it comes to OTA margins like a franchisor who brings hundreds of properties to the table would.
There’s “little to no negotiation, especially on the retail and the merchant side,” Salapka said. “Very little. I’ve tried many times.”
He said OTA market managers often will offer independent managers discounts should they move to an exclusive agreement with that single partner.
“Is it worth moving to an exclusive? Is that in your best interest?” he said. “It’s those sort of decisions and really understanding how the OTAs work—what all the different models look like and what’s flowing down to my bottom line. You need to really be educated on that.”
Hotaling agreed relationships are important. Because he knew the local market manager for one OTA from work at his branded hotels, Hotaling was able to transfer that strong relationship to the independent property.
Salapka said market managers will often agree to weekly or monthly meetings and will help with distribution challenges. He suggested independent hoteliers ensure there are no hidden fees.
“Be very transparent,” he said. “Just ask the question: ‘What’s the bottom line to me?’ From an OTA perspective, the best people who can educate you on it is the OTAs themselves.”
Seeking help
Outside of an OTA market manager, there are several other partners who can help independent hoteliers seeking assistance with complex distribution questions.
Most independents connect with the global distribution systems, and reps at the Global Distribution System companies can offer guidance. However, “they’re going to give you 30,000-foot, high-level intel,” Salapka said. “And one size certainly doesn’t fit all.”
Hotaling said LHM’s property-management-system partner has been instrumental in dealing with distribution challenges.
“There are significant costs for all channels; voice costs us per minute,” he said. “Northwind Maestro was able to provide us a product that interfaced all of that stuff at some cost savings to where we can still compete with the big brands.”
For Hotaling, more PMS interfaces mean less places to go to load rates and do promotions. It also helps him keep rates within parity, he said.
Another tactic LHM employs at its independent is driving traffic to the hotel’s direct website and then promoting on-property dining options. OTAs don’t necessarily do that, he said.
“Expedia—they do a phenomenal job in marketing. We’re never going to outspend them but we just need to take the best advantage of their services,” he said.