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Expedia Group and Australia’s WebJet said this month they want to help hotel companies make more business-to-business sales. But a few private equity-backed companies, such as Hotelbeds and Fastpayhotels, spy an opportunity for independent travel tech players to take market share instead.
Here’s the backstory: Hoteliers seek to loosen the grip of online travel agency giants on distribution. Simultaneously, the pandemic-related revenue crunch is pushing hotel companies to automate many of their manual processes. The two trends are driving hotel owners to have higher expectations of their technology and connectivity partners for distributing their wholesale and business-to-business rates to offline travel agencies.
Hoteliers sent about $50 billion of rooms through bedbanks and other wholesale channels before the crisis. That’s a level that will likely rebound or grow after the pandemic eases.
Expedia Group Vice Chairman and CEO Peter Kern noted the opportunity during an earnings call earlier this month. Kern said his company had become a distribution point for a few chains.
“It gives us an opportunity to help them clean up the marketplace, where they might have a wholesale market that is perhaps being abused by some players and driving the wrong outcomes for them,” Kern said. “With our technology and with our approach, we can help clean that up for them.”
Expedia Group’s business-to-business segment for hotels is probably already the largest in the world. Its offerings include powering rewards programs on behalf of third-party resellers and affiliates, powering regional online travel agencies in places where Expedia Group doesn’t have a strong presence, and providing inventory to offline travel agents, such as those serving ethnic or niche communities.
The largest wholesale deal Expedia Group has recently publicized is an exclusive one with Marriott International announced in 2019.
Marriott hasn’t disclosed how significant its wholesale business is. Several Marriott franchisees may also be distributing rooms on their own via independent tech players in a way that’s “off the books” for the parent company.
Expedia Group also hasn’t traditionally extended credit to travel agencies. It has typically expected prompt transfers of consumer payment upon booking. Yet, the business-to-business space relies a lot on credit. Witness how it has taken leading business-to-business wholesaler Hotelbeds, and all of its similarly sized rivals, months to resolve credit claims among its supply chain resulting from the sudden mass travel cancellations in early 2020.
Expedia Group traditionally hasn’t awarded credit to travel agencies. If it sticks by the policy in most cases, that will reduce many travel agencies’ interest in accessing wholesale inventory through their channels. Many offline and ethnic travel agencies are operating on tight margins, especially during the recovery. A traditional or ethnic travel agency may have customers that pay on installment plans or put down a deposit first. These agencies typically can’t afford to finance the difference if Expedia Group or another player insists on upfront payment.
To be sure, some agencies will play along. The evidence comes from WebBeds, the Melbourne-based unit of travel agency Webjet. It handled about 4 percent of the pre-pandemic market. On February 16, Webjet managing director John Guscic told investors that his company saw steady volumes in its bedbank business despite not accepting so-called counterparty risk from agencies.
“We don’t participate in prebuying or blocking rooms or putting deposits,” Guscic told investors. “We have historically done it for less than $1 million worth of deposits. So it’s negligible. Our inventory portfolio is procured on the basis of best endeavors, guaranteed room, fixed-rate, and on the best endeavors that we will sell it. And then if we don’t, it gets returned to the hotel. So that hasn’t changed.”
The wholesale inventory WebBeds had secured from European hotels this year is similar in volume and pricing to what the unit has seen historically, Guscic said. (Demand is lower than pre-pandemic times, of course.)
Private Equity Bets
Spotting a market opportunity, private equity firms have been making a bet that there’s space for independent, tech-led providers instead. Hotelbeds, which accounted for about 13 percent of the pre-pandemic worldwide hotel wholesale market, is backed by Cinven, Canada Pension Plan Investment Board, and EQT. Hotelbeds said this month it offers inventory from 180,000 hotels worldwide.
Another private equity bet is Fastpayhotels. In 2019, Magenta Partners, a London-based private equity firm, took a majority stake in Fastpayhotels, a distributor for hotels and vacation rental inventory to travel agencies. This month, Fastpayhotels acquired the distribution contracts for all the hotels using North America Destinations, an agency based in Orlando. The company said its private equity backer is supporting it for future small acquisitions.
Mondee is another player, backed by TCW Group, an asset management firm, and Morgan Stanley Private Credit and Equity.
Hotels Need to Digitize Their B2B Game
A headwind for hotels looking to drive sales through the wholesale channel is their lack of digitization. Hoteliers do much of their business-to-business distribution with manual processes, with fax, email, and bank transfers quite common.
During the pandemic, consumers are favoring last-minute reservations due to the uncertainties of travel restrictions. The lack of real-time digital connectivity makes it difficult for hoteliers to provide last-minute inventory via the wholesale channel.
The revenue crunch is prompting some hotel groups to spend more on automating tasks as a labor-saving tactic. That trend may help boost the digitization of the business-to-business distribution sector coming out of the crisis.
“We hope in 2021 to achieve about $85 million worth of sales,” said Alex Gisbert, CEO of Fastpayhotels, which insists on real-time connectivity and direct access to hotel tech systems.
One X factor looming over the sector is whether Booking.com will dive in. The brand has experimented with wholesale rates. All online travel giants have a hurdle to overcome: Some hotel operators may perceive they are ultimately competing with them across segments and may prefer an independent tech partner. On the other hand, giants like Expedia Group and Booking.com have significant edges in the digital technology and connectivity that hotel partners need, plus close commercial contacts with those hoteliers already.