The race to the bottom?
To be fair, the aviation exec, Dennis Corrigan, works in sales at JetBlue and not at
American Airlines, and the hotelier, Greg
Brown, Choice’s loyalty vice president,
based his assessment on slow franchise
sales rather than average daily rate or revenue per available room.
But when considering industry
segments rather than individual
companies, a number of recent
trends and developments point to
sunnier skies for airlines and increasing challenges for hoteliers.
Consolidation among airlines,
which were never as fragmented as
hotels, underscores that, at times,
there is strength in fewer numbers.
What ultimately helped the
airlines was discipline. For years,
commercial carriers were only as strong as
their weakest competitor, and there was no
shortage of desperate weaklings who would
reduce fares to spur cash flow. Pre-alliances,
carriers would fly routes at a loss rather
than cede the market to a competitor.
But by reducing capacity, choosing alli-
ances carefully and focusing on profit rather
than market share, in 2011 some airlines, as
Corrigan noted, were able to see revenues
rise faster than the price of fuel.
Hotels certainly have different issues.
A 300-room hotel cannot shed capacity.
Meaningful industry consolida-
tion appears to be on hold. Big
brands must compete with myri-
ad independents as well as for the
loyalty of fickle owners.
Hoteliers’ biggest headache,
however, may be in their distri-
bution strategies, enabled and
influenced by an ever-increasing
number of creative online op-
tions. As reported in Travel
Weekly last week, the online trav-
el agency (OTA) merchant model
(in which hoteliers wholesale rooms at low
rates to sites like Expedia, Travelocity, Price-
line and Orbitz, which then mark them up)
resulted in lower revenues estimated to be
twice what they pay in commissions on
standard agency sales, according to Smith
Travel Research and the American Hotel &
Last week, I witnessed a reversal almost unimaginable before the recession: On a panel sponsored by the Association of Travel Marketing Executives (ATME), an airline representative was both more satisfied with last year’s performance (rating it nine out of 10) and more optimistic about prospects for 2012 than a
hotelier ( 6. 5 out of 10).
Editor in Chief
Collectively, discounts by U.S. hotel owners to OTAs amounted to $2.7 billion, more
than double what they paid in agent commissions. The study predicts that number
could double again over the next few years.
their own flash sales to clients. So far, no
decision has been made.
OTAs rightfully point out that the numbers do not take into
consideration the contribution their marketing
and advertising makes to
put heads in beds. That
applies to travel agents collectively, as well.
But if flash sites are crack cocaine, I’m
not sure there is yet a drug to describe the
potential impact of BackBid.com. After
travelers book rooms through their “
channel of choice,” they post their confirmation
FROM THE WINDOW SEAT
If, as a hotelier once said to me, the
OTAs “are like heroin” (“I’d like to stop using them, but I can’t”), then social buying/
coupon sites like Groupon and flash-sale
sites like SniqueAway are crack cocaine.
As explored in a Travel Weekly cover story
on Jan. 9, some hoteliers see these sites as a
way to attract new clients, but ATME moderator Henry Harteveldt of Atmosphere
Research Group said his company determined that shoppers at coupon and flash
sites tend to buy from brands they have
information. Other hotels can then underbid the confirmed price or perhaps offer
upgrades or amenities/services to entice
the guest away.
From a consumer’s perspective, what’s
not to love? But if hoteliers participate in
large numbers, I can think of no better example of a race to the bottom. It could not
only impact hoteliers, but the traditional
agents and OTAs who went to the expense
of booking the original hotel in the first
place could feel stung.
“I see it as highly delusionary,” he said.
(From the context, I wasn’t sure whether
the root of his comment was “dilute” or
“delusion.” Either could work.)
No question, BackBid is a great model
of empowering consumers with additional
choices. But the airlines’ turnaround suggests that a disciplined industry can go a
long way to determining what choices consumers are ultimately offered.
I did speak with an executive of a travel
agency group who said his organization has
discussed fighting fire with fire: obtaining
net rates and having members promote
Contact Arnie Weissmann at aweissmann
@ travelweekly.com, and follow him on Twitter