By: Trevor Stuart-Hill May 19, 2020
There is no doubt that “shocks” to our industry bring about significant changes, and COVID-19 won’t be an exception. I believe that guests’ buying behavior and motivations will be very different tomorrow from what they were yesterday. So, how will OTAs fit into this new equation? And, will the time be right for hotel’s battle cry of “book direct” to finally resonate with travelers as being truly meaningful?
OTAs and the Transaction Funnel
Hotel brands have historically viewed OTAs as direct competition to their value proposition. Beyond financing requirements, owners typically select a brand for one primary reason—the promised power of their distribution network. OTAs have clearly interrupted distribution in hospitality, and on top of that, hotels have to pay franchise fees on all revenue streams, including those that originate from an OTA, so that multi-layered expense becomes a significant pain point in terms of profitability.
Born of a time when accommodations were considered by many travelers to be a commodity, where options were plentiful and both amenities and guest experience were relatively homogenous, booking efficiency became paramount and price was a primary consideration in the selection process. It then becomes easy to understand how OTAs were well positioned to serve as intermediaries at the top of the transaction funnel. The trouble is, because of COVID- 19, we have now moved on from the fast-paced transactional environment we once lived in, to a more thoughtful place where the relationship between accommodation provider and individual guest is even more important.
Post-COVID Booking Trends
In my opinion, guests will be asking three main questions when booking hotel stays in the future:
- What is there to do at the property and in the destination that is safe?
- How will I know that everything in my room and at the property has been properly sanitized?
- Will the property be flexible and work with me if my plans change?
In other words, in a post COVID-19 world, it comes down to travelers trusting that the accommodation provider will take care of them, as they would a guest in their own home. I believe that building this trust will engender loyalty in the truest sense of the word. It also means that the playing field for independent properties has been leveled to a very real extent as the conversation shifts from amassing loyalty points to assuring personal safety.
Business Models to Keep an Eye On
OTAs are now under tremendous pressure since they have several business models that may not recover quickly in the months ahead, including:
- Opaque: Will guests really take a chance on not knowing where they will spend the night, in exchange for a cheap price? I am certain some will, but this model is not that relevant at this very moment.
- Package: People are more likely to forego a complicated international trip consisting of air, car, accommodation, transfers and sightseeing and opt instead for a local getaway or escape to a destination that is within driving distance. This will change, of course, but it will take some time before it does.
- Corporate: This segment will certainly recover also, but, as with packages, it will take some time for volumes to get back to where they were pre-COVID-19. Rates will also likely be lower due to a combination of pricing and travelers trading down in terms of product tier, so OTA revenues will be suppressed to a degree.
- Leisure: This is where OTAs will need to pin their hopes for recovery in the near term. And with that, some interesting scenarios may play out.
OTAs, should they choose to do so, are in a unique position to assist travelers throughout their travel journey. They can provide travelers with proactive support while en route and can provide up-to-the-minute notifications and guidance to help ensure a smooth travel experience from beginning to end. Hotels simply aren’t in a position to do that today.
What Does This Mean for the Future?
Hotel owners and operators remember all too well the dangers of relying too heavily on expensive distribution channels and the impact that can have on profitability from their experiences following the financial crisis a decade ago. As the industry begins its recovery, OTA’s historical actions, including an aggressive push for exclusive discounts, higher margins and unilateral departures from rate parity, will be met with sharp resistance by brands and by the vast majority of independents.
This brings us to the point of this article. There is no doubt that the hospitality and tourism sector will thrive. The question that remains then is who will be more agile and will adapt more rapidly to win the hearts and minds of travelers as we emerge from this crisis and return to profitability?
Game theory suggests that there is a solution where everyone can win. Will we as an industry seek out that solution or will we revert to our old ways of thinking? If it’s the latter, be prepared for a protracted recovery.