Hyatt Hotels Corporation’s controversial threat to call it quits with Expedia if terms aren’t met will leave many Hyatt owners holding the bag. The brand’s current contract with Expedia ends July 31 and between now and then, third-party Hyatt owners watch and wait. For many, much of their transient and international business hangs in the balance. Hyatt touts a potential end to its relationship with Expedia as a commission cost savings to owners, but one anonymous owner told HOTEL MANAGEMENT that Hyatt’s franchise community is fired up over the strategy that the brand has used to justify a mandatory 7-percent fee increase for full-service locations in North America and global select-service hotels.
With an existing portfolio of several Hyatt locations, the hotel franchisee said fee increases will be a major deterrent in partnering with Hyatt going forward, adding “They will be hard pressed to find other investors who want to partner with them when there’s a deterioration in distribution and an escalation in costs.”
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Like this owner of several Hyatt locations in North America, others in the brand’s franchise community hold similar sentiments. But this isn’t merely a splenetic attack on the fee hike. It is also a measured response to the brand’s inability to create a forward-thinking strategy that recognizes and leverages the tools Expedia brings to the table. Hyatt and most other major hotel brands lack any real technological capabilities, are comparatively data deficient and their loyalty programs can’t be mined for consumers’ travel planning and purchasing habits.
Moreover, there should be no confusion between a hotel company’s worldwide brand recognition and Expedia’s captive, global audience of brand-indifferent, transient travelers who this owner said can account for as much as 7 percent to 8 percent of Hyatt’s total revenues. Given those attributes, the Hyatt franchisee shared concerns over how the brand could realistically outcompete Expedia: “When Hyatt’s weakest attribute is transient business—both leisure and corporate—and they decide to divorce an engine like this, it will have severe consequences.”
The Costs Just Keep on Coming
Hotel organizations cannot reasonably vie with online travel agencies for revenue and relevancy when the technology deck is stacked against their asset-focused business model. The lodging industry has neither the know-how nor the resources to attract Silicon Valley tech talent and franchisees won’t subsidize attempts. Nor is endeavoring to replace potentially lost volume through World of Hyatt feasible, largely because it lacks the scale of its competitors’ loyalty programs, a point which the owner said has always been a stumbling block for investors. To grow and maintain a robust membership is to offer constant incentives such as complimentary breakfast and Wi-Fi—at the expense of property owners. Plus, in the event of Expedia’s contract being terminated, Hyatt has already informed franchisees of an expected drop in occupancy and thus, lower reimbursements on reward bookings.
While Hyatt and other brands have long used industry conference panels as platforms to inculcate OTAs for their commission structures, hotel chains also leverage their own fees on bookings generated by these distributions channels. The approach may help to drive fee revenues for the brand, but for their franchisees, it’s little more than paying lip service while effectively levying a tax on owners for the exposure the brand receives on the OTA. Instead, the franchisee told HOTEL MANAGEMENT that “Hyatt is missing an opportunity and following in the footsteps of larger companies that have less to lose.” A more solution-oriented answer would be for hotel companies to recognize their core strengths and outsource limitations such as technology and data-related needs through a strategic partnership. The franchisee suggested Hyatt join forces with Expedia to create customer value propositions, using the OTA’s data and technology.
Hyatt Speaks –And The Hotelier Responds
An Expedia spokesperson told HOTEL MANAGEMENT that the company does not comment on current contract negotiations, but Hyatt emailed us a statement in response to an interview request, stating:
“Our focus remains on growing the value proposition for booking directly with Hyatt so we can build strong relationships with our guests, as well as working with third-party distributers in line with our efforts to improve hotel profitability.”
After working with Hyatt for more than a decade, this franchisee called the statement hypocritical: “if they’re so concerned about my bottom line, why are they raising my rates?” The other issue discussed was that of owning the customer: “Hyatt has had 60 years to get close to customers and the only loyalty they have is bought with free breakfasts,” adding no one owns the customer. Airbnb’s success is not the result of loyalty programs or brand promises; the experience takes precedent over assurances of a signature mattress.
Airbnb CMO Jonathan Mildenhall believes customer loyalty is fueled by an emotional connection. pic.twitter.com/NI1gkXbPGn— Fizzy Inc. (@fizzymedia) April 23, 2017
Noting “the franchise community needs to make debt payments, relying on the performance of its assets to do that,” the long-time member of Hyatt’s ownership community said a continued relationship between the brand and Expedia is a means that will allow franchisees to continue meeting their financials obligations. However, STR reported in January that the independent segment is projected to report the largest increases in average daily rate (+3.0%) and revenue per available room (+2.7%) in 2017 and 2018 while CBRE Hotels reported in March that independent hotels and economy brands “are the primary drivers of the industry’s recent strong performance.”
Faced with higher fees and the threat of diminished volume, these reports are siren songs for dissatisfied Hyatt owners willing to trade in the cost of a brand flag and its requisite standards for their own individual contracts with Expedia. The OTA offers a level playing field for independent hotels to compete with brands, which HM's source designated as an assurance of maintaining equal financial results or at least neutral costs.
“At the end of the day, owners are very sensitive to returns because the lending market is really paying attention to the margins,” said the hotel owner. “When squeezed out of profit, owners need to make a choice between staying with the brand or going independent and staying with Expedia—and the headwinds are in favor of the independent route.”