OTAs have played at their own rules in managing the COVID-19 cancellation waves.
Whilst on one side the local governments allowed Hotels to extend vouchers and pushed on re-bookings for guests willing to cancel during the emergency, on the other side OTAs strictly applied their contract terms making the European rules prevail over the National/Regional legislation. In a nutshell: OTAs canceled for free any bookings falling into the “force majeure” period and this unilateral decision completely bypassed the Hotels and did not open any space to discussion.
Confusion reigns on several aspects: how to define the “force majeure” period? What is the role of the Hotel when the client is objectively 100% OTA-owned? Where do Hotels stand in determining their own rules for rates and policies? Can we, as Hotels, still claim that we are in control of our distribution?
There are so many questions and blurring lines, but only one valid truth in my humble opinion:
Nobody is winning.
The crisis is hitting Hotels as much as it is hitting intermediaries (All of them). Could have things been managed in a better way? Sure, at least through communication. Could it have been worse? Maybe. Is it just an OTA issue? No.
Wholesalers, Travel Agencies, Tour Operators, Companies…the whole customers’ network is trying to survive this crisis and negative effects on the Hotel profits come from all these sides. How many tours and series have been canceled at your property? Congresses, meetings, events…are all guests re-booking and agreeing with you on keeping their money “on hold”? How many of them will be hit by the recession and will not have any holidays left to consume? How many people will have the company they work for, switch to “contingency mode” for the next year or so, or will end up in a personal financial crisis?
So many “ifs” and the need to find alternative plans to rise again (and possibly fast).
The future will be influenced by how we will be coping with the unknown. How will the distribution world change, how are we preparing to be an active part of the change?
In normal times, I talk a lot about distribution. I do it because in 16 years of revenue management I have seen hotels that succumbed and hotels that resurrected and overcame competition, only by changing their distribution strategies and by balancing their channel mix. Post-2008 crisis, some Hotels committed up to 70% of their inventory to tour operators and OTAs in the desperate effort to drive occupancy. It took years for them to ramp back up on profits and market share. We have seen Hotels closing after the Thomas Cook bankruptcy.
Unhealthy distribution and channel mix, overdependency on few players only, and bad choices can kill faster than the crisis.
This is not normal time and not 2008, but the same logic applies anyway: channel mix and a healthy distribution are vital to your Hotel’s revenue and profits.
Through uncertainty, Data is the only thing we should rely on. Start a new chapter of your post-COVID life with Data-driven decisions.
- SMART DISTRIBUTION: capture the clients where they book. Assess your past channel mix performance and highlight any overperforming or underperforming channels. The past will not return, this is your chance to draw a new line and plan what you are going to do next — keep the same strategy, modify, reverse?
- CALCULATED RISKS=INCREMENTAL PROFITS: every channel of distribution has a specific booking pattern, set your expectations accordingly. The more accurately you can forecast, the better you can optimize.
- MULTICHANNEL: if you opt-out to plan A, you should be ready for plan B. Closing a channel or changing the strategy will affect volumes and revenue. Be prepared and minimize the risk: placing your “eggs in different baskets” will reduce dependency on just one or two distributors.
- DATA, DATA, DATA, AND BE AGILE: Monitor the impact of your actions and decisions. If things will not go the way you expected, go back and change. One thing is granted: the past will not return. Change and adapt to assess the new life.
- RATE PARITY IS DEAD. DEAD. DEAD: So why do Hotels and Intermediaries keep asking for parity? There is a big contradiction. Personalization sounds like a buzzword but the truth is that personalized pricing per segment, per Channel, is where the market should be headed to. Starting from now.
- ALL ROOMS TO ALL CHANNELS EQUALLY? NO THANKS: Time to set an end to the democratic distribution of our rooms. If we are free from rate parity clauses, the next step is to free our Hotels from inventory constraints. The first to come first to serve basis in distributing our rooms doesn’t work anymore in a world where every channel brings different profits and value. A no strings attached inventory management is the future that will bridge the gap. Please read here.
- CLEAR AGREEMENTS, LONG FRIENDSHIP: Avoid the same mistakes: carefully read the contract clauses, strike trough, and modify when necessary. The perfect balance between two parties having different goals will never exist, but a healthy compromise in between is the right way to go.
- LOOK BEYOND COMMISSION: Are the discounts, loyalty programs, and promotions you are activating through intermediaries profitable and effective or could you maybe capture the same demand differently? Where are the customers coming from? Would you be able to reach them directly? Wrong promotions=Revenue displacement=Profit displacement=Hidden costs.
- DIRECT IS BEST, BUT DIRECT COSTS TOO: support your distribution strategy with a reasonable direct marketing budget allocation. If customers don’t find your Hotel via OTAs, Wholesalers, or other channels; it does not mean that they will find or book your hotel directly. OTAs have been building their fortune on marketing first, not on rate-cutting.
- TOTAL REVENUE: Extra spend per booking: now more than ever it is the time to make every single dollar count and look beyond rooms and commission only. The value of the channel is not the value of the ADR only but a holistic approach to total revenue and extra spending by channel.
- OPEN SMART: the more you are visible, the more chances to be booked. But that does not mean that the more channels you open, the more you will sell! Choose the channels that are meaningful to you, respect your brand identity, include your competition. Do not under evaluate niche or small channels, they can generate a billboard effect to your direct one.
The story of Jim and Joe is true now, more than ever. I want to cite Cindy Estis Green from Kalibri Labs, full article here
A bear enters the tent of two campers, Jo and Jim. Jo immediately whips out her running shoes and has them on in a flash. Jim, looking both terrified and perplexed, asks why she would be racing to get on her shoes, after all, she can’t outrun the bear. To which Jo replies, “I don’t need to outrun the bear; I only need to outrun you.”
Life post-COVID will be different: the bear is not the OTA, the Wholesaler, or the reseller.
The Bear is your competitor, if you do not run faster, you will be eaten.
Does that mean that we need to give up on our battles? No. Just while we are fighting, let’s not stop focusing on our run towards revenue recovery and profit gain, and let’s use Data to avoid the Bears coming through our way.