In the last couple of years, hotel chains have gradually tried to wrestle back control over distribution from online travel agents.
There’s a reason hotels want to take back more control. Online travel agencies aren’t necessarily the biggest part of the mix, but they are the most expensive route to market. The dominance of Expedia and Booking.com and their widespread recognition means they can charge pretty much whatever commission levels they want.
If these hotel companies could go back in time, they’d probably do things differently, and would undoubtedly have ceded less control of their distribution to intermediaries.
While the likes of Hilton Worldwide, Marriott International and InterContinental Hotels Group (IHG) have all made a push for more direct bookings, there’s one company whose strategy has left it almost totally unreliant on online travel agents.
Premier Inn, a budget-friendly brand owned by UK conglomerate Whitbread, enjoys industry-leading numbers of direct digital distribution. Researchers at Morgan Stanley found that the brand’s website accounted for 87 percent of all distribution in 2016.
(Whitbread’s most recent figure from its 2016/17 accounts shows a slight increase to 88 percent. But the company also notes that the 88 percent tally includes some reservations from global distribution systems and agents that amount to 7 percent.)
Morgan Stanley also has figures for digital direct booking at the other major hotel groups, and these show just how different Premier Inn’s model is. Hilton (30 percent), Hyatt (25 percent) and IHG (36 percent) are all far lower.
Despite repeated requests, the company declined to make a representative available to talk about the topic. But on a conference call with analysts to coincide with Whitbread’s full-year earnings results in April, Chief Executive Alison Brittain outlined her thinking when it came to distribution.
“Direct booking is better for the customer as this is a channel that offers the lowest prices and also gives them better information about their stay,” she said. “It’s also better for us as it’s on lowest-cost channel and it gives us the greatest insight into our customers.”
Premier Inn has been able to achieve such a high level of direct booking for a couple of reasons.
First, it has a tight control over its properties because it either owns them outright or leases them. Other hotel chains are busy selling their properties to become operators or franchisers.
Second, Premier Inn’s 760 properties are primarily in the UK, where the brand is widely recognized. It only has a handful of properties in other countries. Should it look to accelerate its growth, its distribution mix may change, Brittain said.
“In Germany, we’ve gone with our direct model and of course it is much more difficult, because you’re a brand new brand in Germany, so totally unknown,” she said. “We have wanted with our first hotel at to at least test our ability to operate in a direct environment rather than simply defaulting to an OTA environment, which would be then quite hard to get off and we couldn’t then test direct.”
She added: “As we get bigger and there is more scale, we will continuously review our ongoing use and if we have to use OTAs in a tactical way, we wouldn’t shy away from doing so as we do in the UK today, but our preferred strategic option remains dealing directly our customers.”
Of course Premier Inn does sometimes use online travel agents, but the inventory on, say, Booking.com is limited and tightly controlled.
A league of its own
Whitbread’s desire to maintain almost total control of its distribution has put it in an advantageous position. Analysts at Morgan Stanley said the company was one of the very few winners in the current direct bookings push, as Premier Inn has managed to lower its distribution costs. Most others have seen a rise because pushing the brand.com channel — a hotel company’s own website — has resulted in discounting.
“Whitbread’s Premier Inn captures a leading 87% of bookings directly through its website, and while its low 6% exposure to OTAs has held back its RevPAR [revenue per available room] growth in London where tourism has been very strong this year, it sees this business as low quality and would rather build a base of direct customers who it can stay in contact with and are higher margin,” the Morgan Stanley report said.
Premier Inn’s success might have something to do with the willingness of British consumers to go direct rather than through an online travel agent.
A recent report from UK bank Barclays found that 37 percent of Britons plan to book their vacation accommodation directly with hoteliers this year, up from 17 percent a decade ago.
Although Premier Inn isn’t necessarily associated with vacations in convenient urban locations, the market is clearly receptive to their approach to distribution, especially when compared with other countries.
Barclays used survey data from the U.S., Germany, France, China, and other countries and found that online travel agents are the preferred booking method (52 percent) for international visitors looking to book a trip to the UK, followed by traditional travel agents (22 percent) and booking direct (17 percent).
Mike Saul, head of hospitality & leisure at Barclays Corporate Banking, said: “Competition in the hospitality and leisure market is fierce and our results show that efforts by hoteliers to lure customers to book directly through their websites are paying off, with Brits now over twice as likely to book via this route than they were ten years ago.”