FIGHTING THE OTAs

Across the world, it’s merger time for hotel chains. The big-ticket mergers and acquisitions since last year include Marriott’s buyout of Starwood, French brand Accor’s $2.7 billion purchase of Fairmont Raffles, Louvre Hotels acquiring Sarovar Hotels and Chinese conglomerate HNA acquiring Carlson Hotels. More mergers are in the works. InterContinental Hotels Group is looking out for another big hotel chain.

“This consolidation is not driven by the fact that we need to be in control of our own destiny. We need to have better negotiating power with OTAs,” says Ahluwalia. With consolidation, the hotel chains are scaling up their distribution network. Globally, there are 17.5 million guest rooms, but the number of branded hotel rooms is much smaller. A hotel company like Marriott with more than a million rooms is in a much stronger position to take on OTAs. “Marriott can now say that I will not buckle under pressure. You are an important cog in the wheel, but I will work with you on mutually-acceptable terms,” says Achin Khanna, Managing Director, Consulting & Valuation Practice, HVS South Asia.

OTAs affect hotels in multiple ways. For any hotel, the business comes from four channels: brand website, OTAs, travel and tour operators and walk-ins. The share

MOST BRANDED CHAINS DON’T ALLOW CUSTOMERS TO REDEEM LOYALTY POINTS THROUGH OTAs

of OTAs in a mature market like the US is as high as 50 per cent, whereas in India, it ranges between 10-20 per cent.

“OTAs have commoditised hotel brands. They give importance to price and location over brand name. Big hotel chains don’t like this approach,” says a leading home-grown mid-market hotelier who didn’t wish to be quoted. The cheapest way of customer acquisition for a hotel is brand website; OTA commission is 10-15 per cent of the room tariffs. OTAs are increasing their share in the hotels booking pie by giving discounts. Individual hotels such as Oberoi Hotels, Marriott and others have routinely warned OTAs to maintain price parity with brand’s website. OTAs, however, have found ways to get around these stipulations. For instance, OTAs give discounts on bundled products, which include airline tickets, hotel rooms and rented cars, to hoodwink hotels.

“The biggest motivation behind mergers is strengthening the distribution network,” says SAMHI’s Jakhanwala. Owners are complaining to hotel chains that they have to spend more on their distribution cost. “OTAs are good for customer acquisition, but brands are limiting their exposure to OTAs by offering unique experiences to customers so that the future bookings can be generated through brand’s website,” says Jakhanwala.

As a deterrent, most branded chains don’t allow customers to redeem loyalty points through OTAs. The retooling of loyalty programmes is aimed at driving more bookings via own channels. OTAs, in return, have launched their loyalty programmes that can be redeemed in all kinds of bookings – fights, hotels, buses, cabs, and railways. “The percentage of bookings through OTAs is increasing every year. They would be mistaken if they think customers will go to their websites directly. Only loyalty programme customers may do so,” says Sharat Dhall, COO (B2C), Yatra.

OTAs are good things to have but we cannot be over-dependent on them, asserts Ahluwalia. Marriott now expects to have greater control over inventory management and commissions. It hopes that Starwood buyout offers more flexibility, muscle power and an upper hand in negotiating lucrative terms with OTAs. “On days when I have more empty rooms available, I put them on OTAs, and when I don’t have any rooms available, I take them off OTAs,” says Ahluwalia.

Rajeev Menon, Chief Operating Officer, Asia Pacific (excluding Greater China), Marriott International, says that contracts with OTAs have 2-5 years tenure. “Some contracts many have an opportunity to renegotiate, but we cannot start renegotiating in the middle,” he says.