IHIF: Why OTAs are the 'frenemy' of the hotel industry

(IHIF 2017)

BERLIN, Germany — As promised, the second day of the International Hotel Investment Forum in Berlin examined various business models at work across the industry, with CEOs and industry insiders sharing their insights on OTAs, new demands and how hotels are thriving in a rapidly changing world.

Kerry Gumas, president and CEO of Questex, started the day by announcing that he was donating $30,000 to the Ecole Hôtelière de Lausanne. The check was presented to Remi Walbaum, chief innovation and valorization officer at the Ecole Hôtelière de Lausanne.

The Benefits of Going Asset-Light

Gumas then introduced Sébastien Bazin, chairman and CEO, AccorHotels, to talk about the hotel group’s next models. “AccorHotels has never, ever been stronger,” Bazin said, and announced that the business would be adopting an asset-light structure going forward. He was quick to point out Airbnb, Booking.com, Expedia and similar online services as companies that the hotel industry needs to watch. “They are very good and what they are doing is legitimate,” he said. “Every time they grow, they take something away from me. They also bring me something: They bring me traffic.”

Bazin said that, historically, AccorHotels has been asset-heavy and labor-intensive. While he said that he is proud of AccorHotels’ 240,000 employees across 95 countries and their commitment to the brand, he noted that none of the successful digital players are as asset-heavy or labor-intensive as AccorHotels has been. Therefore, the new goal for AccorHotels is to have the same level of interaction with their guests as the digital brands do—typically, three or four times a day. 

“Whatever we do, we need to be customer-centric,” Bazin said. “Stop looking at yourselves and look at your clients. Stop imposing your brand, your promise, your intent. Listen to what they want and react.”

Hotels, Bazin said, are still a viable business, but are unlikely to grow more than 10 percent per year. He compared this to the 10-, 15-, 20- and 40-percent rates of growth that Expedia, Booking.com, Uber and other digital brands are experiencing. 

“We need to tap into what they do; we need to adapt,” Bazin said. “AccorHotels [has] never been stronger in development. They have one new hotel opening every 36 hours, around the world.”

The Evolution of the OTAs

The next session focused on OTAs, with David Scowsill, president and CEO of the World Travel & Tourism Council, interviewing Dara Khosrowshahi, CEO of The Expedia Group. Scowsill asked Khosrowshahi about the level of commission currently charged by Expedia and the other OTAs, and Khosrowshahi said Expedia has been “bringing commissions down over a long period of time, and we now need to pass these savings onto customers, shareholders and partners.” 

He highlighted the trend of de-bundling and gave airlines as an example of how a service can charge for each element: seat, food, luggage, etc. This, he said, is the way the hotel operators should steer their businesses. He also pointed out that the internet was mainly responsible for dividing pricing into components and creating the popular bundle pricing models prevalent throughout the market today.

Asked about Google and that company’s moves into the tourism space, Khosrowshahi said that Google is “a marketing platform and a very important strategic partner for us,” but declined to comment any further. 

“The market is consolidating; the amount of technology you need to invest is this business is getting higher and higher,” Khosrowshahi said. He also pointed to alternative lodging as a growing part of hospitality going forward, and cited the 2015 purchase of HomeAway by Expedia for $3.9 million as an example. Khosrowshahi said the industry is at the start of a new wave of travel growth, and the alternative lodging sector is “currently where eBay was five years ago.” However, by combining technology with distribution, he sees a real opportunity for brands and owners to succeed in this space, referring to Airbnb as “both a threat and an opportunity” to hotels.

Scowsill and Khosrowshahi both agreed that China is on track to dominate the future of travel, with Expedia focused heavily on the outbound Chinese travel market. When asked about President Trump and his infamous travel bans, Khosrowshahi said that “the fact that the ban is not based on fact is what worries me the most,” and concluded by emphasizing that “travel is a force for good and brings people together.”

Re-thinking Strategies for Maximum Opportunities

The next session was “Re-thinking Strategies for Maximum Opportunities,” hosted by Marc Finney, head of hotels & resorts at Colliers International UK in conversation with John Brennan, CEO, Amaris Hospitality; Jean-Philippe Chomette, founder and CEO, Algonquin; Andreas Löcher, head of division investment management hotel, Union Investment Real Estate; and Camil Yazbeck, partner, investment director – hospitality, Patron Capital Advisers

“We look at hotels where there is opportunity for a growth model, like the Generator Hostel model,” Yazbeck said. “We liked the model, bought it and improved it,” stating that Patron generally only holds assets for three to five years and do all of their asset management in-house.
Finney asked the panel for their thoughts on OTAs, with Brennan calling the online businesses a  “frenemy,” saying that the industry needs to “optimize the performance of the brands and assets in the context of OTAs.” 

“OTAs are part of life now and we have learned how to live with them,” Chomette said, noting that before OTAs, the industry had tour operators who were taking 15-20 percent commission from bookings.

Raj Chandnani, VP of strategy, WATG, Wimberly Interiors, weighed in on the subject of design and staying ahead of the curve in a fast-moving world. From his perspective, in order to succeed in the near future it is vital to understand:

  • Who is the customer?
  • Why are they coming?
  • What are they willing to pay for?
  • Where are they coming from?

Chandnani also mentioned the first “Instagram hotel” in Sydney, Australia, as a new model of experiential accommodation, warning that “cookie-cutter design solutions are no longer acceptable.” Consumers, he said, want “bespoke design that truly differentiates,” and emphasized that “design elements need to be intuitive.” The industry, he said, needs to “reconnect hospitality with humanity.”

The Young Leader

The next session was the presentation of the IHIF Young Leader Award to Eva Bachmann, director of acquisitions and strategy at MEININGER Hotels. David Neff, chairman of The International Society of Hospitality Consultants (ISHC) presented the award. In her acceptance speech, Eva said she was “privileged to be recognized for my contributions to an industry which I am truly passionate about.”

CEOs Debate

The final plenary session of the day was the CEO Debate: “Striving in a Changing Market.” The panel was moderated by Russell Kett, chairman, HVS London Office, in discussion with Puneet Chhatwal, CEO, Deutsche Hospitality; David Kong, president & CEO, Best Western Hotels & Resorts; Stefan Leser, group CEO, Jumeirah Group; Simon Naudi, CEO, Corinthia Hotels; and Pierre-Frédéric Roulot, CEO, Louvre Hotels Group, and CEO of Jin Jiang Europe

Kett asked the panel about the effects of the Brexit, and how volatility across Europe has made an impression on local business. “It is important to focus on the brand-building of your business in times like this,” Kong said. “Focus on what you can control and influence.” 

Leser said that Jumeirah’s development plans for the future included “investing heavily in our products to keep the assets current,” and that Jumeirah would be developing further in China. 

Naudi’s goals for this year for Corinthia involve “continuing to put a focus on quality, not forgetting we are hoteliers and we need to give good service to our customers.” Meanwhile, Roulot will be investing in the growing market across Asia while working on building customer loyalty for the brand.

Kong wants to establish the best loyalty program in the industry for Best Western, calling it “our best defense against the OTAs.” In 20 years, he expects that “hotel loyalty programs will [still] be as relevant as they are today.”

Naudi said that Corinthia joined the Global Hotel Alliance, which comprises roughly 600 hotels. Naudi called it a good solution for Corinthia, saying the partnership benefits the company as “we share technology and cross-reference, but maintain our own identity.”

The panel was asked how the brands differentiate from one another. Naudi said that because Corinthia, as a company, owns, invests and develops its hotels, “they look at the industry differently,” and select employees who can think on all three levels. Roulot cautioned that “sometimes when you are big, you destroy the value of a business,” and Chhatwal encouraged the gathered hoteliers to “stay true to your DNA.”

Looking at how best to innovate, Naudi said that Corinthia was currently recruiting for a newly created role of “director of innovation,” and also mentioned the success of moving the florist at their London hotel, traditionally located in the basement, to the foyer. Leser said the environment in Dubai was generally conducive to innovation, but said he faced the challenge of how to remove the hierarchy traditionally found in hotel companies that would lead to empowerment of staff, thus enabling innovation. Kong echoed this when he asked how to “evolve the culture” of a company to encourage innovation. “Many companies have great ideas, but the culture needs to enable the innovation,” he said.

At the end of the session, Kett asked his panel about F&B in hotels and how to drive revenue through it. The responses from the panel were mixed: Kong said it was “very difficult, particularly in the U.S., due to the high level of good competition,” whereas Chhatwal said, “I see F&B as the biggest upside for us.” Roulot concluded by saying that “a restaurant is an opportunity to differentiate the hotel.”

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