Analysis: Let the best rate win

28 May 2016 by BusinessTraveller
Hotel groups are battling online travel agencies with special rates for members who book direct. David Churchill reports When Marriott International was in the midst of its (successful) bidding war for Starwood Hotels andResorts in March, it was still able to find the time to launch another salvo at a more familiar foe – online travel agencies (OTAs) such as Expedia (hotels.com) or Priceline (booking.com).

Marriott announced that it was offering members of its loyalty programme a new booking rate called Marriott Rewards Member Rates, providing discounts of between 2 per cent (weekday) and 5 per cent (weekends) on the lowest available public prices for non-premium rooms. The rates, which came into effect in mid-April, apply to all Marriott International hotels and brands globally.

The catch is that the price is only for those who book direct, either via the website, mobile app or call centre, although Marriott says it will also be available via “select corporate travel professionals”.

Still, Marriott was not the first hotelier this year to take on the OTAs. In February, Hilton Worldwide announced discounts of up to 10 per cent on room rates for all of its 4,500 hotels worldwide for Hilton HHonors members who booked direct.

The news coincided with the launch of Hilton’s biggest-ever marketing campaign, “Stop Clicking Around”, aimed at getting the message across that surfing the OTAs for lower rates was literally pointless.

“There is a huge misconception that third parties always offer lower prices for our hotel rooms,” said Mark Weinstein, global head of customer engagement and loyalty and partnerships at Hilton.

He also noted that last year about 57 billion HHonors reward points were not “earned” by members even though they were staying in a Hilton-branded property because they had booked through a third party, such as an OTA, rather than direct with the hotelier.

The campaign is working, according to Hilton Worldwide chief executive Chris Nassetta. “Early results are very positive, with HHonors enrolments increasing nearly 90 per cent since launch, helping drive occupancy to a record 55 per cent in the quarter,” he said.

Hyatt followed its rivals in mid-April by announcing discounts for its Gold Passport members – again of up to 10 per cent – on rooms booked direct via its website or mobile booking app. This deal applies only to North American and Australian hotels at present but is likely to be implemented worldwide.

Not to be left out, Intercontinental Hotels Group – whose IHG Rewards Club is the world’s biggest hotel loyalty scheme, with 92 million members – joined the direct booking battle last month. It is rolling out a new “Your Rate by IHG” programme offering members “exclusive rates” when they book direct. “Select travel partners” will be able to book on behalf of members but only through “eligible channels”.

Initially, the discounted rates are available only at IHG properties in Europe and the Americas, although they will be phased in to hotels in Asia, the Middle East, Africa and China later this year.

When IHG tested the new rates at UK Holiday Inn Express hotels last year, as part of its “lowest rate price” programme, it is understood that it saw a 20 per cent shift from bookings made via OTAs to direct with the hotel channels.

IHG’s move was followed last month by Choice Hotels International, which announced plans to offer those in its Choice Privileges loyalty scheme who booked direct a new members-only rate “later this summer”.


It’s clear that the global chains are getting serious in their approach to OTAs. Not only are they baulking at the commissions the agencies charge – typically ranging from 15 to 30 per cent depending on room type and location – but they also fear that their brands are devalued by the OTAs’ price-oriented approach.

Chain hotels, which account for about 60 per cent of the UK market (70 per cent in the US), according to hotels data provider STR, now focus on being brand managers rather than property owners. Their strategy, therefore, is based on persuading travellers that a Holiday Inn Express, for example, is a better brand than a Hampton by Hilton, or vice-versa.

What’s more, encouraging people to book through direct channels such as a hotel website or call centre enables the hotelier to establish a future relationship with the traveller. And capturing guest data is the Holy Grail of the hospitality world, something that selling rooms through third parties such as the online agencies can limit.

This is because some OTAs, including booking.com, send “personally identifiable information” such as email addresses in an encrypted format to hotels when making the booking. This puts the onus on the hotels to capture this data themselves, something that a harassed front-desk employee does not always remember to do.

However, the chains have faced another snag with their direct booking campaigns: rate parity. This is a legal agreement between hoteliers and OTAs that guarantees hotels will maintain the same publicly available room-only rate across all of its channels of distribution – either direct or via OTAs and other third-parties such as traditional travel agents. This, in effect, protects both the hotel and the OTAs from undercutting by either side.

It is understood that the major chains have been quietly renegotiating their rate parity agreements with the OTAs, which has now given them the scope to offer discounts to their loyalty members, although not the public at large.

They have been helped by concerns – especially in Europe, but also in the US – over the restrictive nature of rate parity agreements, which could be deemed anti-competitive. France has so far taken the toughest stance – last summer it enacted a law to ban all such agreements involving hotels in the country.

Various other EU countries are also considering action under competition regulations – Germany and Italy are among the most active – although the UK’s Competition and Markets Authority (CMA) decided last autumn not to take any action after a lengthy investigation.

Still, the political heat was turned up by a recent House of Lords select committee, which looked at online platforms and their impact on various industries, and called for the CMA to open a fresh investigation – a proposal vigorously backed by the British Hospitality Association.

Yet the OTAs remain a powerful and growing influence on hotel distribution – especially now that Google and Tripadvisor have joined the fray. Expedia, the biggest agency after last year’s acquisitions of Travelocity and Orbitz, suggested that the cost of hotels chasing direct bookings at the expense of the OTAs is about an 8 per cent reduction in revenue per available hotel room.

Expedia thinks the figure, based on factors such as reduced exposure on OTAs as well as the lower room rates, could worry hotel owners who rely on income from their assets, and thus dissuade them from waging a war that neither side can really hope to win.
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