Middle man’s not dead yet

From Left to Right: Mark Flower, Director of commercial, South-east Asia InterContinental Hotels Group,Budi Tirtawisata, CEO, Panorama Group and David Shackleton, COO, Dusit International

Despite the hype about hotels going direct, the general sentiment is that travel intermediaries are alive and kicking.

In fact, at the recent Travel Distribution World Asia in Singapore, several hotel chains reported that the majority of their business continued to be derived from wholesalers.

For Centara Hotels & Resorts, 80 per cent of volume is wholesale-based, said its director of online distribution, Phensiri Charoensuk.

She explained: “The key factor is the number of rooms we have. A lot of our properties have over 300, 400 or 500 rooms…We cannot drive  away wholesale because a lot of the business is not just FIT, but series and charters.”

Resort properties also continue to require support from traditional channels.

“Tour operators and wholesalers have the worst margin for us, but we still need them,” said Minor Hotel Group senior vice president, commercial operations, Michael Marshall, adding that some 50-60 per cent of his company’s business comes from this group.

Citing the Maldives as an example, he said: “At the luxury end, you often need travel consultants or someone to explain to you which island or which location to go…Often they are providing the full service, such as transfers, as well.”

This view was echoed by Panorama Group’s CEO, Budi Tirtawisata, who noted that in resort locations like Bali, some 30-40 per cent of inventory was still being filled by DMCs.

“Yes (hotels) are getting less (revenue), but there is volume and guaranteed rooms…They need their kitchens to be cooking,” he said.

Electronic, but still indirect
While such a conventional model of distribution doesn’t necessarily appeal to mammoth chains the size of Accor or InterContinental Hotels Group (IHG) which have the financial muscle to invest in and promote direct channels, sales through GDSs and direct connects with OTAs and wholesalers are still proving lucrative.

IHG director of commercial, South-east Asia, Mark Flower,  observed that his GDS figures for last year had risen, hardly surprising given that some of his hotels such as InterContinental Asiana Saigon, continued to rely a great deal on the corporate market.

“There are a lot more opportunities in that market to do business. Whether it’s Vietnam or Indonesia, (GDS traffic) is growing. It’s not slowing down,” he pointed out.

Flower further conceded that while some outbound markets in the region like Singapore, Hong Kong and Australia were strong in online direct bookings, there were still traditional markets like Japan and Germany which preferred using brochures.

Also attesting to the importance of the GDS was Dorsett Hospitality International’s senior vice president of sales and marketing, Philip Schaetz.

Having rebranded from Kosmopolito Hotels International last year, he shared that the company decided to turn on the GDS tap for its hotels, which resulted in incremental business from markets around the world previously overlooked.

“Before, the GDS was completely ignored by the independent hotels. They didn’t know what it was…and we couldn’t possibly fly the sales teams to North America or Europe to turn on the markets there.”

Direct connects, which allow hotels to offer dynamic pricing and inventory, instead of giving out contracted wholesale rates that tend to be lower, have also received growing attention of late.

Flower revealed that IHG was currently in a pilot phase for around 10 direct connects worldwide, one of them being with Chinese OTA, Ctrip.

He said: “OTAs are far stronger in resorts than in city properties because you don’t have corporates. It’s a different mix.”

“Tour operators and wholesalers have the worst margin for us, but we still need them.” – Michael Marshall, 
Senior vice president, Commercial operations, Minor Hotel Group

Minor’s Marshall added that his chain was in the midst of establishing direct connect with Kuoni’s GTA.

“Direct connect has been around awhile, but now it’s spreading beyond the big chains. We have to have certain technology on our end to make it happen too.” In 2012, Minor relooked its back end by launching a new booking engine and upgrading its website.

Asked how he saw wholesalers and tour operators evolving, Marshall predicted that rooms would pass through a fewer  number of hands, with a certain degree of consolidation taking place.

With wholesalers starting to dabble in retail as well, he suggested that hotels set aside different kinds of inventory for their partners accordingly: traditional-style allotment at lower prices to be sold B2B and rooms at much higher rates made available via direct connect that can be sold B2C.

“A (wholesaler) like GTA, which has a lot of penetration in different markets and a lot of demand, would stop selling you if it has already sold the five rooms you alloted them, unless you are proactive in giving them more rooms. But if it has the other (more expensive) option, it can still book,” said Marshall.

Conflict of interest
However, some practices by wholesalers are sending hoteliers running in the other direction.

Centara’s Phensiri said: “Wholesalers are already online savvy. There are those that have evolved to become OTAs by putting all their tariffs online on their own branded sites. That’s a big threat to hotels.”

She highlighted that after obtaining a net rate and marking up, the final selling rate by wholesalers still undercut the hotel’s own prices.

“Some of them are selling online with their booking engine…They cannot be more appealing on their own websites. That’s why I’m not working with (some of them),” added Phensiri.

Hotels go for the jugular
That being said, it is no secret that while the role of middle men is still crucial, hotels remain committed to building up their arsenal of direct channels.

One regional director of sales and distribution told TTG Asia that since owners were acutely aware of the overall cost of distribution, they were pressuring management companies towards more direct sales.

“In certain markets like Singapore and Hong Kong where there’s enough demand, today we’re in a position to disconnect some agreements with OTAs. The client will be able to find our hotel either through a lower-cost OTA or direct channels,” said the director.

IHG’s Flower similarly expects Singapore’s first Holiday Inn Express opening in the second half of the year along Orchard Road to have 100 per cent direct distribution.

As well, smaller groups like Dusit International are stepping up their game on the direct front.

Turned off by the rising levels of commissions to OTAs, Dusit International COO, David Shackleton, said: “Based on my experience, larger hotel companies I’ve worked with are (also) desperately trying to move away from OTAs and move business onto their own websites and applications.”

Dusit is currently redesigning its website as well as mobile and tablet offerings, the first time after some four years.

Less than 10 per cent of the company’s sales now comes directly from the website, a figure Shackleton is hoping to push to double digits.

“(OTAs) are a great partner. They give you much wider distribution, but you need to manage them and you need to drive your own website,” said Minor’s Marshall, adding that his company chalked up an additional US$1.5 million from web bookings last year following the revamp of its website and the launch of its new booking engine.

He said while hotels paid around 10 per cent of commission to OTAs back in 2009, this figure could be as high as 27 per cent now.

Unfazed by the competition
But technological advances made by hotels do not scare OTAs like HotelTravel.com, whose chief information officer, Olivier Dombey, said: “Although (hotels) can aim for 100 per cent direct, it is never advisable because in any business, you’ve got to spread your risk. If you have a boutique hotel with a limited number of rooms, it’s possible. But for the vast majority of hotels to have such a strategy, it’s probably costly and damaging.”

Tran Trong Kien, CEO, Thien Minh Group, which has business interest in hotels, tour operating and an OTA, agreed. “I doubt (that OTAs will disappear)…OTAs invest energy in promoting properties and handling payment for hotels, so the value is there. New hotels can compete on the same platform as older hotels, and they can sell rooms without building websites. Without OTAs, hotels will also have no real reviews.” – Additional reporting by Hannah Koh

This article was first published in TTG Asia, February 22 – March 7, 2013 issue, on page 10-11. To read more, please view our digital edition or click here to subscribe.

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