The last few years have seen a steady rise in the impact of rate-parity and onward distribution issues on hotelier’s bottom line. GMs and revenue managers are scrambling to find best practices to adapt to these new challenges.
At Arise, we believe that these challenges are actually symptoms of a much deeper problem.
Distribution technology in use today has been designed with goals that are out of alignment with hotelier’s best interests. These design choices incentivize business models that rely on imperfect information and rate arbitrage, taking advantage of hotel’s lack of visibility and control over their distribution to siphon off revenue at each step in the distribution chain.
Unfortunately there are few options available while hoteliers are reliant on distribution technology they don’t control.
Recent advances in Distributed Ledger Technology have created an opportunity for hotels to take a more active role in their distribution and align incentives with their interests, capturing more revenue for themselves.
Symptoms of a deeper problem
Rampant rate-parity issues are the leading indicator that hotels are struggling to execute their distribution strategy — a problem that costs hotels over $1 billion a year.
Many hoteliers focus on driving direct bookings and building brand loyalty, but when discount rates pop-up online undercutting direct rates, guest confidence in booking direct can be permanently damaged. The impact on revenue is greater than a single lost direct booking, as it’s likely the guest will continue to book through non-direct channels in the future.
Even major online travel agencies (OTAs) have adjusted their strategies. They’ve begun offering guests rates sourced from third party channels through platforms like Booking.basic and Expedia’s Add-On Advantage. They’ve made a choice to cut into their own margins in order to stay competitive with the rise of discounted rates publicly available on non-contracted OTAs that don’t have direct relationships with hotels.
A recent white paper published by TripTease entitled “Are we on the verge of a parity nightmare” quantifies the scale of the rate-parity issue. Analysis of their client’s Q4 2018 rate-parity statistics show direct rates were undercut by Agoda 27.5% of the time, compared to Expedia at 13.1% and Booking.com at 11.7%.
Most hoteliers point to wholesalers as the primary cause of their rate-parity issues. While originally bringing value to hotel distribution with their relationships to off-line sales channels, evidence suggests wholesalers have shifted their model and are moving more and more of their distribution through online channels.
We believe wholesalers are leveraging the lack of transparency in distribution technology to maintain plausible deniability when providing discount rates to online channels — in breach of contract with hotels. They are seizing this opportunity in order to secure their place in hotel distribution moving forward.
