End of an era, but what can we learn from it?
Endof an era, but what can we learn from it?
Septemberwas a bad month for the travel industry with the collapse of both Thomas Cookas well as Amoma. Not only have thousands of travellers been left stranded butthousands of people sadly lost their jobs. Where most hoteliers weresympathetic towards Thomas Cook, the same could not be said about Amoma,because their business model in the eyes of most hoteliers was unfair or evenplain illegal.
WhatI find especially sad about the Thomas Cook story is that it was the oldesttravel agency in the world that was still trading, and they used to be apioneer in the travel industry. Not only was their founder, Thomas Cook, thefirst person to ever organise a tour, but the company was instrumental to thedevelopment of mass-tourism to the Spanish Costas and other European holidaydestinations.
Amomawas pioneering in its own way. Although not the first, they convinced wholesalersto give them surplus bed stock at wholesale rate value, which they subsequentlysold at a slightly marked up price. By ensuring that their rate was cheaperthan the hotel’s listed rates, they were able to drive business to their site.Hoteliers were forever trying to fight Amoma’s undercutting of the hotelpricing and that is of course why many of them will not be sad to see thedeparture of this company from the travel space.
In the case of Amoma, the continued fight by hoteliersagainst their way of working certainly contributed to their demise, but here,as well as in the case of Thomas Cook, one can say that they were simply notable to adapt their business model to the changing needs of the market.
It is astonishing to see the rate of change in the pricing and distribution landscape, and many hoteliers are finding it difficult to keep up. Not only do we see new websites and OTAs pop up constantly, we see enormous development on the technology side.
Even if we welcome new players in the third-party landscape,the main focus for most hotels has been on driving direct business, with allthe major hotel chains leading the way. Of course these “book direct” campaignsmay have had an impact on Thomas Cook and Amoma, however I am sure that themain reason they lost out was still because of the major OTAs. As we know, itis extremely difficult to compete with their convenience as well as thebillions of pounds (or I should say dollars) that are spent on advertisingevery single year. There is however something else that has had an impact: Pricing!
When I visited a major Revenue Management convention in the USrecently, I asked many Revenue professionals about their booking behaviour whenit came to their flight and hotel. Apart from the odd person working for amajor brand, the vast majority showed almost identical behaviour. They allbooked the flight as early as possible and their hotel as late as possible.When I asked them why they had waited with their hotel booking, they all saidsomething along the lines of:” we all know that hotels drop their rates lastminute”. This was no surprise to me, especially seeing a study of the hotelmarket in Manhattan that showed that around 85% of all hotels dropped theirrates within the last three days before the day of arrival on a consistentbasis. This highlighted a big problem that we have in our industry, which isthat we often drop our rates last minute, teaching our guests that bookinglater is smarter.
Agencies make virtually no money on airline bookings andtherefore heavily rely on hotel bookings to generate their income. Thomas Cook traditionallybased its business model on people booking in advance, so that “Mr & Mrs Archer”would secure their flight as well as their hotel room including buffetbreakfast, lunch, dinner and unlimited cheap local booze, so they could spendtheir entire year dreaming about aquarobics, the in-pool bar or simply bronzingin the Mediterranean sun.
As hoteliers started dropping their prices more often as thearrival dates come closer, more and more people started catching on to that,thus making our guests more and more reluctant to book hotels further out. Why committo high hotel rates early on, when we can simply sit it out and wait for thosehotel prices to come down?
I know that most hoteliers don’t like dropping their ratesand I often hear the phrase: “Well I have to, in order to stay competitive!”.Whilst I can understand why it is tempting to do so, it does mean that itchanges the booking behaviour of your guests. As bookings are now coming in laterthan ever, it makes it harder and harder for us to forecast demand, which inturn makes it harder to set the right price strategy.
The ironic thing is that I have seen multiple General Managers, which hire experienced Revenue Managers in order to increase performance, only to override them last minute and tell them to drop their rates no matter what. This ties into conversations that I often have with hoteliers, where they talk about how their hotel is all about 'an experience' and that they are very different from their direct competition, only to be told later on during the conversation that the competition drops their rates, and “we” have to follow. So, what happened to the experience that was very different from the competitors?
There is an exercise that I like to do (when I have an audience and I have some time), which is to ask every member of a group to plan a weekend away in a certain city. I normally check with them and pick a city that none of them frequent or know very well. Then I ask them to come up with three alternative hotels that they might consider for that weekend, by using their own laptop. Every single time, the audience have come back with a plethora of hotels. The group normally is made up of people that we in the hotel business would class as the same Market Segment, so behavioural patterns should be very similar, yet virtually every single one of them comes up with different hotels. For me this illustrates that competitive sets, albeit useful to compare performance, often have far less influence on guest booking behaviour than we think, as the competition varies for almost every single guest.
There are, however, a few things that we can take away fromthis.
The first is that we should not just blindly follow thecompetition when they change their pricing but try to calculate or at least understandthe effect it will have before blindly following them.
Secondly, hoteliers that hire a Revenue Manager, should letthem do their job. If you hired them to improve performance, interfering isonly going to hinder them and ultimately will have a negative impact on thatperformance.
Then it is important to understand what it is your guestswant and don’t forget that many of your guests might not consider yourcompetitive set as alternatives for them. So, focus on what you are trying tooffer your guest and remain focused on what they want and what you can offerthem.
Finally, it is important to be creative and keep looking for new ways to optimise your performance. This is where having a Revenue Management System can really help as if you can free up time that is normally spent on compiling and analysing reports, creating forecasts and changing rates. With this saved time, you can start being more creative and finding opportunities in order to improve your performance.
Our world is ever-changing and as we have said many times in our blogs, 'the future belongs to those who hear it coming'. Are you as hoteliers ready to adapt?
(this weeks blog is written by our very own Revenue Expert, Niels Mekenkamp - thanks Niels - a great insight!)