Hotels Must Evolve Fast – It Will Be a Tough Future Otherwise

Welcome to another of our Coffee Time chats.

Today we are joined by:

🔹 Javier Delgado

Managing Partner and CEO for Europe, Middle East and Africa at mirai

NB: mirai are one of our Expert Partners

Today we touch on a number of topics starting with a positive mood of hope and optimism that travel will return, whilst also realising that hotels can be a little short-sighted and have short memories.

We touch on the topic of direct bookings and OTAs, how their respective budgets are handled differently and the negative impact this can have.

Finally we ask, will hoteliers just revert back to type once things start normalising, how will they cope once the cookieless world finally arrives, sometime in 2022, and how the sentiment ‘adapt or perish’ is more pertinent now than ever

Hope you enjoy it 🤞👍

NB: There is a transcript below from parts of the discussion. Please note our transcripts are generated using speech recognition software and human editing and may contain some errors

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📝 TRANSCRIPT

Trevor Grant

Hi Javier, good to see you. Thank you for joining us today. How are you? You well,

Javier Delgado

I’m very well, thank you for having me. It’s a pleasure.

Trevor Grant

You’re welcome. Great to have you here because we have done a number of videos in the past. But we’ve done that with Pablo Delgado, and now we have Javier Delgado. I guessing there’s no direct relationship probably, way back possibly somewhere. But you’ve recently joined mirai, haven’t you

Javier Delgado

I joined about four months ago now. And Pablo and myself were very good friends, we’ve known each other for you know, over a decade, but we’re not related, we just carry the same family name.

Trevor Grant

So what I thought would be useful. I mean, this is just one of our, what we call it our coffee time chat. So we’re gonna touch on just really about getting your perspective, you’ve got a really interesting background. And we thought it would be really, really interesting to just talk a little bit more generally, as we get into the end of this year, and looking into next year, what do you see, and maybe some of the pressures, challenges, you know, trends that may be that may be occurring. So what’s probably useful is to in terms of positioning this for people listening or watching is probably to get an idea and just to understand who you are, and what your what your background is. So, if you could just introduce yourself, that would be great.

Javier Delgado

Sure, so as you rightly said, my name is Javier, joined mirai about four months ago, as a Managing Partner and CEO for Europe, Middle East and Africa. Pablo left to the US a few years back, and he’s handling the Americas based out of out of Miami. So I’ve been in the travel industry since the late 90s. I started in the airlines in 1998, or 99, I cannot remember. And ever since I’ve been always related to the travel industry. It is true though, that after a few years in airlines and tour operators, I obtained an MBA degree and since then, so in 2003, I joined Expedia, I spent about eight years in different capacities, most of them around supply positions, lodging supply and air supply in different parts of Europe. After that, I managed air capacity for Expedia, meaning air supply and after a short stint in white label distribution with Expedia, I moved on to Google where I spent seven years in different again, different roles always related to travel. So selling technology to travel companies of different kinds. After that I joined a family owned company, a pretty sizable hotel chain number two in Spain, called Iberostar hotels and resorts where I was responsible for all of the digital operations and commercial operations, which meant, you know, handling a big amount of rooms, 35,000 rooms, in about 25 countries, 1.5 billion euros in revenue, sizeable operation. And after those three years, due to personal circumstances, I had to relocate to Madrid and I decided to join the great mirai.

Trevor Grant

Excellent. So Expedia, Google, Hotel Group that provides a really interesting background and perspective on what’s going on in the world at the moment,

Javier Delgado

especially in this last 20 plus years, because many things have changed, right?

Trevor Grant

Absolutely. So I guess what we wanted to do, I mean, really just sort of throwing this open? What are your, maybe two angles to this question, you know, touching on some of the issues that we’ve all experienced over the last 18 months with obviously, the pandemic, but looking forward? What do you think are maybe some of the mistakes that hotels could make? What are some of the short term decisions or trends? You know, I’d like to just sort of explore and dig into getting to your head and that experience and see what you’re thinking, what would be sort of number one at the top of your head that if you were talking as mirai to your clients and prospect clients, what will be one of the messages you’ll be giving them going forward?

Javier Delgado

The first message and probably the strongest one is a tremendous sense of hope. I think there’s going to be probably a beautiful decade in front of us with booming business all over all over the world, probably more in the Mediterranean area. So hope is a big sense and probably the biggest feeling that comes to my mind and also within that hope and the new business that is coming back, I think direct sales are going to have a lot to say – we saw that during the pandemic that you know – direct sales is definitely something that can be accomplished and something that can be very profitable for hotels if it’s done properly. Now, the second thought that comes to my mind is probably the, you know I love hotels, I’ve been a hotelier myself until very recently, and now I run a company that helps hotels sell more and be more profitable, but basically, hotels sometimes are very short sighted and they might fall into the same pitfalls that fallen in the past. And we’ve seen these with every crisis in the last 20 plus years, when I joined Expedia, you know, very big company, but at the time it was pretty small, but then it grew to one of the main players in distribution. It grew on the back of 911, which was a very dramatic circumstance, you know, different nature, different times, but similar to the pandemic we’re living. Now, even though the pandemic has been much, much traumatic, but without getting into the politics and the medical perspective of that, you know, it’s really has shaken the industry and we saw OTAs, back after 911, really take off because demand was very scare, and there was an oversupply everywhere so they could somehow dictate terms, because no one was travelling, and they were able to capture those travellers that were willing to travel at the time and they built an empire on top of that. You know, I’m oversimplifying things, but whenever there’s a big crisis, demand is very scarce, supply is abundant, and as a result, the players that are closer to the final consumer, who can better harness that traffic, that demand, that sense of willing to travel, there in the long side of the stick to put it that way. So we could see that coming again, because hotels, in many cases are, you know, small companies, not professionally run or not run with, you know, big operators behind, that means making it to the end of the month, and pay the payroll and servicing the debt and all the different things that need to happen in every company, so the easy solution sometimes is to over commission a certain player, give away or lose control of your inventory, just to make it to the end of that month, and that’s going to compromise your overall operation down the line. So that’s a bit, you know, risk.

Trevor Grant

You keep living hand to mouth really in that sense, don’t you?

Javier Delgado

In a way, yes. I mean, I think hotels need to really think, they really need to take a long view on how they want to manage their business and their inventory, understand what are the levers that are really going to bring the profitability and the independence? You know, we’ve seen that dependency is a big problem. We’ve seen it specially around the Meditteranean destinations with the fall of Thomas Cook, you know, right before the crisis Thomas Cook fell, September 19 2019 – I remember that very well. The other company I was working with, it was our main partner at the time. So we’re talking about a big operation, I remember that day very well. And then a few months later, we saw the pandemic. So all those hotels that didn’t really have a diversified sales strategy have suffered much more than those that do have a diversified sales strategy and having a strategy also means having the right technology and putting, you know, putting the money where your mouth is and doing the right investments and so forth.

Trevor Grant

That last point you make around having the money and putting the money in the in the right place, from your experience, obviously most recent working in a hotel group, but then also on the other side working in the working in the OTAs? Do you see hotels approaching the way that they budget for, say, direct distribution, and then budgeting for OTAs? Do they treat them one at one of the same? Because if you’re developing a strategy, then in a way your budgets I would think need to reflect that. Wouldn’t they.

Javier Delgado

In short, that absolutely yes, is the answer to your last question. But to your first question, the answer is absolutely no. Hotels, interestingly enough, in 2022, you know, we’re about a month away from the next year are still get this wrong – I call it the CFO dilemma – and it’s really flabbergasting. You know, you as a hotelier you keep on paying the Commission’s to the OTA and you never close sales until you have the last room available. That’s you know, that’s the norm. I would say. On the other hand, in general terms, many, many hotels and even in chains, they have a fixed budget for direct sales, which means whenever they exhaust that last dollar, euro, whatever it is, they stopped selling or they need to look for more internal funding to continue investing into the direct sales, which means the strategies aren’t symmetrical and they are not providing the same ability to sell to the direct channel versus the intermediaries. It’s a budget game in many cases, because the CFO never asks, how much are we going to pay Booking or Expedia at the end of the year? You know, they keep on selling and they you know, we keep on getting their invoices, you know, I’m exaggerating, but that’s the way it works. On the other hand, the B2C director or manager, or that team normally has constrained budgets, and they need to continuously report how much they’re spending, instead of having a fixed CPA like the customer acquisition cost for that channel, which would be, you know, the most logical thing to do. I’ve discussed this interesting enough at Expedia and at Google, I’ve run this direct sales for Iberostar, it was a big chunk of their sales, and we were not constrained, but it took us, you know, months, technology, processes, people to really tweak things to be able to manage direct sales in that way and here at mirai we still see it every single day, that many hotels are losing opportunity, because they don’t have the sufficient flexibility, and especially the mindset, it’s all a matter of mindset, if you get the right mindset, then you’ll fix everything else.

Trevor Grant

What I wanted to pick up on in terms of just your last comment there about people in a way, always doing what they’ve done before. And I just interested in your thoughts that we tend to live by habits and routines, that’s how we surive, I’ve always had this slight question mark, in my mind that we talked about 18 months of being in the pandemic, but I believe when we first went into it, people thought it would only last maybe six months or so and just had to get through summer of last year, get into September, October of last year, and things would start to return. So I think it’s really starting to hit hard that maybe during 2021 people have realised this is here to stay, we’ve got to learn to manage it, but I wonder, has that been long enough? So that if all the predictions are right, and we start in 2022, to get back to some sort of normal in 2023, we start to see the kind of the KPIs and the metrics that we judge, will that one year of difficulty be enough to change all of the habits that we know should change or will in 2023, we just revert back to type and go back to how our old processes used to work. You measure in the same way that we always used to measure do we think there will be enough of a change?

Javier Delgado

It’s a great question. Very tough question to answer, Trevor, well, I’ll give you my best shot. Many things will come back as they were fortunately or unfortunately. So the thirst for travel, the willingness to travel, you know, that’s hopefully going to come back. And that’s good, because it means that there will be demand for all of us to recover. Now, it’s been 20 months now we keep continuing 18, but it’s 20. So, we have to be careful because you know, time is passing by very quickly. Now to your question, I think many people will quickly forget the dirty tricks that some intermediaries played on them, I’m talking about hotels specifically, and they will be rolling the red carpets to the Expedia’s and the Booking’s of the world and you know, serving champagne to the contractors that they send to their hotels – I’ve been there and drunk champagne and so I can I can speak to that – and there’s nothing wrong with it. These companies are great companies and they bring a lot of value and just you know maybe characterising a bit exaggerated the point, many companies on the other hand have realised that selling their rate is possible and that many different models came up like CPL so instead of CPC having commission per reservation condition per stay even which reduces the risk greatly. Also many people have really awakened you know, maybe many people woke up and smell the smell the coffee and they realised that there was a lot to be done within direct sales and they really took the bull by the horns and they started investing you know and getting ready for the business comeback. Now with that said, we’ve seen a great summer in some destinations in the Mediterranean region, actually record numbers for mirai in July, August, September and October – November looking pretty good. And Q1 as we move, you know, to H1 next year, the numbers are look pretty strong, but I wouldn’t say pretty solid, it’s a bit of a house of cards, you know, any simple, a very small error can make the whole house of cards collapse. And that’s, that’s not a good place to be in, we need solid figures and solid demand. At the end of the day, it’s a matter of demand and the feeling the sentiment in the market is what we need. Now, at the same time, there’s a big change taking place, which is the disappearance of Cookies. Cookies, you know, without getting too technical, but basically, it’s the way that digital marketing has been managed or handled for the last 15 years or so. Which basically, you’ve put a piece of code right, pin onto someone that has visited your site, because they accept the cookies, they don’t really know what they’re doing, but they’re saying, you know, I’m happy to be pinned by you, Mr Website and then you can follow and track that user and understand what they do and what they don’t do on the web. And based on that you can derive or learn many effects, that’s going to disappear overnight.

Trevor Grant

And when does that happen, because I know that that was due to be happening soon?

Javier Delgado

That’s the thing it should have happened already. But it keeps on getting delayed for different reasons we’re not going to get into but eventually it will happen. We don’t know if it’s going to be in Q1 2022 or in Q4 2022. But I believe sometime in 2020 these cookies are going to be gone forever. That means that many hotels that we’re not even ready for the cookie world are not ready for today are going to be found offside, completely offside in this game. Now that means players like the big platforms, the Facebook, the Googles of the world, even the Microsoft’s of the world are going to be more powerful because they’re going to have more knowledge about the audiences, the audiences is the demand, the market, the people that are behind their screens, so hotels really need to have, first of all understand what this means, understand what it entails, understand how it’s going to affect them and their strategies, and have a plan to survive and overcome this situation. So, when you look at, you know, the virus, which is has not really gone, we’re seeing unfortunately, curves going up in central Europe and Eastern Europe, and Northern America seems to be under control. But you know, without instability, Latin America is a whole different story. And we don’t really know what’s happening in Asia Pacific itself, it’s pretty unstable yet, then we’ve got this tectonic changes like the cookies coming sometime next year, meaning it’s the perfect storm for uncertainty. So what’s going to happen, you know, I’m a positive person, I think the market is positive, as you said, in 2020 people were thinking, this is going to be a matter of a few weeks, a few months, and then everything will be back to normal. Now we were 20 months into the storm, we still don’t see the shore on the other side. So who knows, I hope for the best but we should plan for the worst.

Trevor Grant

Always a good strategy and I guess in amongst to add another variable into that or another, maybe the word uncertainty is the wrong word. Consumer behaviour is changing, or has been changing as well, isn’t it? So, I mean, back to the point of hotels operating as they always did, not only are there technological changes, geopolitical changes, regulations, and COVID related changes, we’ve now got the consumer behaviour is also changing as a by product of this. So, I mean, where do you where do you see that having an impact.

Javier Delgado

All over, I mean, we’ve seen that the traditional customer journey, it’s, it’s gone and I think it’s gone forever, or a good part of it is gone forever. If we take you know, we are in Europe now, if we take the some of the traditional patterns you would see from the Nordics, you know, the Swedes and the Norwegians and, or even you go to Germany, the Central European countries, they have very clear patterns, and they would look at the beginning of the year, you know, sometimes with 20 weeks lead time, and they would pay deposits, there was a whole culture and a whole dynamic built around this consumer behaviour. That’s gone. Some of the big tour operators are gone forever, like Thomas Cook. Some others, you know, big players like TUI are in dire straits – let’s hope that they make it out because you know, they’re a big player, and we need those players in the Mediterranean and all over the world. But there’s a big question mark, you know that the governments are pouring money into them to keep them alive, which means they’re not viable by themselves in extreme circumstances. Also, the users are no longer accepting pre-payments or deposits, everything needs to be refundable, the booking windows have gone, you know, off a cliff, you see pickups happening in J -15, so the last 15 days or within the last seven days, and even with those behaviours, we see a record numbers in the summer, which means, you know, the books, or the compasses we had in the past are no longer valid, so we (hotels) need to go into the market with a clean slate, with a fresh mind, question everything that we did in the past, and it’s going to be harder, it’s going to be tougher, to make less money. So, it’s going to be tougher than before and we will making less money. This is something I was discussing with a colleague the other day, they were saying – they’re part of a technology company – and they said, you know, we’re sweating like hell to make half the margin we’re making five years ago. And I think that’s a good way of looking at what’s coming. So, everyone needs to be smarter, we need to get smarter, we need to get faster, we need to be closer to the consumer who has changed dramatically their behaviour, and that’s the only way to survive. Whomever does not adapt to the new environment is gonna have a tough time.

Trevor Grant

But I think as you say, you know, that there’s a lot to start planning for, and the planning has to start now, travel will come back, which is your sense of hope, but if we expect to go back to doing the things we always did before, or if we behave in the way that we did before, it’s only going to be tougher. So, I think there’s a bit of scope there for us to explore with you guys during the course of 2022 and to dig into some of these areas in much more detail. So, look, it’s been really great. I’m conscious of your time, I’m conscious this is a really busy period for you, so I really appreciate you carving out some time to join us today. Thanks so much for being part of our chat today.

Javier Delgado

It’s been my pleasure, Trevor. And we’ll be happy to join again for coffee time or wine time, whatever you want, sometime later this year or early next year to see how things are, how the agenda is unfolding, because it’s going to be an interesting one.