Thoughts, Ideas, Opinions on the above…and They are all Mine!
By Wallace E. Johnson
This is the second of three part series of articles on the U.S. lodging industry. The first, “Hotel Brands – The Buggy Whip of the 21st Century,” ran in the March 7, 2017 issue of the Inbound Report: http://www.inboundreport.com/2017/03/07/hotel-brands-the-buggy-whip-of-the-21st-century/
Well, well, well …” these times they are a changing” as the Bob Dylan song goes; or you can play “Roll with the Changes” by REO Speedwagon; “Changes” by David Bowie; or, “Change” by John Waite … and there are many more. We’ve heard about the Airbnb and Uber disruption but the leisure segment has disruption and changes of its own. The only constant is change, so to speak, and nobody should have expected the traditional tour operator/hotel/client relationship to last forever. It hasn’t and it won’t. As a matter of fact, it’s getting pretty weird out there. So without further ado, let me give you my thoughts and opinions on the goings on these days.
Unless you have been living under a rock, you no doubt are reading about this and in some instances being affected by the consolidation phenomena going on right now. It actually started with the airlines a few short years ago, as we now painfully only have four major domestic carriers while only a few years ago we had 12-15. Then recently, the big merger. Marriott and Starwood merged which immediately put all other lodging companies, with the exception of Hilton (due to brand strength) on the defensive.
Then Accor picked up Fairmont, Raffles, etc. and no doubt other hotel mergers are on the way as the other companies are just not big enough or strong (brands) enough to thrive. Lastly, and this hits closer to home, Hotelbeds has acquired both Tourico Holidays and GTA while Thomas Cook India has acquired AlliedTPro. Getting the message? If you are a Mom-and-Pop or even a small operation with a niche business, it might be a good idea to search around for like-minded competitors to merge with. You are going to need to be bigger and stronger to compete logistically and technologically or you will end up in the obsolescence closet soon enough. Out of business!
OK … this one has been driving me nuts for years. We’ve all heard of the Best Rate Guarantee (BRG) which has evolved into the Best Price Guarantee (BPG) which by itself tells you a bunch of confused hoteliers are at the helm. So, first of all, has anyone ever or do you know of anyone ever that has filed one of these claims? Didn’t think so. (1) It’s a pain in the a** to fill out the paperwork; (2) If I’m a business traveler, I’m on someone else’s payroll and I don’t care about a few dollars difference and (3) net, I really don’t care even if I’m not on someone else payroll. Too much trouble which brings me back to #1 above.
When I bought my first Popiel Pocket Fisherman with a money back guarantee, did I send it back when it broke? No, I sent it to the trashcan. When you see money-back guarantees or best price guarantees in print or on the TV or internet, does it really influence your decision? Of course not. But, don’t just believe me. To quote from the definitive Cornell study on this issue, “We show that such guarantees in their present form have little value to the consumer.” This one is even better: “Although rate guarantee programs appear to give guests the assurance that by booking at the brand’s website they would pay the lowest rate, in actuality the 24-hour time limit gives this guarantee a value of zero.”
Whew, there you have it. From what I hear, the only people taking advantage of this offer are the parasites who find these discrepancies for a living and the corporate offices of hired guns (at $3.50/hour somewhere) that police their own hotel websites and everyone else’s to book rate violations which in turn allows them to fine either the third party site or the hotel. This brings us to the next section … The Screw Job.
THE SCREW JOB:
So, if the BRG or BPG is worthless or, as the Cornell study says, “has a value of zero”, what’s the purpose? Why all the pain and aggravation, all the policing, all the tormenting of the tour operator and hotel community? The hotel higher-ups will tell you “it’s to promote more direct bookings to our websites, which is cheaper.” Oh, really? Cheaper for whom? Is that why you are falling all over yourselves connecting with large OTAs? Didn’t Hilton and IHG just recently connect with TripAdvisor, which books rooms on their site? Yep! (For legal reasons, let’s just call the following a hypothesis). The bottom-line, and it really does help the hotel companies bottom-line, is that hotel companies want ALL bookings to go through their systems so they can charge FEES.
Call them direct connect fees, usage fees, OTA fees, etc., FIT rates, which were being booked and paid for offline did not generate these fees. This wasn’t a war on intermediaries, especially since hotel companies are by definition an intermediary. This was a war on static rates whether they be FIT contracts, pre-buys, whatever. Hotel companies saw this as soft money to be had and many tour operators/wholesalers are paying the price.
But, paying the price even more are the franchisees and their hotels. Look at your monthly franchise bill. In addition to the royalty fees, the S&M fees and the reservations fees which are pretty standard, add up the rest. What used to be a one pager is now multiple pages. Tour operators/wholesalers have been screwed but hotels and their franchisees have really been screwed. No doubt airline crews will be the next screw job, somehow and someway. This leads us to the following which I wrote about a few weeks ago and can be perused with this link (http://www.inboundreport.com/2017/03/07/hotel-brands-the-buggy-whip-of-the-21st-century/). We have seen the future and the future is the growth of the “Independent brand”.
When I wrote the above article about brands becoming like buggy whips, home doctor visits or, my favorite, movie rental stores, it wasn’t satire, it was reality. It’s going to happen. It’s happening as we speak. Branded hotels’ lead in revenues over independents has declined from 32 percent in 2000 to 19 percent in 2015. And, all the measurables keep moving in that direction. Why and how? Online reviews are one part of the equation. No longer are independents mysteries. Potential guests can not only see the hotel but read about other guests experiences.
Another reason? OTAs. Independent hotels don’t have the burdensome franchise fees on their P&L and can offer steeper discounts, as well as pass them off to other intermediaries to sell without having to answer to the SVP in the corner office with the bullwhip in his/her hand. (Don’t you like my political correctness?) And (get this) tour operators/wholesalers are getting attractive rates of independent hotels from OTAs! Really? Go figure …and yet another reason the Age of the Hotel Franchise is moving towards being the Age of the Dinosaur. Given the proliferation of “soft brands” at these companies (Curio, Ascend, Quorvous, etc.) I’m thinking the brand heads see the future as well.
With all of the fees and rules and standards, and unrealistic PIPS, and mediocre global sales efforts; the hotel franchise is certainly at risk. As someone said, hotel companies used to make their franchisees rich, now they make their senior officers rich. Check it out. But, there is one hotel company that it worse than the others which I’ll call the Hotel Company That “Shall” Not Be Named. More on this next time.