At AAHOA, hoteliers learn how expensive it is to acquire customers

AAHOA's 2018 conference took place at the Gaylord Resort & Convention Center in National Harbor, Md. Photo credit: Marriott International

NATIONAL HARBOR, Md. — It’s no longer enough for hoteliers to set targets for revenue in 2018. Now they should be setting targets for the cost of sales. That’s the message Cindy Estis Green, CEO and co-founder of hotel revenue performance analyst Kalibri Labs, delivered this week at the Asian American Hotel Owners Association's 2018 annual conference, here at the Gaylord National Resort & Convention Center.

According to Estis Green, hotels earned roughly $155.2 billion in guest-paid revenue in 2017. But in order to make that money, hotels spent an estimated $25.2 billion to acquire guests, retaining a significantly lower $130 billion (a metric Kalibri Labs refers to as “net revenue”). Vast swaths of these expenses are impossible to avoid, but many are the product of online travel agency fees and other concerns, which, with a little bit of strategizing, can be mitigated.

One way hotels are managing this is by promoting direct bookings. In 2017, Estis Green said hotels pulled in 22.6 of their overall bookings from brand.com, while OTAs brought in only 13 percent. At first blush, this seems like a remarkably positive trend, but hotels’ revenue capture actually decreased from 2015 to 2016. In 2015, hotels’ revenue capture was recorded at 84.9 percent, but it fell to 84.1 percent the following year. These metrics, however, were recorded before the hotel industry began a concerted push to increase direct bookings.

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“The book-direct campaigns are big, and have been very effective at increasing brand business,” Estis Green said. “Brand business will always be better for your bottom lines, and the health of the industry.”

Estis Green anticipates revenue capture will decline again in 2018, although there may be hope. Kalibri Labs reported performance in brand.com sites is forecast to improve 5.4 percent in 2018, while voice-based bookings will decrease 3.8 percent. Also, property-direct bookings are forecast to be down 7.5 percent, while OTAs are expected to increase 8.1 percent and global distribution systems will be up a meager 0.6 percent.

Revenue capture is the revenue hotels retain after spending to acquire guests.

A Different Battle

While OTAs still have a heavy hand in the online booking marketplace, there may be a major shakeup coming this year. Teague Hunter, president of investment advisory firm Hunter Hotel Advisors, said Airbnb is actually not as much a concern as it may appear to be. In fact, Hunter argues that Airbnb is poised to become a major headache for the OTAs as it transitions into a hotel marketplace, which could be a good thing.

“Airbnb will ultimately be a competitor to the OTAs,” Hunter said. “The [Airbnb] app just added a ‘boutique’ section, and that means hotels. If we follow the trend line, soon branded hotels will be on the service and all of the sudden it’s another OTA. And this is OK, because Airbnb charges 3 [percent] to 5 percent commission rates, and the other OTAs are charging 15 percent.”

For the future, Hunter said the threat of rising interest rates and labor shortages are both greater concerns to hospitality than the success of Airbnb. In terms of trends for the year, he said that today is a seller's market, and hoteliers should be taking advantage of it.

"There is tons of capital out there, and it's chasing very few deals," Hunter said. "We are in our 96th month of consecutive [revenue-per-available-room] growth, and that means values are up. In hindsight, hoteliers should have been net sellers in 2014, net buyers in 2017 and today they should be back to selling."

Hunter also shared some praise for AAHOA, stating that nearly 50 percent of the current applications for development within Marriott’s portfolio is from AAHOA members, but cautioned against standing still as the markets continue to change. Specifically, he urges hoteliers to take advantage of current market conditions before they take a turn for the unpredictable.

“We sold three Home2 Suites properties in North Carolina recently. They were built for $120,000 a key and sold for $140,000 a key, all to institutional buyers,” Hunter said. “Why would they do a deal like that? These sellers are looking out five years from now wondering if there will be a downturn. And also, they are confident they can do deals like this again and again.”