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What’s the topic that never ceases to pack a room or stir up emotion?

The role of online travel agencies in hotel-room distribution.

Such was the case during a breakout session Tuesday at the New York University International Hospitality Industry Investment Conference that aimed to address the influence and implications of these intermediaries. But at the (literal) end of the day, panelists agreed that it has always been up to the hotel owner to choose how to get business.

“We’ve always been very local in our decision making,” said Mark Carrier, senior VP, B.F. Saul Company’s Hotel Division. “Decisions are made by people in the local markets sometimes in not a very sophisticated way. Sometimes they react. It happened in 2001 and it continues to happen today in markets that were more distressed—someone visited you and said ‘I have demand, give me inventory.’”

Rate parity
Rate parity could be a thing of the past, according to the hotelier panelists.

“I don’t think the consumer would agree that there’s rate parity,” said Tom Corcoran, Jr., chairman of the board for FelCor Lodging Trust. “There’s an enormous amount of money spent to say we have rate parity but the perception in the marketplace is that you can get a better deal (on OTAs).”

Rate parity was introduced by the chains, not the OTAs, noted Melissa Maher, global VP of strategic accounts and industry relations, Expedia.

“We think it helps the brand promise of chains,” she said. “If you look at our promotions and our global reach, we get a billion searches on our sites a day, so we think we bring visibility. What is changing is our hotel partners are trying to capture that business on their own. We think we’re a demand generator, and we support the hotel taking the customer, whether they convert on Expedia or a brand site or another OTA that’s great too.”

The opaque online merchants aren’t so opaque anymore, said Cindy Estis Green, managing partner, The Estis Group.

“Because the rates that are out on Priceline, they are so transparent, so heavily promoted, what happens is you’ve got meeting planners seeing these … all of a sudden everything is brought down to that OTA rate, what once was best available rate is now lowest available rate,” she said. “The anchor rate is now this prominent rate, which is often a promotional rate.”

Hoteliers are in charge of their own destiny, Maher said.

“Hoteliers should use OTAs to their advantage and yield manage,” she said. “You can change your rate 300 times a day, but there are not a lot of folks taking advantage of that.”

Incremental demand?
Maher, the lone OTA representative on the panel, said incremental demand was a benefit of the intermediaries, but the hotel executives and the data presented during the panel suggested otherwise.

Steve Hood, senior VP of research at STR, the parent company of HotelNewsNow.com, provided preliminary data on channel mix. The channel mix analysis is part of a larger Channel Distribution Study research project under way, which will analyze economics and distribution strategies based on data from about 25,000 U.S. hotels, Hood said.

The preliminary data from mostly chain hotels in the United States shows that the property direct channel provides the greatest amount of demand and revenue (54.3% and 46.5% respectively).

The OTA-merchant/retail channel accounts for 4.6% demand and 4.3% of revenue and the OTA-opaque channel accounts for 2% of demand and 1.2% of revenue.

The OTA-opaque channel also showed the greatest ADR growth of all the channels in 2010 vs. 2009 with a 2.3% growth rate.

The luxury and midscale chain scales have the greatest proportion of OTA-merchant/retail demand of their total demand, at 5.4% and 5.8% respectively.

The preliminary data provided for the luxury chain scale, suggests that actual ADR and ADR growth varies widely across distribution channels in the segment, according to Hood.

    View Steve Hood’s “Distribution Channel Analysis” presentation (sign-in/free registration required).

“What I see in our markets is chasing a yield percentage to move market share,” Carrier said. “I’d love to see something prove that one way or another because it’s a fundamental question. The OTAs are getting pretty well off, at a depressed time in our industry.”

Estis Green said the Oxford Economics data, which is part of the larger study, looks at price elasticity and demand patterns.

“It looks like it’s different by chain scale, but for most chain scales the data is looking like there’s very little elasticity, just a few sectors that showed any elasticity with demand,” she said. “I’m not sure there’s more demand in the marketplace. It’s a question of where you want to get your business from. What are the best rates or channels to optimize your rates? It’s got to be evaluated on a hotel-by-hotel basis.”

So, why are hotels still using OTAs if they might not be the most profitable channel, questioned moderator Eric Pearson, chief marketing officer, The Americas, InterContinental Hotels Group.

“Operators are saying, ‘We don’t know how else to get the business. We don’t know what other levers to push,’” Estis Green said.

“That’s probably accurate,” said Michael Murphy, senior VP, global sales, Choice Hotels International. “There’s a competitive component to this … you’ve got to be the first to say, ‘This channel doesn’t meet my ramifications, this particular one.’ Who’s ready to pull out first?”

Owners and GMs never talk about the costs associated with driving that OTA-generated revenue, Corcoran said.

“I just don’t think we’ve as an industry made good decisions for the owner,” he said. “One purpose of this study is to partner up better to make more revenue and understand the true cost of these decisions.”

There is a real role for brands here, Carrier said.

“Brands don’t own the bottom line of hotel, but you’re making the commercial arrangements on our behalf,” he said.

There are concerns that hotels aren’t managing by channel, said Estis Green. “They didn’t have that information to manage that way. There will be other intermediaries, wholesalers. OTAs will come and go, but you need to learn ROI by channel so that whatever the intermediary or rate—hotels need a standard way to make that assessment of how much they should make.”

Tags:  ota online travel agency mark carrier eric pearson michael murphy cindy estis green melissa maher tom corcoran hotel rates