Researcher on hotel booking trends: ‘Billboard effect’ is dead

Researcher on hotel booking trends: ‘Billboard effect’ is dead

NEW YORK — The number of prospective hotel guests who switch over to book on hoteliers’ websites after shopping for rooms on OTAs will continue to fall, leading to higher hotel distribution costs and a greater potential for incomplete bookings from scamming websites, researcher Cindy Estis Green predicted.

Addressing attendees of the Hotel Experience trade show at the Javits Center here earlier this month, Estis Green, CEO of the hotel consulting firm Kalibri Labs, described findings from the Distribution Channel Analysis Report that she co-authored and is to be released in early 2016.

The so-called “billboard effect,” a term OTAs use to describe their ability to provide free exposure to hotels and hotel brands to consumers who then make their booking at the hotel’s website, is on the decline, the researchers found.

“Consumers stay on the OTA sites,” Estis Green said. “The incidence of consumers going back to the brand site has diminished dramatically. The billboard effect is dead.”

The subject has become more topical as online spending for hotel bookings in the U.S. continues a steady increase while the OTA sector consolidates.

Between 2012 and 2016, annual online hotel bookings will have advanced 55%, to $58.1 billion, according to a study Phocuswright released last year. By comparison, the total U.S. online travel market will have expanded 37% during the same period.

Meanwhile, the OTA sector has consolidated in recent years as Expedia and the Priceline Group have snapped up smaller competitors, leading hotel lobbyists to decry mergers that they say will result in less competition, declining service and higher distribution costs. With Expedia acquiring both Orbitz Worldwide and Travelocity this year, Expedia and Priceline account for about 95% of all spending by Americans on OTAs.

In the meantime, those fewer OTAs continue to take a larger chunk of total hotel bookings. Next year, OTAs will account for 48% of U.S. online hotel bookings, up from 46% in 2012, according to Phocuswright. That represents an annual  swing of about $1.1 billion in bookings toward the OTAs.

Estis Green said that the continuing dominance and growing sales by OTAs would mean “a loss of control of content by hotels, third-party domination of sales and rising distribution costs that put pressure on hotels that should be spending the money on improving their product.”

Granted, hoteliers, especially the larger ones, have been able to absorb these costs as both occupancy and room rates approach prerecession highs.

Last year, U.S. hoteliers’ revenue per available room (RevPAR) advanced 8.3% from a year earlier, primarily as a result of room rate increases, which tend to boost earnings faster than occupancy-rate increases, according to STR. Through September, U.S. RevPAR was up another 6.7% this year.

Once demand growth flattens, though, OTA distribution costs, which can total between 15% and 25% of the room revenue collected (in the form of the wholesale prices hotels charge OTAs to secure the rooms), can substantially reduce earnings, said Kalibri Labs partner Mark Lomanno.

“We are now in a strong environment, so hotels are not paying enough attention, but when times are not as good, these costs will be more noticeable,” Lomanno said at the trade show. He added that independent hotels and smaller brands pay as much as five times more in distribution expenses as a percentage of sales than larger hoteliers do.

Estis Green also said the 2016 report would offer data on the emerging explosion of apps that serve as “intermediaries” between the hotel and the consumer relating to every aspect of a hotel stay: the booking, check-in, on-property requests and other services. However, she said last week that it was too early to discuss that research.