Hotels are an “asset-heavy” business sector that has high fixed costs but makes substantial profits when they are full.
This makes them dependent on high room occupancies and often creates a competitive fight based primarily on price and strength of distribution, between similar hotels located on the same stretch of sandy beach in a holiday destination.
During the age of “vertically integrated,” tour operators and hotels often did “strategic” long-term deals, where tour operators in exchange for much lower room rates guaranteed the entire hotel. Hotels that did not have guarantees, still relied on these tour operators to feature their hotels in their brochures and deliver customers to them.
Few beach hotels, ever invested in building their own “brands” or invested in direct marketing in major source markets like the UK. This left them at the mercy of their tour operator partners, who often paid them a massive 90 days after customers return home or not at all if they collapsed (Thomas Cook). How many other business sectors would accept these unfavorable payment terms?
The advent of the internet destroyed the stranglehold of access to holidaymakers that tour operators held via their 60% control of high street travel agency shops. This combined with the growth of low-cost carriers, allowed the “Dynamic Packaging” revolution to occur, which created today’s online travel agents (OTA’s) such as On the Beach and Love Holidays who between them carry 3.5m passengers. These businesses are “asset light” and rarely contract any hotels on a guaranteed basis, making hotels compete based on price.
The hotel-only giant Booking.com operates on the same basis and pre-Covid 19 was used in conjunction with Skyscanner or google to access flights, by millions of customers to DIY their own dynamic packages. This market is not measured by ATOL but probably accounts for 5m plus holidays.
Tui remains the largest UK ATOL Holder at 5.36m passengers, but the debt mountain it incurred during the Covid-19 crisis, has destroyed its ability to create “differentiated” and exclusive hotels by guaranteeing up to 80% of its hotel stock. This has left many beach hotels for the first time in generations without any guarantees and desperate for new routes to attract customers.
The rapidly expanding “in-house” tour operations of the low-cost carriers have been the clear market winners over the last 5 years, with Jet2 Holidays taking most of the collapsed Thomas Cook market share and being set to continue to eat into Tui share as it slowly declines, having lost its differentiated hotel stock.
Easyjet holidays also needs to expand rapidly to key city investors happy and will therefore need to take share from Tui or OTA’s, as it’s less likely to take share from the established Jet2 Holidays.
Currently, few of these players see the benefit of “guaranteeing” hotel stock, outweighing the increased commercial risk, whilst operating in a UK holiday market where demand remains uncertain due to the energy crisis, rampant inflation, and rapidly escalating mortgage costs.
Therefore, hotels need to take their destiny in their own hands and increase their consumer direct distribution, but many lack the required expertise.
Reviewing a range of hotel sites ahead of the upcoming World Travel Market gathering at the London Excel center, I found a common theme.
1. No option to book in £’s sterling. This immediately loses 30% of sales to players like Booking.com which are just one click away.
2. No flights are offered. Customers can’t swim to a hotel and need flights. 40% of potential sales will be lost if a hotel site does not offer flights.
3. UK phone numbers. The simplest way to offer “package holidays” including flights is to partner with a UK travel agency to use their ATOL licenses and staff to book packages. However, hardly any hotel sites offer this, and the only one that did have a UK telephone number answered it with a 5-minute pre-recorded message in Spanish!!
4. Dominance of Google Brand terms. Hotels often secure the top spots for SEO-based google search’s for their brand name, but let competitors such as Booking.com pinch high-quality leads by advertising above them.
Direct marketing in other countries, is not a key skill set of many hotels as historically they have never had to do it.
Finding local source market partners willing to be paid on a booking-delivered basis needs to be a high priority. These partners should understand how to market on Google, Instagram, or traditional media, to create strong above-the-line campaigns, that can be converted into bookings via the hotel’s own booking sites.
Direct bookings after advertising costs may or may not deliver higher prices for a hotel room, but they 100% deliver cash earlier and in the current economic environment “Cash in King”