Two recent events in hotel distribution created a mild media buzz, but unfortunately were ignored by some hoteliers and quickly forgotten by the industry: Expedia's Add-On Advantage and Booking.basic.
Below we will discuss the issues with these two new initiatives by Expedia and Booking.com, reminiscent of the old Wild West times of hotel distribution and the early years of unruly OTAs, before rate parity and best rate guarantees. Both OTA initiatives use package or wholesale rates in clear violation of package and wholesale rates contract terms.
We feel compelled to remind hoteliers how detrimental these new OTA offerings are to the hotel bottom line and suggest several action steps hoteliers must undertake to remedy their negative impact on profitability.
Simply put, this initiative sells "naked" discounted hotel package rates, which were never meant to be sold unbundled with air, car rental, etc. For the Package Booking Program, typically hotels provide Expedia with discounted rates—20%, 30%, and even 40%—with the caveat that these rates cannot be offered "naked" to customers and must be bundled in a package with air, car rental, etc.
Here is how the Add-On Advantage Program works: After customers book an airline ticket (Step 1), Expedia sends them an email (Step 2) with steeply discounted hotel rates in the destination the customer is flying to, pushing customers to book a hotel in addition to the airline ticket they have purchased. The problem for hoteliers is that the steeply discounted hotel rates Expedia is offering in Step 2 are from Expedia's Package Booking Program and these rates are not meant to be sold unbundled, i.e., "naked."
In Step 2 of the Add-On Advantage program, customers clearly see the discounted hotel rates that were supposed to be offered by Expedia only as bundled package rates, which is in clear violation of the terms of Expedia's Package Booking Program.
But the damage does not end there: Today's travel consumers are exceptionally savvy travel shoppers, and they will go and compare the discounted hotel rates Expedia offers in Step 2 to the rates on the hotel own website. The result? Consumers will see that, yet again, Expedia offers the best rates in the market, and next time they will go straight to this OTA website, not even considering the hotel website.
Expedia is widely promoting this new Add-On Advantage program via TV advertising in key markets, and throughout the digital marketing channel.
Why is Expedia doing this? Although over 60% of transactions on Expedia are airline reservations, this OTA makes practically no money from selling airline tickets, except for GDS kick-backs, since the airlines stopped paying agency commissions a long time ago. So the only way for Expedia to make some money from airline tickets is to bundle air with hotel, car rental, or local tours and activities in some form of a package, and markup all the package components.
Unfortunately for Expedia, Americans do not like to book packages, and typically prefer to book air first and, if they can, use miles for free tickets or upgrades, and hotel second and, if they can, use points for partial or full stay, upgrades, and more.
In the past 15 years, in spite of very aggressive promotions by Expedia and other OTAs, travel consumers refused to change their trip planning and booking behavior. As a result, package bookings on OTA sites never took off: Packages now linger at levels below 10% of all transactions. Hence the new Expedia Add-On Advantage Program, which allows Expedia to sell airline tickets and separately sell uniquely discounted hotels without the need to bundle air and hotel rates into packages, which Americans hate to book.
Using the Booking.basic logo and the slogan "Save more with just the basics," Booking.com now features discounted restricted "basic" rates that must be prepaid and are non-refundable. These "basic" rates are out of parity and lower than Booking.com's own rates. The reservations for these rates are "facilitated by third party business partners," which industry analysts have identified as Agoda.com (which is part of Booking Holdings, Inc.) and Ctrip.com, the Chinese mega-OTA (Booking Holdings Inc. owns 8% of Ctrip.com and is a strategic partner of the Chinese OTA).
The problem is that these "basic" rates come from wholesale and group rates hotels have given Agoda and Ctrip for specific package programs, not for public use or unbundled sales and global transient distribution, which is in clear violation of the wholesale contract terms.
Hotel owners and managers must realize that falling hotel profitability is due to OTAs increasing market share and "sneaky" initiatives like the Add-On Advantage and Booking.basic. The only option to increase profitability is to boost direct bookings, maximize incremental revenue opportunities, lessen dependence on the OTAs, and invest adequately in website technology and digital marketing to engage past, present, and future guests and drive direct bookings throughout the entire path to purchase.
NextGuest (formerly HEBS Digital)
One Penn Plaza 48th Fl
New York, NY 10119
Founder & Director at NextGuest Digital. Recognized as a thought leader in digital marketing strategies in hospitality, Max is a frequent guest speaker at industry events and conferences. His expertise is sought after by a diverse client portfolio of top tier hotel brands, luxury and boutique hotel chains, hotel management companies, resort and casino companies, franchisees and independents, as well as major Wall Street investment banks and financial institutions. Under Max's leadership, HeBS Digital has pioneered many of the best practices in hotel digital marketing and direct online channel distribution, and has won many prestigious awards for its groundbreaking website design, technology, and digital marketing campaigns. Max received the HSMAI "Top 25 Most Extraordinary Minds in Sales and Marketing" honor for 2008. He has an MS in Economics of International Tourism and an MBA with Beta Gamma Sigma honors from Fordham University in New York.
Brand Marketing Manager
Phone: +1 212 752 9425