Joint AH&LA and STR report details effects of share-shift, pricing and online travel agent penetration on distribution channels
Las Vegas–In January 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 set of more than 25,000 U.S. hotels representing 100 brands and more than 3 million guestrooms.
This complete report, “Distribution Channel Analysis: A Guide for Hotels,” follows up the preliminary results, which the author companies started releasing over the summer. Two areas of the study hoteliers are most concerned with are room demand and distribution channel cost.
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].”
However, the study does indicate that as the OTA channel grows, it diverts business from other channels, namely, brand.com.
“This may occur because both are ‘fishing in the same pond’ and tapping many of the same channel-agnostic online shoppers,” according to the study, and “hotels should develop the tools to share-shift the business from all channels, not limit share-shifting just to the OTA channel” because diverting business from a competitor via lower-cost channels, like the GDS, has a softer impact on a property’s average daily rate.
The study does point out that any new incremental hotel demand hitting the U.S. market over the next few years will come from international travelers.
When it comes to channel cost, Lomanno said it is 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 half of all hotel rooms will be booked via 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, sites like Google Hotel Finder and RoomKey.com are trying to make it easier for travel shoppers.”
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.”
Still, she said, it’s not all doom and gloom. “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.”