THE times are a-changing in the hotel industry, with new style boutique properties giving the classics a run for their money, the evolving digital space in which we operate the businesses and customer behaviour trends and expectations.
However, one more alteration could change it all over again. The proposed $703 million acquisition of Brisbane-based Wotif.com Holdings Limited (ASX: WTF) by United States travel giant Expedia (NASDAQ: EXPE).
Few parties seem to be firmly on one side; a month ago the Australian Competition and Consumer Commission (ACCC) speculated the implications of the proposed acquisition in a comprehensive report.
The report noted that Wotif currently charges a lower rate than competitors, and questioned whether commissions offered by Expedia.com and Booking.com in the Australian market compared to their overseas counterparts could be reflective of Wotif’s presence.
The ACCC deferred its decision due to the nature of the issue but ultimately resolved that Wotif’s acquisition will not affect the health of the industry.
ACCC chairman Rod Sims says this was based on the industry’s dynamic nature, making a point to refer to the rise of metasearch websites such as TripAdvisor.
“The ACCC considered that the acquisition was unlikely to diminish the dynamic nature of the industry,” says Sims.
“Disruptive developments from smaller OTAs and from companies in related online sectors, such as the metasearch providers, can be expected to constrain Expedia in the future.”
“Metasearch websites increasingly facilitate hotels’ ability to promote themselves alongside OTAs, and transact directly with consumers.”
A black mark from the ACCC could have caused serious turbulence – now all that’s left is approval from Wotif shareholders and the New Zealand Commerce Commission before an anticipated finalisation on November 5 (at time of print).
However, Australia Hotels Association (AHA) and Accommodation Association of Australia (AAoA) aren’t convinced it’s fair weather ahead for the industry if Wotif takes flight.
AHA industry spokesperson Bradley Woods says this isn’t guaranteed.
“The growth in metasearch engines does not guarantee more competition or protection from massive commission rate increases, as OTAs are already buying metasearch companies and consolidation creep is already happening,” says Woods.
“The movement is definitely towards consolidation and that means that OTAs may inevitably push up commission rates from the 11 to 12 per cent currently towards the 18 to 25 per cent that is more typical in the USA and Europe.
“The end effect of acquisitions and concentrations of market power into two or three companies will be that the consumer may end up bearing the cost of less competition.”
AAoA CEO Richard Munro says the acquisition could be a detriment to consumers and accommodation providers.
“Less competition, higher commission fees and reduced hotel margins cannot be good news for consumers.
“Providers will likely be hit even harder though, as they can’t necessarily just pass on costs to customers.”
Munro says a rejection of the acquisition by the ACCC would have meant greater choice for the consumer – something the consumer watchdog advocates.
“Wotif is an important competitive player in the market, constraining international efforts to control the Australian industry,” says Munro.
“Rejecting the acquisition would have maintained choice for accommodation providers between multiple, foreign and Australian operators with different commission models for selling their rooms online through third party websites.”
AHA’s Bradley Woods says there are concerns that hoteliers won’t be able to undercut their prices and will suffer at the expense of these third parties.
“The industry is concerned about the emergence of rate clauses into hotel and OTA contracts by which OTAs demand that hotels can’t offer better rates to consumers through their own websites or booking systems,” says Woods.
To that, AAoA CEO Richard Munro says in light of the acquisition, now is a better time than any for providers to reassess investment.
“Not being totally reliant on intermediaries such as online agents is important; providers should own their customers and have direct relationships with them,” he says.
“Providers should also be reassessing marketing channels and focusing on creating really good shop fronts, being their website homepages.”
Munro says this should be coupled with investing in revenue management, often a critical link to achieving results for larger hotels in particular.
“It will become more and more important to have a competent revenue manager in charge of a hotel, but new technology is also helping in this area,” says Munro, noting that AAoA has recently partnered with RateVIEW, which scans markets to show prices ahead of time.
In addition, AAoA has partnered with Australian Revenue Management Association (ARMA) to provide independent advice, support and educational platforms for the industry.
ARMA managing director Melissa Kalan says business models operating in the online arena have their own set of competitors and are constantly seeking ways to grow and protect their revenues.
Kalan says the acquisition could have serious implications, but even without the acquisition, she says there was no guarantee Wotif’s rates would remain as favourable moving forward.
Like Munro, she believes it is critical that hotels don’t give up all control of their product.
Previously rate parity was most important to OTA’s to ensure their business channels. Now with changes in technology, it is important to be able to differ rates against online competition to grow their share while also ensuring the hotel can’t undercut them.
“The property should always be able to have the best deal, balancing the decision with booking volume and relationships,” says Kalan.
“Owning the customer, communicating directly with them and increasing your percentage of repeat customers is all extremely important.
“Understanding net revenue per channel, improving forecast accuracy and pricing creatively are all part of an essential revenue management strategy.”
Stephen Burt, managing director of hotels in Asia Pacific at Colliers International, agrees that rate strategy and effective marketing campaigns is key to getting ahead in the dynamic world of today.
“Revenue management is critical to optimising room yield and while there are a number of great technology products to assist revenue managers, nothing beats hands on experience in the market,” says Burt.
He also ends with a simple word of warning to all hoteliers on how to safeguard business.
“Customers are turning to digital for even the simplest tasks such as buying the morning coffee, so it only makes sense that everyone in the accommodation industry must facilitate this customer inclination.”