Latest distribution channel analysis shows hotel demand is largely inelastic

30 Jan, 2012 By: Stephanie Ricca

This month the final results of the American Hotel & Lodging Assn. and STR special report on distribution channel analysis came out, analyzing the effects of channel mix on hotel profitability, and culled from a data set of more than 25,000 U.S. hotels representing 100 brands and more than 3 million guestrooms.

This complete report follows up the preliminary results, which the author companies started releasing over the summer.

The No. 1 takeaway, according to NewBrandAnalytics’ Mark Lomanno, one of the study authors, is that U.S. hotel demand is largely inelastic.

“This means that if demand is elastic, your modifications of your price cannot generate significant incremental demand,” Lomanno said. “You can’t create demand just by lowering price. With that, if you move your distribution around, from your brand.com site to an online travel agent, you’re shifting share.”

He said the study results show that U.S. properties share-shift in two major ways—from property to property or from time period to time period. “You’re not creating new guests that weren’t there before,” he said. “We found OTAs are very effective way for properties to do [share-shift].”

When it comes to channel cost, Lomanno said it’s no surprise OTA bookings are the most expensive. “If you combine the merchant model with the opaque [OTA] model, the average cost is about 25 percent,” he said.

All in all, Internet channels account for about 35-36 percent of total bookings. OTAs and brand.com bookings account for about 30 percent and the additional 5-6 percent come from GDS bookings, Lomanno said.

That will change drastically over the next few years, however.

“In three to five years, about 50 percent of all hotel rooms will be booked through the Internet,” he said.

Study co-author Cindy Estis Green of Kalibri Labs agreed, pointing out that the emerging channels of metasearch, social media and mobile computing will “pretty much alter the distribution landscape dramatically over the next few years.”

“Mobile devices will eclipse the use of desktop devices, and many travel buyers will access room booking through mobile devices,” she said. “Plus, travel-specific metasearch engines will change things. Sites like Google Hotel Finder and RoomKey.com are trying to make it easier for travel shoppers to make purchases. They alter costs and change the way bookings work.”

To that end, she said “at least 50 percent of the business will be touched by some third-party along the way—there will be costs incurred related to that all along the way.”

Still, she said, it’s not all doom and gloom as hoteliers face more integration with third-party booking sources. “With the threat of emerging channels, also comes opportunity, though with cost. Hotel companies will have access to consumers and will be able to collaborate with third parties in ways that brings business to them.”

The study's executive summary is available from study publisher the HSMAI Foundation. Complete results are available from AH&LA and STR.