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Hotel CEOs are Quiet on Progress in Direct Bookings

by Ed Watkins, Contributing Editor |

Although it’s been the biggest story in hotel distribution in the past two years, many hotel companies CEOs are reluctant to publicly discuss progress they’re making — or not making — in persuading consumers to book rooms directly rather than through third-party platforms, such as online travel agencies.

During the recent round of calls with stock analysts to discuss second-quarter earnings, public-company leaders mostly danced around how well their book-direct campaigns are faring. They like to talk about increases in enrollments in their loyalty programs, but they didn’t explain how those enrollments have translated into additional direct bookings.

During his late July call with analysts, Hilton Worldwide Holdings CEO Chris Nassetta emphasized increases in enrollments in Hilton Honors but didn’t address directly how that growth has had an effect on direct bookings.

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According to Nassetta, through the second quarter 5.5 million consumers joined the program, up 20% year over the same period in 2016. Occupancy from Honors members increased nearly two percentage points from 2016 and what he called “member folio” rose 9% to $5 billion in the quarter, a record for the company. Presumably, these data points show increase in direct bookings, but the scope of the increase is unknown.

While Marriott International President and CEO Arne Sorenson didn’t discuss the topic at all during his analyst call, Mark Hoplamazian, president and CEO of Hyatt Hotels Corp., was a little more forthcoming. He said direct-booking business is up from the company’s My Hyatt program, but he, too, was vague on how much it has improved.

“We’ve had an increase in our member discount rate (business) over the course of this year, and we’ve progressively been growing that segment of the business,” he said, adding that half or more new and previously inactive members of the program have booked rooms more than once.

“A majority of our hotels using member discounts are continuing to have improved RevPAR indexes, so we believe it’s been constructive both in terms of engaging new customers, reengaging previously inactive customers within the world of Hyatt, but also yielding positive results for the hotels that have deployed the program.”

The only public company executive to offer any data was Michael Barnello, CEO and president of LaSalle Hotel Properties. He said properties the real estate investment trust owns have seen a 3% shift of bookings away from OTAs and toward direct reservations.

“That’s good, but if it was some huge number I might have gotten more excited about it,” Barnello said.

Not surprisingly, the calls covered a wide range of other hotel ownership and operational issues, including several related to distribution:

Cancellation policies. The brand company CEOs were happy to discuss their recently enacted changes to cancellation policies. According to Nassetta, Hilton is already looking at further changes to its policy, which now mostly requires guests to cancel within 48 hours of arrival to avoid penalty.

He said the company is considering “creating fully flexible pricing structures and semi-flexible pricing structures that would potentially require cancellation within seven days.

“If you can create the right incentive system in which you give (guests) an incentive to cancel earlier, it’s good for them because they ultimately probably can get a little bit better deal,” he said. “And it’s much better for us because we can manage that close-in inventory more intelligently to make sure we both price it right but more importantly, we fill as much as we can and don’t leave rooms unoccupied.”

Thomas Baltimore, chairman and CEO of Park Hotels & Resorts, heartedly welcomed the brands’ new directions in cancellation hurdles. He said on average 30% to 40% of reservations at the company’s properties in New York City end up cancelling, often within the last seven days before arrival.

“That has impacted rate, and it has certainly impacted corresponding profitability,” he said, calling the brand company changes “the first step in what will be a longer journey to figure out some way to provide flexibility for those travelers who want it. At the same time, whether it’s through change fees or advanced purchases, we’ve got to figure out some way so we get better control over our inventory.”

Rate stagnation. Several CEOs expressed their opinions on why the industry has, despite record occupancies, had difficulties to pushing average rates. The reasons ranged from uncertainty in the general economy, to increased rate transparency, to pressure from OTAs and shared economy platforms such as Airbnb.

Sorenson said since the company achieved 80%-plus systemwide occupancy in North America for the quarter, “you would expect a little more pricing movement.

“You’ve got relatively more strength in leisure, which is more price-sensitive than corporate business, and it is a market with radical transparency in pricing. That may have some impact on our ability to move rates in this cycle compared to prior cycles,” he said.

Nassetta of Hilton believes the sluggish U.S. economy, as well as the political environment, is putting a brake on some travel.

”People are sort of cautiously optimistic in the sense that they see the economy as continuing to show decent resiliency, and some positive growth,” Nassetta said. “But I think everybody would like to see a little bit more clarity on public policy on some of the things they care about the most to unleash a little bit more optimism in hiring, spending and consequently demand for hotel room nights.”

Reliance on OTAs. One of the most intriguing discussions during the analysts calls came from Gerardo Lopez, president and CEO of Extended Stay America, who gave a full-throated endorsement of the power of the OTA distribution channel.

During his call with analysts, Lopez attributed a measure of the chain’s success in the leisure market to its reliance on OTAs. He said reservations from OTAs represent a little more than 20% of the company’s overall bookings, with business from this channel growing at double-digit rates for three years.

And while individual properties generate the chain’s core extended-stay business of 30 nights and longer, they rely on OTA channels primarily for two- and three-night stays that typically book at the last minute.

“Our marketing budgets are not of the size that allow us to do major broadcast television advertising,” Lopez said. “A significant number of our OTA guests are first timers. So what we pay in commissions to the OTAs is not just the commission rate … but we think of it as part of our marketing budget, and that has worked really well for us.”

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor

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Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.