Hotel CEOs to investors: "Trust us, it was all worth it."
It’s been a little over a year since the major hotel companies initiated their direct booking offensive in an attempt to take away share from online travel agencies [OTAs] and other third-party distribution parties.
And in that time, quarter by quarter, hotel CEOs have told us they’ve seen significant changes in how consumers are choosing to book with them, and in how many travelers are signing up for their respective loyalty programs.
During the most recent round of earnings calls, that was no different, as hotel CEOs reiterated their belief in the value of direct booking pushes, whether in the form of multi-million-dollar campaigns or special loyalty member rates.
Now, with a year’s worth of data to rely on, most of those CEOs also seemed more confident than ever in the ability for these strategies to have an impact on bookings. The more aggressive tone CEOs adopted earlier last year has gradually faded and, as Skift noted in its 2017 Megatrends report, the conversation about the so-called direct booking wars has moved beyond an us-versus-them mentality.
What happens this year will be especially pivotal, as hotels see whether this strategy is truly sustainable, and whether they can afford to keep investing in these types of campaigns and discounted loyalty member rates.
Here’s what some of the hotel CEOs had to say about direct bookings during their most recent quarterly earnings calls.
Hilton: “It’s Been Quite Successful”
Hilton, in many ways, has had the loudest voice when it comes to promoting direct bookings, thanks, in large part, to its massive “Stop Clicking Around” campaign. CEO Christopher Nassetta said that in 2016, Hilton added 9 million more members to its Hilton Honors program, which now has more than 60 million members in total. Loyalty members also drove 56 percent of the company’s system-wide occupancy, which was 400 basis points higher than in 2015. Web-direct and mobile bookings were also up by 200 basis points over 2015, and in the fourth quarter, nearly 30 percent of all bookings were web-direct.
“So we’re about a year, not quite a year from the anniversary, from the beginning of that [Stop Clicking Around] campaign,” Nassetta said. ” … I think most important statistic is over 200 basis points in channel shift, I would say, leading to our direct low-cost online channels either web-direct or mobile. That suggests to me, well, this is early days and while the Stop Clicking Around campaign is done, you’re going to see us to do all sorts of other things, including what you just saw with Honors, to continue to build direct relationships. I would say, it’s been quite successful.”
Nassetta also said that while not every single hotel owner has been pleased with the member rates, the majority of them are happy with the fact that they are seeing shift in where and how people are booking their rooms.
“In the end, what our job is, is to drive profitability for owners and that means top line, but also bottom line and distribution cost is not an insignificant component of their cost structure,” Nassetta said. “So if I look at the channel shift that that has occurred and we look at, what’s happening from a net rate point of view across all our channels, I think in the end, our owners – I can’t say every single owner in every single circumstance that it’s worked perfectly, but I would say across the system, it has worked really well. We have shifted, we’ve obviously maintained growth and market share and shifted by a couple hundred plus basis points business to channels that drive better net revenue for our owners.”
Marriott: “We Are Encouraged”
Marriott, like Hilton, pursued a similar direct booking strategy with discounted member rates last year, although it didn’t market those rates quite to the degree that Hilton did.
Why not? Perhaps the company had other things to concern itself with, including a massive $13.3-billion acquisition of Starwood Hotels, for example. Marriott has, however, been heavily marketing its multiple loyalty programs, and it has been very vocal about how important its loyalty members are to its global growth strategy.
When asked about the impact these loyalty member rates have had on his business, Marriott CEO Arne Sorenson said it’s hard to assess because, well, everyone is doing the same thing, too.
“I think it’s going to get harder and harder for us to have a calculation about what the impact of member-direct rates are, in truth,” Sorenson said. “[In] the last two quarters, we have talked about a roughly 30-basis-point impact to RevPAR [revenue per available room], so that would have been in Q2 and Q3 2016. But the closer we were to implementing that program, the more you had some sort of current baseline data, which allowed you to do some calculations. The farther you get away from it, you start to already have a bit of a difficult time knowing exactly where the booking would have come otherwise. And we’re now in a business in which essentially these member-direct discounts are common across all the branded platforms. So our principal competitors are doing the same thing. That makes assessing what it would be like if we didn’t have it more and more difficult to do.”
One statistic Marriott has looked to for proof that this type of strategy is working, however, is in loyalty program membership numbers.
“We are encouraged by the growth in sign-ups to the loyalty program since we’ve rolled out the member-direct rates, by the awareness of these kinds of discounts, which we remain convinced will drive good behavior from our perspective, from our customers and the way they book,” Sorenson said. “And as a consequence, I suspect we’ll see that this continues much as it is in its present form. Does it impact? Do we lap it at some point? I suppose we do. I suppose in Q2 we start to lap it. But again, our calculation was 30 basis points or thereabouts in Q2, so it’s not a massive number. And whether its additive or not, sort of Lord knows. I guess I would say it’s built into our model, but I’m not necessarily sure that we focus precisely on that question either.”
IHG: “We Are Not Anti-OTA”
InterContinental Hotels Group (IHG) CEO Richard Solomons said that direct booking pushes are working, but also said that perhaps, an equally important benefit of more direct bookings is the ability to gather more data about guests via the loyalty program.
“Since launch, the relative change in our retail channel growth rates has outstripped that of the OTAs demonstrating the shift in behaviors guest recognize the advantage to them of booking direct,” Solomons said. “This has also driven increase to IHG Rewards Club enrollments, which were up 16 percent year-on-year. As well as growing our loyalty base, our existing members are staying with this more often and redeeming more points for their reward club stays. All of this has increased our loyalty contribution by over three points since 2014 delivering low cost, high quality revenues to our owners. Our direct digital channels remain one of the fastest growing across our system and we continue to innovate and update them.”
Solomons also noted that more customers aren’t just booking direct but that they are doing so on mobile.
“Mobile continues to be the driver of growth with bookings reaching $1.6 billion in 2016, up by a third from 2015,” he said. “Recognizing the increasing importance of mobile devices in consumers lives and using it where we can to enhance the guest experience, we now offer mobile checkout at 1,800 of our hotels. Powering this growth in mobile is our award-winning app which has now been downloaded over two million times with the year-on-year app bookings up 50 percent.”
In total, IHG’s digital booking revenues in 2016 amounted to $4.3 billion, with $1.6 billion coming from mobile. IHG CFO Paul Edgecliffe-Johnson also said, “Our growth in the digital retail channel rate is up 5 percent and the OTA growth rate is down 2 percent since the launch [of IHG’s loyalty member rates], so [we’re] definitely seeing business shifting across into our direct channels.”
Solomons also stressed, “We are not anti-OTA. So I think what’s important is it’s a good channel for price-sensitive leisure travelers who are never going to be brand [loyal]; it’s a great route to market for us, but it’s very expensive. And I have told them [OTAs] that, they know that. And so if it’s incremental and positive profitable contribution then have that refined with that. But for a lot of guests, direct booking is preferable: They know what they are getting, they know who they are dealing with, we get rich data create and engage them with the brand and obviously, again, for owners it’s much more profitable. So I think they are always going to exist in parallel. The important thing is you target it to the right guest. What you don’t want is guests who are loyal or can be brand loyal booking through OTAs.”
Choice Hotels: “Positive Impact”
Like Hilton, Choice Hotels said it saw some good numbers related to its loyalty program membership numbers and direct bookings.
CEO Stephen P. Joyce, in his prepared remarks, said, “At the beginning of 2016, we announced our company’s most significant redesign of Choice Privileges and it is paying off in spades. The program surpassed 30 million privilege members and signed up 4.6 million in 2016, more than any other year in our history. In addition to the immediate products Choice Privileges delivered to our guest, we launched exclusive member rates in 2016, enabling visitors to ChoiceHotels.com and our mobile apps to access discounted member rates that can’t be found anywhere else on the Internet. In addition to the positive impact this has to fill rooms, it has also increased the contributions generated by our proprietary reservation systems up 240 basis points from last year to over 50 percent.”
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Photo credit: Choice Hotels CEO Stephen P. Joyce said he's seen "positive impact" from the company's member rates and revamped loyalty program in terms of driving more direct bookings. Tony Powell / Choice Hotels