Hotel Online  Special Report


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While Global Hotel Chains Are Trying to Get to Grips
with Third-party Online Providers, Smaller Hotel
Groups and Independents Are Welcoming
Them with Open Arms

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By Steve Shellum, Publisher/Editor, HOTEL Asia Pacific, May 2005

While global chains are trying to get to grips with third-party online travel providers, smaller groups and independents are welcoming them with open arms.

AS GLOBAL hotel giants such as InterContinental Hotels Group (IHG) slog it out with the third-party online distributors, small groups and independents are happy to sit back and watch their hotels fill up with savvy internet shoppers who have researched and booked their rooms through the likes of Expedia and Priceline. While the big boys are struggling to regain lost ground and revenues, the smaller players look at the online intermediaries as welcome partners who are giving them a fighting chance to compete on a level playing field.

Mid-sized global groups such as Le Meridien Hotels & Resorts and small regional players including Jumeirah International are watching developments between their giant competitors, while continuing to keep all channels open. 

Their attitude is summed up by Kristie Willmott, director of distribution and e-commmerce at Jumeirah: "We recognise that certain customers like booking through people such as Expedia - and if they like to do business that way, it's our job to make ourselves available to them.

"There are different types of customers, and we have to make sure we recognise the way all our customers want to do business - whether that's talking to us or going to an aggregator. 

"That's not our game - we run hotels, and if we try to become aggregators we're going in the wrong direction. As a small chain, we have limited sales and marketing funds, and we can't present ourselves around the world in the way we'd like. 

"So, by working with other distribution partners - whether offline or online - they can put us into markets we couldn't ordinarily fish in because they have the marketing funds and we don't.

"Looking at the spectrum, large chains and small chains derive different values from the relationship."

Le Meridien's worldwide director of e-commerce, Andrew Pozniak, says the group is waiting on the sidelines to see how things shape up. 

"We'll have to deal with it, but we'll let the InterContinentals and Hiltons fight the battles for us to a certain extent. While we're having discussions with all the third parties we - like all other hotel groups - are going 'help', and that's as much as we can do. 

"We'd like all our business to come in through our website, as that's the cheapest way to do it. 

"About 60% of our business to our website comes through the search engines - and that's responsible for far more business to us than the Expedia rate generates, so we've got to get that right. They add value and distribution - and that's why we work with them. For us, it's a question of saying, 'Let's develop this as fast as we can, and not pull away directly'.

"As a smaller group compared to the InterContinentals and Hiltons, we're more pragmatic because we're unable to lay down the rules perhaps in the way they are able to do.

"We're very much on the inside: we have a net-rate relationship with Expedia and work with Priceline quite extensively. So, in terms of liking it or lumping it, we quite like it." 

Their comments, made at the recent IH&RA Annual Congress in Istanbul, sum up the attitudes of hundreds of thousands of hoteliers who are refusing to turn their backs on the online specialists. 

Not only are they keen to ensure they pick up every last cent on the table, but the online business is allowing them to maintain their independence in a world that has gone branding mad. 

While not going to the extremes of IHG, Hilton International has introduced guidelines for working with online providers on "supplier-friendly terms" with lastminute.com and Travelocity, and is in continuing discussions with Expedia.

"We don't refuse to work with them, and packaging is an area where third parties can add value," says Gareth Gaston, Hilton International's product director of e-business. "In restructuring our relationships with everyone, we look at payment terms, price transparency, protecting the brand and making sure there's a shared risk of inventory.

"We like the Priceline model - they pay us in advance or they pay at the hotel. We don't like some of the other models, where they pay us on invoicing one or two months after the guest has checked out."

Although Hilton has not followed IHG and severed ties with any online intermediaries, Pozniak says the group is keeping a close eye on developments. 

"Hilton is certainly not in the business of watching and following - we signed a deal with lastminute.com under the framework of supplier-friendly terms which was six to eight months in the making. 

"But it's not just about the online travel agents. If all of your wholesaler agents work like a charm, then I'm extremely envious ... I think that the reality is that a lot of those wholesaler contracts are not really enforceable. 

"In most cases, [the online intermediaries] don't really have shared risk or responsibility over inventory - they just give it back to you at the last minute.

"The online players have been a catalyst for change, but you need to go back into the whole arena and look at your existing wholesale and travel agreements, and make sure you have a framework for supplier-friendly terms."

Less than 20% of Hilton International's business comes through third-party online intermediaries, says Gaston. 

"We believe the biggest risk is to the traditional travel agencies, such as American Express and Carlson Wagonlit, that we rely extremely heavily on. They do a huge volume of business with us and add a huge amount of value, so we pay them around 10% commission.

"These new players come in, but they don't seem to add a lot of value - except to the area of packaging to offer customer choice. But we are seeing shifts to the online intermediaries and are asking ourselves why we should pay the new intermediaries 30-50% when, in fact, they don't give us the volume of business? 

"We'd like to have shared risk over the inventory and, of course, payment terms as well." 

Jumeirah's Willmott says the group does not face the same dilemmas as the big global players. 

"We spent a lot of time focusing on the new breed of online players, but we're still on the outside, blinking and looking in. I'm sitting back and watching the pendulum swing from side to side, but I think we are all making this very complicated. 

"The fact is, we've been working with traditional whole--salers for goodness knows how many years, and it hasn't changed [with the online intermediaries]. It's the same model with a mark up, just a different medium of distribution - and that's through the whole industry."

She says the hotel industry seems to have lost the plot when it comes to dealing with online suppliers. 

"It's part of the learning curve but, when it comes to agreements, for some reason we lost all commercial logic when it came to signing those agreements three or so years ago, in sheer panic. 

"We were in a situation, we needed to sell rooms and we signed a piece of paper at any cost." 

One delegate at the IH&RA Congress, from the Caribbean Hotel Association, summed up the feelings of many small, independent hoteliers. 

"I want to thank Expedia because, for the first time, the small independent hotels have a real fighting chan-ce. We have the visibility, and we can now actually get bookings online. 

"A number of our small properties have actually discontinued using wholesalers and are dealing directly with the online companies, and they have seen their bookings increase 200%-300%. 

"In fact, some of the destinations are now using Expedia as a destination online booking system. 

"You guys have been good to us - a partner and a friend. I don't know about the big guys but, certainly from the small players, thank you very, very much."

IHG's strategy - a question of brand, owners and customers ...

Jumeirah's Willmott questioned IHG's decision to sever ties with Expedia. 

"We always spend a lot of time talking about what we want [as an industry], but we forget that it's about what the customer wants, so by taking yourself off this channel you are actually penalising the customer because the customer who wants to use Expedia can no longer find your brand there. 

"I'd love to know what role the owner-versus-the-brand played in this ... is part of the reason that, because these online bookings don't go direct to the brand, you don't get contributed for those bookings?

"From a customer's perspective, you may actually be creating more difficulties, and I think the business should be easy. 

"We should be easy to do business with."



Copyright: HOTEL Asia Pacific. The lastest edition of the multi-award winning HOTEL Asia Pacific can be downloaded in full, in PDF format, from www.hotelasiapacific.com. It is free to hospitality professionals, and requires a simple, one-time registration. 
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Contact:

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Hotel Asia Pacific
Steve Shellum
158 Wong Uk Tsuen
Yuen Long
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http://www.hotelasiapacific.com
steve@hotelasiapacific.com

 
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