A German high court ruling has shone a fresh light on the ongoing battle between hotel brands and online travel agents, as bookings take off once more.
The latest skirmish has seen Booking.com sanctioned for pushing rate parity restrictions on hotel partners, in a case backed by German hotel associations and the country’s cartel office. Under the ruling, Booking will no longer be able to force partners to maintain the same price for rooms, as that advertised on its own site.
Over the last few months, however, the battle between OTA and brand has been largely set to one side, as hospitality businesses of all types battled massive falls in revenue, and worked out ways to survive by slimming down operations.
Professor Peter O’Connor, professor in Strategic Management at the University of South Australia, said he felt the court decision was insignificant: “Booking.com stopped contractually enforcing price parity clauses some time ago – it doesn’t need to force (maybe the wrong word) hotels to cooperate in this way. If someone has lower prices somewhere else, they can simply put them on page 67 and no one will ever find them.”
In Germany, the battle between hoteliers and OTAs has had a long run in the country’s courts. In 2015, a lower court decision against German platform HRS started a further debate over whether best price clauses were “wide” or “narrow” – and the extent to which they restricted hoteliers.
According to research by the University of Applied Sciences of Western Switzerland, OTAs are continuing to gain ground in the German market. Over a six-year period to the end of 2019, the percentage of rooms booked directly with the hotel fell from 64% to 58.5% – with the OTAs benefitting instead.
O’Connor pointed out the key role OTAs continue to play in some sections of the market: “There is a massive difference between a hotel with a brand (be it Hilton or Marriott, or a personal brand) built up over generations and the typical three-star, independent, middle of nowhere property, which incidentally describes the typical German hotel. A customer might navigate to and book on the direct website of the hotel with a brand, but they will never know that the other hotel exists without the OTAs.”
“Hotels need to have a distribution strategy. They need to decide on the portfolio of channels that they wish to be sold on to reach their target markets, and then work with these distribution providers on mutually beneficial terms. Distribution comes at a cost (same as advertising) but OTA distribution has the massive advantage that it is pay-per-performance – no booking no fee!”
Jerome Wise, vice president – UK and Ireland and enterprise clients at TravelClick, said the German court decision, “could have broader ramifications, if it goes Europe-wide.” He cautioned against reading too much into current measures of OTA vs direct bookings: “What we are seeing at the moment is that OTAs are very strong – and I think the prime reason is because most travel is leisure travel.”
Operators have other priorities, he noted: “I think right now people are kicking that can down the road, they’re happy to take business from wherever they can.” While safety and security concerns have pushed consumers towards dealing direct with the brands, “people’s habits are well engrained.”
Among the challenges uppermost for operators is around staffing, said Wise. “Anecdotally, some clients are having issues with staffing resource,” and that is limiting their capacity to trade. “There’s going to be a huge problem across the whole hospitality sector.”
Wise said that pent-up demand is also being seen as guests spend on luxury: “Hotels are filling from the top down. The business that’s coming back is quite strong,” with good occupancy at UK hotels.
With sales of major systems holding up strongly, Wise believes many hospitality businesses have found the time to upgrade systems and improve efficiency: “Every business is going to be leaner.” And, he noted, hotels are holding their nerve and maintaining their rates.
HA Perspective [by Chris Bown]: As the wheels of justice grind slow, this is one court decision that feels as though events have clearly overtaken it.
As Jerome Wise points out, most hotels are in recovery mode right now, so they don’t have time to worry about whether OTA vs direct sales are up or down a percentage. Maybe that worry will make it up the priority list again, in a few months’ time.
But maybe the time to fix poor direct bookings has just passed by. There are plenty of stories of businesses pivoting, out of necessity, including the garden centre that sold out of bedding plants after enforced lockdown closure, by building a quick online sales website; and the pub that delivered pints of beer to local doorsteps. Most of these examples demanded a new, or radically upgraded, web presence – and they proved it is possible to execute quickly, if the will is there. So hotels with a rubbish website have no excuse – you should have fixed it, during lockdown.
The other big lockdown advantage handed to hotels was, during a time of great uncertainty, being the one contact point that could confirm or change reservations, and provide clear information on refunds and cancellations. There’s some evidence that these advantages did hand hotels a benefit, as the OTAs struggled with refunds – but they caught up quick.
So the war continues with, for the moment, hotel owners hunkered down in the trenches. We look forward to the next battle.
Additional comment [by Andrew Sangster]: The notion that regulators were ever going to ride to the rescue of hoteliers was always for the birds. A quick look at any of the major OTA annual reports shows that litigation is a constant feature of their business models with around a dozen lawsuits ongoing each year.
The battle lines are usually drawn up with the OTAs on one side and hoteliers on the other. But the reality is much more nuanced than this. While all hoteliers are competing with OTAs for bookings, some are far more effective than others.
It is the global brand majors that are gaining traction in the direct booking battles. If anything, the smaller hoteliers have given up even more ground to the OTAs. Data from Amadeus shows that OTAs have grown their market share in the UK. This year, for the trailing four week to 24th May, OTAs were 42% of the channel mix in 2021 against 22% in 2020 and 28% in 2019.
And geography impacts alongside company size. Bernstein did an analysis of the state of play. The analysts found that in the US, where 72% of the market is in the hands of brands, close to 50% of bookings were made direct. But in Europe, where just 40% of the market is branded, direct is below 30%.
The global brand companies are increasingly overlapping with the OTAs and while the technological edge remains with the OTAs, the brand companies are coming from a strong place too thanks to their close relationships with owners and real estate lenders.
For the smaller hotel groups, it is a more difficult decision. Do they continue to try to forge their own solution or do they throw in their lot with either OTAs or a bigger brand company? There are no easy answers but I suspect that the situation is going to drive consolidation.