Hotels want to capitalize on the direct trend – but for how long?

Large hotel chains are looking to make hay while the sun shines when it comes to attracting bookings via direct channels.

For several reasons, from loyalty membership to the latest information on hygiene protocols, many consumers have gone down the direct route over the course of the pandemic.

The most recent earnings calls from Accor, Hilton, InterContinental Hotels Group (IHG) and Marriott International contain overt references to direct channels or at least hints of encouraging the trend.

In its fourth quarter, 2020 earnings call, Accor chairman and CEO Sebastian Bazindescribed the company’s loyalty program Accor Live Limitless (ALL) as the best tool in the armoury to fight the online travel agencies.

He said the company had managed to protect its direct clientele in 2018 and 2019 and that the strategy going forward would be to continue boosting its lifestyle offering and working hard to retain existing customers.

Bazin said while Booking.com and Expedia would spend billions on keywords to acquire customers, Accor did not have the same “amount of wealth.”

He also said that recent strategic partnerships with brands such as Faena, Rixos and Hoxton mean far less reliance on OTA customers with repeat guest rates of 75% or higher.

“So yes there’s concern, but let’s be very disciplined. I’m not competing on the wrong metrics because that’s a lost battle.”

And now is definitely the time to capitalize while the online travel giants aren’t spending on marketing with Expedia and Booking slashing marketing by $6 billion in 2020.

Certainly Accor made a big deal of its ALL program during the earnings call and although its loyalty scheme growth rates – growing by about eight million a year before the pandemic – dipped somewhat in 2020 to only grow by four million to 68 million, Bazin expects the rates to go up again as soon as its hotels are open.

While many fear that business travel will not come back in the same volumes and hotels will have to work hard to make up the gap, Bazin said the company is very focused on giving members the lifestyle opportunities such as sporting events and music experiences to burn points.

During its Q4 earnings call, Stephanie Linnartz, president for consumer operations, technology and emerging businesses at Marriott, said: “The power of the Bonvoy platform has become even more evident during the pandemic, as many of our more than 147 million members has continued to interact with us in ways other than staying in our hotel.”

The company sees additional stickiness from its Homes & Villas business, which launched in 2019 and now has 25,000 homes.

“The reason we launched the businesses, we were talking to our Marriott Bonvoy members, and eight out of 10 of them said not that they were just thinking about renting a home, but they actually had done it through another platform. So we knew it was an offering they wanted that we didn’t have. And we knew it would be complimentary to our core hotel business.”

She also stressed the significance of being able to earn and burn loyalty points on vacation rentals.

“90% of our bookings are coming from loyalty members and also 30% of the bookings on redemptions, people are redeeming their Marriott Bonvoy points.”

Frenemies

IHG was the slight outlier of the hotel giants talking on the one hand about the incremental business it gets from OTAs and the desire to build up digital capabilities on the other.

The company said it expects to see OTA business, which dipped in 2020, to recover.

Keith Barr, IHG’s CEO, said that while OTA business was down year-on-year that might be a “false read.”

“OTA contribution did fall quite sharply then for a while, and it’s sort of normalized back towards a more normal level. So in numerical terms, it fell by over 100 basis points year-on-year. But I would imagine that as we go into 2021, it will recover.”

He added that the company has good commission rates with OTAs and that it “traditionally had very, very strategic conversations with them [Booking.com and Expedia] expanding.”

However, earlier during the earnings call, Barr spoke about one of IHG’s priorities being to “create digital advantage for the company.”

“The dynamic environment requires organizations to rapidly enable new commercial propositions from the products offered, to the prices set and the channels in which we operate. Our focus on creating a digital advantage is vital to us enabling seamless technology experience across the entirety of the guest journey. This will drive direct bookings, create an integrated digital experience for our guests and delivers revenue-enhancing proposition to owners.”

And IHG has been lining up its digital ducks in recent years from its partnership with Amadeus for the Guest Reservation System to is IHG Concerto, its cloud-based technology platform, the company is increasingly talking about the end-to-end guest experience.

Lasting relationships?

The big question is how long might the hotel companies be able to hold onto any advantage that has been built up.

Back in June 2020 there were murmurings from the hotel community that the hotel-OTA relationship was in for a more fundamental change.

Observers, however, were sceptical.

Peter O’Connor, professor at the University of South Australia and a Phocuswright analyst, said at the time that “OTAs would consolidate their hold over the market further.”

His position hasn’t changed.

“Everyone, but particularly in Europe, is getting more business direct since the start of the pandemic). Of course they say this is their deep relationship with the customer, their loyalty program, etc., etc., but when they are honest they admit this has to do with information and trust.

“Customers are going to direct channels (online and offline) right now to make sure they have the right information about what’s open, sanitary efforts etc. They are checking before booking and/or travelling to make sure they feel safe.”

He adds that cancellation policies are also a factor with a perception from consumers that these things are easier to manage if you book direct.

“Right now suppliers have a distinct advantage that they need to nurture and reinforce.”

O’Connor also points out that with most travel tending to be domestic and local recently, customers are also more likely to go direct because they know the property.

He believes that OTAs are already working to erode any competitive advantage built up by the hotel chains

“Most have included increases sanitary info into their listings. In addition they are including destination level information, so customers can understand restrictions and what is open not just in the property but in the surrounding area. In effect they are aiming to provide “better” information than the suppliers themselves. They are also stressing the cancellation issue, again eroding the book direct perceived advantage.”

For these reasons, O’Connor feels the direct booking trend is a “short-term phenomenon” and that consumers will return to the OTAs.

He also believes the weakened position of hotel chains in terms of marketing resources plays into the hands of OTAs once the rebound starts in earnest.

Perhaps the only way the hotel giants will be able to maintain their current position will be, as O’Connor suggests, in ensuring customers have to contact them for the most relevant information about a property in a destination and by “ramping up” marketing spend.

Clearly hotel companies will continue to lean into their loyalty schemes and exploit other advantages they have but the need to fill their thousands of properties, especially as business travel takes longer to come back, may see a friendlier stance towards OTAs in the months to come.

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