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Are hotels’ direct booking efforts really working? That was the question on many analysts’ minds during the first quarter earnings calls hosted by major U.S. hotel companies.
While Hilton and Marriott have been leading the charge to push for more direct bookings in an effort to take away market share from online travel agencies (OTAs) like Expedia and Booking.com, they’ve been joined in recent weeks by their fellow hotel competitors, including Hyatt, Wyndham, and Choice, to name a few.
Judging by their collective statements, it’s clear hotel CEOs aren’t going to stop their campaigns for more direct bookings any time soon, even if they’re quietly making arrangements to offer those exclusive lower rates to travel agents. Or even if the OTAs themselves are hoping to strike deals with them to offer those preferred lower rates, too.
Here’s what the hotel CEOs had to say, put into context with comments they’ve made previously about booking direct.
Hilton: Direct Bookings Are Working
In February, Hilton launched its largest global marketing campaign ever, called “Stop Clicking Around,” encouraging guests to become Hilton HHonors loyalty program members so they can secure the lowest possible room rates on Hilton.com or via the Hilton HHonors app.
Although, Hilton CEO Christopher Nassetta made some conciliatory remarks about the OTAs being Hilton’s “good partners” during the World Travel & Tourism Council’s Global Summit in April, he was much more confident about touting his company’s direct booking successes during the first quarter earnings call.
“Early results are very positive with HHonors enrollments increasing nearly 90% since launch, helping drive HHonors occupancy to a record 55% in the quarter, an increase of more than four points versus last year,” he said. “The business we’ve received through web direct is higher than it’s ever been and is growing faster than ever, thanks to increasing share shift. The share of web direct channels in our distribution mix is growing five times that of the OTA share growth in the quarter, and business generated from our mobile app is up nearly 150% year-over-year with downloads exceeding 70,000 a week, an increase of 200% over last year.”
Later in the earnings call, Nassetta said direct channels (referring specifically to Hilton.com and the Hilton app) accounted for 25 percent of Hilton’s business, while “OTAs are, plus or minus, 10 percent of our business.” He also added, “The direct channels are significantly larger than those channels and they are growing at a much faster pace.”
However, those figures Nassetta listed seem to veer widely from industry averages that usually peg OTAs as comprising at least 20 percent of a hotel company’s distribution business.
Marriott: It’s Too Soon to Tell
Although Marriott was the first big hotel company to enter the direct booking wars with its “#itpaystobookdirect” campaign from August 2015, the company hasn’t revealed many details about whether or not this campaign, or the company’s new Marriott Rewards Member Rates are translating into more market share and more bookings.
Marriott CEO Arne Sorenson said that, currently, 65 percent of transient room nights for Marriott are coming from Marriott Rewards members but because the new discounted rates for loyalty members are still fairly new (they debuted on April 4), it’s “too early to give you statistics.”
“The member-only rates that we rolled out are very new in the market,” Sorenson said. “We announced them about a month ago but they became effective a little bit after that. It’s still quite early and we have not put as many dollars into marketing those rates yet. Obviously, they are visible online and we’re doing some things. I think the early response has been positive but it’s too early to give you the kind of statistics that you’ve heard from some others who have been out there on market longer with us. We’ve obviously done it because we’re optimistic about this approach driving an increase in direct bookings and driving that much more awareness of the advantages of direct booking.”
Hyatt: This Is Helping Our Hotels
One of the claims made by OTAs is that these discounted member rates ultimately hurt individual property owners’ bottom lines, but Hyatt CEO Mark Hoplamazian said it’s quite the opposite with Hyatt’s approach to direct booking rates, which the company debuted in April.
To test whether or not the discounted loyalty rates would work, he says Hyatt embarked on a pilot program of select hotels and, thus far, results have been positive.
“We’ve been tracking a number of metrics over the last eight months, namely RevPAR index for the hotels in those respective markets. And we haven’t seen any impact. In fact, in several cases, index in individual hotels is up. So that was an important factor,” Hoplamazian said.
“Finally, consistent with our philosophy and hotel teams, this member discount rate is actually a yieldable rate. That is, it’s a manageable rate by the hotels. So they’re not required to sell the member discount rate at any given point in time. And the level of discount that they apply is actually in their hands. Now we’ve got recommendations for them, and we’ve modeled how they should be thinking about pricing in different points in time based on data that we’ve got, that we’ve analyzed. But otherwise it’s really in their hands.”
Hoplamazian’s strategy for Hyatt differs from that of his competitors like Hilton and Marriott, which are focused on being asset-light and achieving massive scale. At Hyatt, the strategy is to “recycle” assets and not go for scale just for scale’s sake.
In an April interview with Skift, he said, “… the OTAs play a role in the industry that is hard to replicate because they’ve got big reach, and they have big reach in terms of customers and travelers that may not have a lot of experience with our brands or other brands. They may be on the fringe of travel because they’re infrequent travelers. They just make it easy for people to actually come into the industry or come into travel and access it, and I think that’s actually a good thing.”
Hoplamazian added, “There’s no question that our focus and everyone’s focus seems to be to further enhance and develop the relationships that we have with our own customers, and that’s going to be a continued absolute focus for us because that’s actually what matters. That’s what will drive brand loyalty over time, so you have to enhance those relationships. From time to time that may create friction with OTAs who are trying to do the same thing, but there’s no question that their platform, which looks really different to what we do and what other branded companies do, is a value to travel at large. There’s no question about that.”
Choice Hotels: Not Happy with the OTAs
Just a week after Choice Hotels International’s first quarter earnings call, Choice Hotels announced it would officially offer discounted loyalty member rates and enter the direct booking wars. Later this summer, Choice Hotels will begin to offer a new exclusive hotel rate, supported by the company’s best-price guarantee, for Choice Privileges members who book direct on ChoiceHotels.com and the company’s mobile app.
CFO David White, on the earnings call, said “more traditional channels” are driving the company’s gains in earnings per share, and said that although “OTAs continued to grow as part of our business,” the company is “not happy with the price points that they want.”
White said, “You’re going to continue to see us try to drive business to our channels simply because they’re dramatically more profitable than an OTA trying to suck 15% to 20% out of the deal. And so we’re not anti-OTA, but we are not at all happy with some of their practices and we’ve never been happy with their pricing. We think it’s overrated for what they provide. And so as we look at this going forward, one of our sole missions is to try to limit the amount of activity going from the OTAs and coming from into our primary channels. And if you look around the industry, everybody else is doing the same thing.”
“So look, we openly welcome them [OTAs] as a channel,” he said. “We just want it to be priced appropriately and with a business relationship that makes sense for us, but we are going to continue to drive our business and our proprietary channels, because that creates the strongest loyalty loop with the customer and because that they’re most profitable for us.”
Like Hilton’s CEO, Choice CEO Stephen P. Joyce said ChoiceHotels.com generates the largest share of the company’s revenue on its distribution channels. Thanks to direct mobile app bookings, Choice saw a 17% increase in revenue for the first quarter of 2016 compared to the same period last year.
Joyce also said, “We are very encouraged by what the other brand companies are doing in terms of the marketing activities and everything else that they’re doing to drive customers back to proprietary sites, because that’s good for the industry, it’s good for our owners or franchisees, and all the hotel companies. So you’ll see us very much in the same state. Obviously, we do things our ways, so you’ll see us take a different turn on things. But we are very much supportive of that movement and we will be a major player as part of it.”
Wyndham: Discounted Member Rates are the Next Evolution of Loyalty
Last year, Wyndham Hotel Group embarked on a massive revamp of its loyalty program, launching the all-new Wyndham Rewards program that operates on a simpler, more straightforward strategy than most of its competitors: no blackout dates and a flat 15,000-point rate to redeem a one-night stay anywhere within the Wyndham hotel portfolio.
Wyndham CEO Stephen Holmes said the new program is succeeding: “In addition to enrolling 5 million new members in the last 12 months, award night redemptions have increased 90% since the program launched last May. We have seen our member occupancy increase over 200 basis points since the launch of the program and our franchisees have never been more engaged, increasing enrollments across their front desk by 55%.”
Discounted loyalty rates for members, he added, were a logical next step in the program’s evolution.
“Building on this momentum we launched our third umbrella advertising campaign on April 18,” Holmes said. “The ads once again featured ‘Game of Thrones’ star Kristofer Hivju as the Wyndham Rewards Wizard in new primetime network in cable TV spots. The campaign is designed to drive direct bookings by promoting our richest consumer offer ever. The offer is available only on our branded websites and thorough our call centers. Members who receive up to 25% off our best available rate, along with $100 in Wyndham Rewards gift cards on their second stay, which can be redeemed for savings on future stays.”
Wyndham’s loyalty program continues to evolve, too. On May 12, it announced the addition of membership levels and local experiences.