Key Quotes: Four Owners Address Brands, Distribution

BERLIN—Participants in “The owners’ view: Increasing profitability” general session held during last week’s International Hotel Investment Forum spoke a lot about the value of brands and online travel agencies.

• “It’s rare that you find a scenario where you don’t think a brand can deliver incremental revenues. So I think the answer is yes, they deliver incremental revenue. It’s always about at what cost, in terms of the fee structure, the (property improvement plan), the contract term."

• “This touches on a big point in terms of the misalignment of interest that has incurred in the industry over the last 20, 30 years where the brands essentially own no real estate. Most of them are public companies. They got to keep the (earnings before interest, taxes, depreciation and amortization) multiple up on their stock, and the only way to do that is increase fees, often through new fees, including brand proliferation. As a result I think it becomes a little bit more of a question."

• “The brands are sometimes in danger of diluting the perceived value proposition, particularly in high-compression markets. That’s where you’re seeing most of the debate. You’re still not seeing most owners weigh independent versus brand and sort of secondary, tertiary markets, plain vanilla boxes that need kind of a transient customer off the side of the motorway. The brand value proposition there is very clear. It’s in the markets that are running 80%, 85% occupancy—particularly as the internet has leveled the playing field. Yeah, maybe you end up doing much more on OTAs, but you’re not encumbering the asset, you’re saving on brand fees that you would have paid. That gets to be a gray area where I think it’s a case-by-case for individual investors to decide whether their long-term strategy for the asset.”

• “It’s on a case-by-case basis, cause you’ve got to look at the market, how you’re getting your distribution, the compression in the market. And sometimes compression in the market, the brands will continue to deliver because they’ll deliver directly to you with less commission. If you have a large amount of group business, which is direct with the hotel, and then you can use the OTAs to supplement that."

• “The problem now is the complexity of the delivery channels. The various commissions built up over time and the overhead cost of the structure. I think the lengths of some of the agreements have struggled to appear where the market has changed. And now what you have to do is reset the boundaries and take into account what the new world is."

• “Every day you need to look at your revenue: where it’s coming from, how it’s being delivered, and the problem of making a decision to put the brand on sometimes takes a longer period and the world changes around you. So it’s that flexibility we need to work with now … is that information is so quick to come, changes in the market, hotels are now an institutional class, people are buying hotels now all the time, changing the branding, bringing in new strategies and take a long-term decision and the world changes around you sometimes.”

• “It’s quite simple. If you have 30% or 25%, both your revenue’s coming from OTAs, then you pay 15% to 20% of that cost. But you pay 10% to 15% 14% of the brand of the total. So the brand is always more expensive than OTAs said it would be. So long as you don’t have 100% of your revenue coming from OTAs. That’s rather simple. I don’t think a lot of people understand that. Because, again, we pay too much. Yes we do. And I will fight for payment, pay less."

• “Now we have hundreds of distribution channels and just a few controlled by brands. To get a premium out of revenue means you need to be active across the value sheet. You need to understand the OTAs, you need to understand your own platform, you need to understand your competitive set, where you are, your product and the local management."

• “In the end, we have the very positive view about OTAs. They cost too much, but they also create a lot of demand. They have an online spending maybe 50, 60 times more than I could. Seventy times maybe. … OTAs they have done what we haven’t achieved ourselves.”

• “The brand still has attraction and will still deliver a lesser premium-driven business. So you pay less commission because it’s direct and you enhance your profits. They’re there. They will be there for a long time."

• “When brands are powerful enough, you can still make the difference, which will be generated through the bookings of this world and the repeat business, which at the end of the day is the most important fun for you because once he’s there, he will come directly. That’s what we’re building, basically.”