Since 2016, the quiet wholesaler marketplaces for hotel supply have become noisy as private equity firms invested $2.9 billion to make Hotelbeds Group a market leader. Expect more consolidation.
Everyone knows that hotels increasingly rely on two conglomerates — Expedia Inc. and Priceline Group — to distribute their inventory globally to a large chunk of leisure travelers. Some hotels rely on the giants to fill as many as half of their rooms on any given night.
Yet an alternative distribution path may be gaining small but noticeable momentum — namely, business-to-business (B2B) marketplaces.
The largest of these is Hotelbeds, which distributes rooms at wholesale rates to about 35,000 retail travel agencies, small online travel agencies (such as Getaroom and Travel Republic), tour operators who build vacation packages (such as TUI Deutschland), and airlines who upsell passengers with accommodation offers (such as EasyJet).
In spring 2016, the B2B accommodation sector heated up when private equity firm Cinven and the Canada Pension Plan Investment Board led a consortium that bought parent company Hotelbeds Group from tour operator TUI for $1.32 billion (€1.165 billion).
Since then, the owners of the Palma de Mallorca, Spain-based Hotelbeds Group have been investing for growth.
This year, they funded its acquisitions of its smaller peers GTA and Tourico Holidays for a combined cost of $1.5 billion (€1.3 billion), according to sources familiar with the companies’ finances.
The deals make Hotelbeds Group the market leader in the B2B hotel sector, holding around 15 percent of the global market — roughly double what it had before the two acquisitions.
When Hotelbeds Group made the acquisitions, it did so with the backing of the Cinven-led consortium. That means, in effect, that private equity has placed a $2.93 billion bet on this sector in the past couple of years.
The second-largest wholesaler platform is Australia-based travel booker Webjet, with about 3 percent of the global accommodation market — assuming its $265 million offer to acquire JacTravel that was announced this summer is approved.
On Wednesday, Hotelbeds’ acquisition of GTA officially closed. In the next 12 months, the companies expect to fill about 55 million room nights together. Hotelbeds Group now has 8,300 employees after the acquisitions, making its workforce about as large as better-known travel players like EasyJet and Sabre.
The larger of Hotelbeds’ two acquired companies, GTA, is particularly strong in its coverage of Asia Pacific and the Middle East.
Like Hotelbeds, GTA provides hotels and other products to travel intermediaries, smaller online travel agencies, and traditional travel agencies via an online booking platform or an integration with its API (application programming interface, or a method used for retrieving data).
The leader in the Americas is Tourico Holidays. Hotelbeds’s acquisition of it closed this summer.
In spring 2016, Hotelbeds said it had a database of 72,000 rooms. This week it said it has about 120,000 — not counting the ones it will inherit from its new acquisitions — including inventory from global chains Hilton, InterContinental Hotels Group, and AccorHotels.
Upon Wednesday’s transaction close, the group began the process of discovering how much overlap there is between its listings and those of its newly acquired companies, with GTA claiming about 100,000 and Tourico Holidays., claiming about 50,000. Hotelbeds will move all of the brands onto its revamped technology platform — an open-source, cloud-based IT structure — to try and generate efficiencies.
One path Hotelbeds uses to distribute rooms is to make them available via the reservation system run by Amadeus, a Madrid-based global travel marketplace, but not Amadeus’ rivals Sabre and Travelport. Use of this channel may grow, the company said.
Joan Vilà, executive chairman of Hotelbeds Group, also wants to grow business lines in airport transfers, activities like big bus tours and Broadway show tickets, cruises, and — eventually — corporate hotel booking.
The conventional wisdom is that most of those products do not have margins as high as hotels do, on average. If so, that calls into question whether Hotelbeds can maintain its double-digit growth rates by moving into other products.
Hotelbeds disagreed with this line of thinking, saying that some types of product have a higher margin than others — such as excursions instead of walking tours. It added that, cross-selling and a more sophisticated use of technology than its competitors will give it gains in efficiency and drive higher average revenue for agencies, vacation packagers, and airlines. That would encourage those suppliers to use it more frequently for distribution, the company said.
Overpromising or Holding Its Own?
Conventional wisdom is that — while not as bad as for airplane tickets — the wholesale market for hotel rooms is under margin pressure. These critics doubt that so-called bed banks have a future.
While a few B2B marketplace businesses like Hotelbeds have high margins, partly by essentially buying blocks of rooms with commissions estimated at effectively about 25 percent, many smaller players appear to be competing by charging lower commissions of around 15 percent.
The cuts in commissions may deepen: Many small players tell hotels that they’re selling rooms to tour operators and offline agencies but, in reality, are selling to smaller online travel sites, such as Amoma, which rely heavily on wholesaler inventory.
The bottom line: Online competitive pressures are driving down commissions.
In other words, hotels may not realize how much of their inventory is ending up on sites like Amoma. If they do, they might discover that they’re accidentally competing against the rates they offer on their direct brand sites, according to Guilain Denisselle, a Paris-based industry consultant and the editor of trade publication Tendance Hotellerie.
Hotelbeds isn’t to blame for this phenomenon.
Yet among smaller players, low-margin tactics are becoming common, experts said. This phenomenon may reduce the pool of high-margin wholesalers that Hotelbeds could snap up to maintain its pace of growth.
Hotelbeds said it is not noticing margin pressure in its own business. While it did not say this, experts believe it may have avoided margin pressure by emphasizing sales to tour operators, who do not compete as directly with online travel agencies, and by relying on high-quality, upscale properties, which have more demand from upscale consumers who don’t balk at high prices.
Despite its acquistions, Hotelbeds said it drives a lot growth organically to meet its objectives. It does not need additional acquisitions to drive growth, it claims.
Vilà, Hotelbeds Group’s executive chairman, told Skift he thought the portfolio of brands and their geographic coverage is adequate now. But he added that the company would remain opportunistic.
“We are pretty well-represented in all of the key destinations worldwide now,” Vilà said. “Additional acquisitions are not something we’re thinking about for the next several months at least, though I can’t say we would rule it out entirely.”
Vilà said the company is more interested in high-quality properties that will lead to repeat bookings rather than simply having the largest possible inventory.
The company also stands out from other wholesalers by its technology investment, he said. Unlike most others, it can handle dynamically changing rates.
A case in point: One of its partners, AccorHotels, can adjust the rates it allows Hotelbeds to sell its properties for based marketplace conditions rather than the old model of setting rates months in advance.
Some experts believe Hotelbeds sees itself as primarily competing with the global conglomerates for premier inventory in popular destinations.
By that measure, a wholesaler’s average 25 percent is higher than a typical 15 percent Booking.com commission. It would be on par with Booking.com, though, when a traveler books through the Booking Genius program — a service used disproportionately by business travelers. Under that program, Booking.com charges a commission of 15 percent plus a 10 percent additional fee when a traveler makes a booking at a rate provided by the hotel that is a 10 percent discount off published rates.
Booking.com and Expedia often add fees for premium placement in their search results which, in effect, brings them closer to 20 to 25 percent commission levels.
If the rates are roughly comparable, why would hoteliers use the business-to-business channel?
One answer: by participating in and expanding the wholesale channel as a competitive model, hoteliers can put pressure on the duopoly to reign in their commissions — if the volumes are significant. Hotelbeds is nowhere near producing a volume that would impact companies like the Priceline Group. But its goal is to build a viable distribution business in the shadows of the Big Two.
Another answer: Wholesalers take net rates, a different model than is used by online travel giants like Booking.com, which have an agency model. As part of a distribution mix, some hotels like a mix of models.
Wholesalers like Hotelbeds also don’t have consumer-facing brands, so aren’t spending marketing dollars competing for user acquisition against the hotels the way other companies do.
That said, one competes with a superstar company like the Priceline Group at one’s own peril, as summarized by Skift Research’s new report on the colossus. Priceline and its rival Expedia already are involved in the business-to-business segment via their affiliate businesses that provide inventory to tour operators and other players.
Vilà, who has led Hotelbeds since its creation in 2001, said his ultimate goal is to position Hotelbeds Group in “the champions league of the big travel companies.”
“We transcend our business-to-business segment,” Vilà said. “Our value proposition to our hotel partners is to enable them to diversify their distribution strategies and undermine the perhaps oligopolistic position of certain travel players.”
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Photo credit: Hotelbeds filled about 25 million room nights last year by suppling hotels to travel agencies, tour operators, and airlines. Joan Vilà (right) , executive chairman of Hotelbeds Group, is shown with Tourico Holidays CEO Uri Argov when announcing their merger on February 7, 2017. Hotelbeds Group