In our latest report, Skift Research analyzes the hotel distribution landscape. In a market where demand fluctuates strongly, and a myriad network of channels compete for sales of the same room inventory, this is a complex process that is important to understand. Covid-19 has upended the industry, and changed the channel mix for most hotels, but will these changes be permanent? Will direct bookings continue to strengthen when demand returns, or will online travel agents be the biggest beneficiaries? What will happen to global distribution systems and bed banks? Read more about this in our latest report.
The below excerpt sets out the hotel distribution channel landscape, and introduces a discussion on direct bookings. Get the full report here to stay ahead of this trend.
Distribution Landscape Overview
Today’s hotel distribution landscape is intricate, with many players accessing and selling hotel room inventory through a myriad of channels. Below is a simplified version of the main connections between the largest business-to-consumer (b2c) and business-to-business (b2b) channels.
This is used as a guide only, for further discussions in this report. Undoubtedly, lines between players in the distribution landscape are blurring. Traditional travel agencies and tour operators are increasingly closing brick and mortar shops, while they see sales moving online, blurring the lines between travel agents and online travel agents (OTAs).
Bed banks and global distribution systems (GDS) are increasingly offering travel agents with direct links to OTA inventory. Aggregators like TravelgateX collate inventory from different bed banks and OTAs behind a single connection.
Metasearch engines like Tripadvisor and Google would have had to scrape prices from across the internet up until recently, but here direct connections are also being built.
All these additional connections have greatly increased reach and visibility of hotel rates. While good for consumers, it is making it increasingly hard for hoteliers to keep tabs on all the distribution channels that are selling their rooms and at what rates.
Up to the early 2000s, hotel distribution consisted predominantly of people calling or walking into the hotel they wanted to stay in. For the vast majority of hotels, this channel, which is referred to as ‘property direct,’ represented between half and three quarters of their sales. Call centers, especially for branded properties, were also of significant importance. The remainder would be booked through travel agents, tour operators, consortia, and GDSs.
In 1996, Microsoft founded Expedia, and the Dutch startup bookings.nl was launched. These two brands — with bookings.nl changing its name to Booking.com in 2000 — became the main pillars of what today is sometimes referred to as the OTA duopoly between Booking Holdings and Expedia Group.
The online travel agents received a boost in 2001 during the aftermath of 9/11, when demand was low and hotels were happy to release much of their inventory to these online channels. With more and more travelers booking online, and another downturn in 2008/09, the OTAs’ share in the channel mix continued to increase.
To combat this, major hotel chains started to launch consumer facing campaigns which promoted booking directly with hotels. From 2016 onwards, Hilton, Marriott, IHG, and Accor have all spent valuable marketing dollars on these campaigns, as well as re-establishing their loyalty programs, and offering discounts to their member bases. This push for more direct bookings has spread throughout the hotel industry and remains active today.
An analysis of channel distribution for U.S. hotels by Kalibri Labs shows that the direct booking campaigns certainly had an impact over the past years. A similar picture is painted by a new study from D-Edge, which focuses on Europe and Asia Pacific. D-Edge data runs up to September 2020 and shows that the pandemic has resulted in a major boost for brand.com bookings, which were already up over the past years. Based on anecdotal evidence, we expect that the 2020 growth in brand.com bookings in Europe and Asia will be mirrored in the U.S.
During Marriott’s fourth quarter 2019 earnings call, CEO Arne Sorenson commented that as much as 75 percent of all bookings for its franchised hotels came through direct channels, be it bookings made through its online website or app, rooms booked through its call centers, or group sales. Around 33 percent of total bookings were made through direct digital channels.
This is a very strong showing from Marriott, but not necessarily representative of the wider industry, as we have already alluded to above. These numbers are much higher than any independent or small chain can expect.
In the hotel industry, the distinction between branded and independent hotels is often made, and when it comes to distribution this is an important consideration to keep in mind. It not only impacts what the channel mix of individual hotels looks like, but also how entire regions consider and deal with different channels.
Data from STR shows that the North American market is by far the most branded in the world, whereas Europe is extremely fragmented.
One immediate impact the reliance on brand flags has is the proliferation of bookings made by loyalty members. Guests who are part of a hotel chain’s loyalty program tend to book more often, and they generally book direct.
This is a major factor in hotel chains pushing direct bookings in the first place, because a loyalty member will, over time, be cheaper than the 15-20 percent commission fees most hotels pay OTAs. The exhibit below shows how most chains are reliant on loyalty members for 40-50 percent of their bookings, with Accor slightly lower and Hilton higher at almost 65 percent.
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