Well, it looks like hotels are going to stage a similar comeback as the economy improves.
I reached out to Douglas Quinby, Senior Director, Research, at PhoCusWright yesterday to find out a bit more about the supplier/online travel agent dynamic in the hotel space.
Quinby wrote to me by email, “The interesting thing about this shift away from branded hotel websites to OTAs over the course of the recession – and this has happened with airline sites too – is not that hotel brands are not important, but that those travelers who care most about hotel brands, the frequent leisure and business travelers and true brand loyalists, were the ones that pulled back the most.”Essentially, hotels’ best customers started to stray, as cost became increasingly important given prevailing economic conditions. It isn’t surprising, of course: when you have fewer dollars, each comes with greater gravity.
Quinby continued, “When money is tight, price becomes more important, and the OTAs have deftly outflanked the recession by focusing on that infrequent leisure travel and what they care about most: deals!”
As business travelers come back into the market, it seems, the share of total travel spending going to the suppliers will again increase, as corporate travel budgets get a little looser and those making the buying decisions get a bit more freedom again. Quinby notes that this goes for frequent leisure travelers as well, with both categories leading to “improving performance in supplier websites.”
There’s no doubt that online travel agencies will need to increase their brand investments to compete effectively with hotel suppliers in 2011. Let the games begin!
So, how do you book hotels: with a branded hotel website or an online travel agent? Leave a comment to let us know!
Hotels were doing a great job of selling online before the recession hit. But, thanks to a healthy dose of innovation and greed, the global economy has been in rough shape, forcing those still traveling to hunt for deeper discounts and bigger deals. Unsurprisingly, this led to relatively strong market conditions for the online travel agent sector, particularly in the hotel space. For the hotel companies themselves, however, it’s been a bit rough.
The economic downturn has erased prerecession gains for hotel branded websites, as market pressures increase reliance on online travel agencies (OTAs). With occupancy still below 2007 levels and sluggish ADR [average daily rate] growth, OTAs will grow at twice the rate of hotel websites in 2010.
This follows proactive measures by hotels to improve their websites, with noticeable improvements leading to a 59 percent share of the online channel, according to PhoCusWright. Now, the suppliers are looking at a drop in share to 54 percent for 2010, with “similar growth patterns in 2011 and 2012 as hotels gain more control over OTA inventory.”
The battle of the brands, involving travel agents and their suppliers, is being engaged in the hospitality industry as well as the airline sector, it seems.
So, where do you think you’ll find your next hotel deal? Take the poll below to let us know!
Is it really getting more expensive to fly? Earlier this week, the Department of Transportation revealed that ticket prices were up 13.1 percent year over year for the second quarter of 2010, a stunning increase – though tempered by the fact that fares actually fell 13 percent year over year from the second quarter of 2008 to the second quarter of 2009. If nothing else, this does raise concerns about whether we won’t have access to cheap tickets for a while.
With some strength coming back to the travel market, it’s easy to speculate that rates will continue to rise, especially if business travelers come back into airports in force. And when you look at the history of airfares over the past decade and a half, it’s easy to see why. Despite grumblings in the industry that flying is getting cheaper, average fares have climbed 14.8 percent cumulatively from 1995 to 2010, with 2010’s average domestic fare of $341 approaching the 2008 peak for this period of $346.
But, there’s a silver lining. There’s still enough market inefficiency to make deals possible, and the rising strength of intermediaries (i.e., online travel agencies) means that you should be able to score some great fares next year. As the battle for brand recognition as a way to access consumer wallets heats up, look for competition to put some pressure on the economic drivers that push fares higher.
I’ve heard from Bill Miller, Sr. VP of Strategic Partnerships at CheapOair that average ticket price (base fare only) fell 0.3 percent year over year for domestic flights and climbed 0.2 percent year over year for international flights. Effectively, this translates to no change while the underlying carriers are pushing fares higher.
Miller tells me, “At CheapoAir we work hard to keep airfare prices low for our customers. Year-over-year, airline ticket prices that customers buy from us have actually decreased very slightly. And, our international airfare prices have gone up very slightly. We will continue to focus on finding low airfares for our customers as that is what is important to them.”
So, while fares are still at close to their highest levels since 1995, it doesn’t mean there’s reason to give up hope. Combine the fact that you can still find bargains with the increase in purchasing power that accompanies an economic recovery, and you’re in better shape than you think.
If you’ve ever been a road warrior, you know that the following is true. Spending hours upon hours on a plane several times a week, every week of the year, even the smallest benefits can make a profound difference. It’s sad but true that happiness is measured in on-time arrivals and exit rows, but such is the nature of frequent business travel.
According to the latest Orbitz for Business / Busienss Traveler Magazine Quarterly Trend Report, what business travelers want is changing. During the recession, cost was paramount, as cash-strapped businesses put pressure on employees to keep expenses under control in a bid to protect profit margins. Now that economic conditions are changing, travel priorities are too.
Ancillary services are gaining importance, as passengers are looking for ways to be comfortable again, especially if looser travel budgets are resulting in more time on the road. According to IATA, the airline industry is likely to pull in an aggregate $8.9 billion in profits from ancillary services this year, indicating that the money is likely to come from somewhere.
Let’s take a look at the five things the white collar travel folks are beginning to crave:1. A seat in the aisle: this isn’t surprising; everyone wants the chance to stretch out, even if it means the risk of getting slammed by the beverage cart.
2. Priority access at the security line and early boarding: hey, nobody wants to wait, right?
3. Airline lounge or club access: if you’re going to be stuck in an airport, you might as well enjoy it.
4. A seat at the front of the plane: boarding isn’t the only priority – business travelers want to get off quickly, too.
5. Extra leg room in coach: sense a theme here?
Like the opportunity to keep one’s dignity while flying, baggage check didn’t make the top five. Though among the most used ancillary services for leisure travelers, it came in sixth for business travelers, likely because frequent fliers have learned to avoid checking their bags at all costs. Interestingly, the least-used ancillary services are priority standby for an alternative flight and internet access, though I expect the latter to increase as it becomes more widely available.
Online travel agencies have had a solid run over the past two years. They picked up some market share as would-be travelers were willing to poke around a little more to score cheap tickets. High rates of unemployment and under-employment and general economic uncertainty, of course, were enough to make consumers value every dollar a little more. This opened an opportunity for online travel agencies to advance in the marketplace, and chip away at the dominance of their suppliers (i.e., the airlines) on the web.
Yet, the market is turning. Next year is expected to be a strong one for the air travel industry relative to 2010, and 2010 was a vast improvement over 2009. For online travel agencies, this provides some benefit as a rising tide, but it’s likely to favor their suppliers, as customers are more likely to go with what they know over putting in some effort to find the largest discounts.
Online travel agencies will have to overcome this tendency by investing smartly and substantially in their own brands. This is what we’re seeing in the latest move by CheapOair, the one of the 10 largest online travel agencies in the sector, in its recent announcement of a marketing mix change, which teases a broader strategic shift given changing market conditions.
A Changing Travel Market
From 2008 to 2010, online travel agencies were able to chip away at the online market share of their suppliers, reducing the suppliers from owning 62 percent of the online business in 2008 to 59 percent in 2010, according to travel industry research firm PhoCusWright. Bargain hunters drove the market, which eroded the importance of brand loyalty.
From 2009 to 2010, PhoCusWright notes a “strong countercyclical performance for the OTA category.” In 2009, sales fell only 1 percent for the sector, compared to 5 percent for the total online leisure/unmanaged business travel market. And, online travel agencies have posted double-digit gains in 2010.
Stronger industry conditions, however, are better for the suppliers, and PhoCusWright observes, “With the rebound continuing, supplier websites will likely regain momentum as the OTA fight to hold on to their share gains.”
In regards to the actual travel experience, ostensibly, the airline’s brand matters most. When a passenger books through an online travel agency, the brand associated with the transaction lasts for a few minutes – or a few hours, depending on the diligence of the buyer’s search. Meanwhile, interaction with the airline’s brand starts during the search for a ticket, persists through the flight and ends sometime after the passenger hops into a town car to get to his ultimate destination. To register in the customer consciousness, online travel agencies need to develop the sort of presences that will keep them top of mind.
This runs counter to the traditional online customer acquisition models associated with the online travel agency business, which involve a combination of search engine optimization, online ads, affiliate programs and social media. These are transaction-oriented tactics, which speak directly to the brand-barrenness of big discounting.
More Than the Transaction
The largest online travel agencies have already moved past transaction myopia: everybody knows the Travelocity gnome, Priceline‘s William Shatner and the likes of “Cooper” from Expedia. For all but the top players, however, investments in mass media brand development (such as television) have generally been eschewed in favor of what’s been known to work. Speaking at Business Insider’s IGNITION conference last week, Buddy Media CEO Michael Lazerow noted that Travelocity grew to $4 billion in revenue through online means before it moved to television to get to the next level.
Yet, for the online travel agency sector to hold its ground – and even grow – in 2011, brand has to matter more, and this means casting a wider media net. This, plus the size of CheapOair relative to its competitors, is what caught my attention about its recent media diversification. The company is launching its first television ad campaign, “Get More for Less,” in an aggressive move to get out in front of the imminent online travel market shift.
The move to television is an aggressive one, and it comes a bit ahead of “schedule” for CheapOair, if you use the Travelocity number as a reference point. Expedia pulled in close to $3 billion in revenue last year, for example, and Priceline at $2.3 billion. Travelong/CheapOair generated $825 million in revenue in 2009 and has grown at a year-over-year rate of 45 percent this year, resulting in forecasted 2010 revenues of $1.2 billion.
The company’s CEO, Sam Jain, says, “TV is a new strategy for CheapOair and as we head into our 6th year we believe this is the right time to expand our marketing efforts. TV is a natural evolution from our current digital marketing and will help build awareness among a larger audience and introduce more people to the brand.” The countercyclical tendencies of the online travel agency market relative to travel as a whole reinforce this point.
Pointing to the potential for a virtuous cycle, CheapOair’s Sr. Vice President of Strategic Partnerships, Bill Miller, adds, “This new TV campaign should draw in more customers for us which in turn will bring more value to our supplier partners. Our suppliers — airlines, hotels, car rentals —- want valuable and efficient distribution partners. I believe we are all that and more and this TV campaign is just another example of how we can extend our marketing reach on the behalf of our supplier partners.”
Fashion versus Reality
It’s been fashionable among the digerati to claim the death of other forms of media, and I’m as guilty as the rest. But, the reality is that SEO and online ads (a la Google’s pay-per-click model) are becoming increasingly crowded and competitive. Since they are focused on the transaction rather than the brand, they don’t provide for a relationship with the customer that results in a gradual reduction in cost per revenue over time. It’s strictly “pay by the drink,” and that can get pricey.
With the travel market starting to tip in favor of the travel suppliers over the online travel agencies, the costs associated with traditional online marketing will become even higher, as brand brings customers back to the suppliers and online travel agencies chase a shrinking share of bargain hunters. For online travel agencies to compete effectively, they have to make their own investments in branding – a commitment that lacks the predictability of other forms of marketing.
Strangely, television may become the key to winning on the web in the travel industry in 2011. A better market translates to the amplification of the importance of brand, and commercials are still a critical aspect of this in the consumer world.
A battle of the brands is about to break out. The good news is that it’s for your benefit … and you’ll get to watch it on TV!