Recently, Mr. Richard Warnick, Managing Director and Co-Chairman of CHMWarnick (“CHMW”) wrote an excellent piece in HNN: “Optimizing for Dual Success of Operators, Asset Managers.”

In this article Mr. Warnick argues that:

“…one of the greatest sources of conflict between operators and asset managers (as representatives of the owners) occurs because of operators’ lack of appreciation for, or indifference to, hotels as an investment.” “The misalignment of interest between owner and operator is so endemic and has existed for such a long time that it has resulted in an institutionalized lack of empathy for (and understanding of) the investment/risk side of the equation by hotel operators. That is to say, what is missing in the owner/manager relationship is respect for the money.”

In my view, the misalignment of interest between asset managers/owners and operators is even more obvious in how these two, distinct industry stakeholders perceive and account for distribution channel costs.

The Distribution Cost Conundrum: Misalignment of Interest

Opposite Interests as Far as Distributions Costs Are Concerned

Direct online bookings are by far the most lucrative and cost-efficient bookings at any hotel, resort or casino. As a point of reference, across the HeBS Digital hotel client portfolio, the average direct channel distribution costs (property website) are 4.5%, compared to the hefty OTA commissions of 18%-25%.

Yet, operators and asset managers/owners have completely opposite interests, as far as distribution costs are concerned.

For asset managers/owners, any dollar “saved” from distribution adds to the bottom line and the investment return. In this sense, the more inexpensive direct bookings, the better. The fewer expensive OTA bookings, the better.

For many operators, as we see below, the cost of distribution via OTAs plays a far less important role, and in many cases is not even accounted for in the property P&L (Profit and Loss).

Conveniently for operators, OTA commissions (Ex.; Expedia’s agency model, etc.) are accounted for in the property’s financial statement as COGS (Cost of Goods Sold) in a single line item titled “travel agent commissions,” with no differentiation from brick-and-mortar travel agents’ commissions. Merchant OTA commissions do not even hit the property P&L.

Read rest of the article at HeBS Digital