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| The trend of airlines looking to increase ancillary revenue includes boosting the number of hotel bookings. |
REPORT FROM THE U.S.—As the trend of airlines looking to increase ancillary revenue heats up, one of their targets has become increasing the number of hotel bookings made through airline websites. And, as hotel bookings through airline websites grow, the next logical question for hoteliers becomes how to effectively manage yet another third-party distribution channel.
Recent research commissioned by the Expedia Affiliate Network shows slightly less than half of consumers surveyed (48%) currently book hotels through airline websites. However, of those who don’t, almost all (90%) state they would be willing to do this if the offer was convenient or compelling enough.
The questions for hotel revenue managers become: are airline sites a viable distribution channel and how do they fit in the distribution mix?
Currently, airline sites typically obtain hotel inventory through online travel agency affiliate networks. These are white-label companies that affiliate with larger OTAs. Many OTAs, such as Expedia’s Affiliate Network, have hundreds if not thousands of affiliate sites, some of which are common household names—Frommer’s Travel Guides, Fodor’s Travel Guides, local convention and visitors’ bureaus—but most of which are not. Tingo, for example, is an affiliate of TripAdvisor.
“Hotels.com created this whole phenomenon. At one point, 50% of Hotels.com reservations came from their affiliate network,” said Max Starkov, president and CEO of Hospitality eBusiness Strategies. “Amazon at one point had 1 million affiliates. It was hot during the 1990s, but right now only big entities can make this work.”
Essentially, when a hotel or hotel franchisor negotiates the distribution of inventory with a large third-party distributor, they are simultaneously agreeing that inventory can be listed and sold on the OTA’s affiliate sites as well, which is how inventory ends up on Southwest.com, United.com, Delta.com, etc.
To a hotelier or revenue manager, the commission, collection and payment structure is no different than when a room is sold on the larger, in-house branded OTA.
“Expedia Affiliate Network is a private-label solution, so oftentimes a hotelier might not recognize that the hotel room was actually sold on Delta.com or United.com, as an example,” said Becky Wofford, Americas senior marketing manager for Expedia Affiliate Network. “Also, to the consumer, it would appear that the airline and the hotelier actually do have a relationship as Expedia or (Expedia Affiliate Network) would not be listed on the site.”
While the inclusion of affiliate sites is not typically a marketing tool used in the OTA-hotel negotiating process, the value for hoteliers is there, sources said.
“People tend to book airline tickets further out, and they might tack on the hotel part at that point,” said Barry Landes, Expedia Affiliate Network’s business development manager for the Americas. “Those customers tend to have longer booking windows and a larger average stay, which is more desirable to a hotel.”
“It is a slight advantage that the OTAs have,” Starkov added. “There’s a chance someone will book you on these sites.”
Managing the inventory
As more hoteliers look to drive demand direct and place increased emphasis on reducing the cost of distribution channels, the next logical step would be to evaluate whether they can eliminate at least a portion of the markup and negotiate with the airlines directly.
Starkov said he is surprised this hasn’t become common practice yet. He said, for example, it would be common sense for Marriott International to approach Delta and discuss all the destinations where Delta flies and the various hotel options that are available in those destinations.
“But they are not doing this,” he said, “and I believe the main reason is because they are afraid if they do this with United then Starwood (Hotels & Resorts Worldwide) will do it with American.
“Whatever the reason is, I believe they are making a mistake. This is truly incremental bookings,” he said.
The direct approach would work particularly in a destination such as Las Vegas, where hotels have critical mass directly related to the airline capacity. Larry Mogelonsky, president and founder of LMA Communications and HotelNewsNow.com columnist, said he imagines those relationships are already in place.
“Talk about a chain like Starwood with its Westin brand. Everyone knows Westin is synonymous with the middle-tier of the upper level,” Mogelonsky said. “Why wouldn’t they enter into relationships with American Airlines Business Travel and say, ‘We have the right product, why don’t we cut you a deal?’
“My hypothesis is that it’s this type of creative thinking that’s going to be paramount as hoteliers wean themselves away from OTAs.”
However, Landes said OTA affiliate networks offer value beyond what hoteliers could bring to the table without adding significant expenses. Hotel franchisors who wanted to negotiate direct would need to hire more people to make these relationships directly, for example. They’d have to place more emphasis on search-engine optimization and search-engine marketing, which OTAs do quite well on behalf of their affiliate networks.
Creating those relationships directly is going to be an added cost, he said.
Ultimately, hoteliers will need to keep a close eye on the amount of demand driven through affiliate sites, particularly airline sites, to determine where it fits in the distribution mix. Depending on who is collecting the data, demand from third-party sites ranges anywhere from 8% to 15%, and airline sites would clearly represent a much smaller fraction of that.
“The big question is whether this is a big channel,” Mogelonsky said. “I spoke to six revenue managers, and they couldn’t care less.”