End of an era, but what can we learn from it?
September was a bad month for the travel industry with the collapse of both Thomas Cook as well as Amoma. Not only have thousands of travellers been left stranded but thousands of people sadly lost their jobs. Where most hoteliers were sympathetic towards Thomas Cook, the same could not be said about Amoma, because their business model in the eyes of most hoteliers was unfair or even plain illegal.
What I find especially sad about the Thomas Cook story is that it was the oldest travel agency in the world that was still trading, and they used to be a pioneer in the travel industry. Not only was their founder, Thomas Cook, the first person to ever organise a tour, but the company was instrumental to the development of mass-tourism to the Spanish Costas and other European holiday destinations.
Amoma was pioneering in its own way. Although not the first, they convinced wholesalers to give them surplus bed stock at wholesale rate value, which they subsequently sold at a slightly marked up price. By ensuring that their rate was cheaper than 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 hotel pricing and that is of course why many of them will not be sad to see the departure of this company from the travel space.
In the case of Amoma, the continued fight by hoteliers against 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 not able 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 all the major hotel chains leading the way. Of course these “book direct” campaigns may have had an impact on Thomas Cook and Amoma, however I am sure that the main reason they lost out was still because of the major OTAs. As we know, it is extremely difficult to compete with their convenience as well as the billions of pounds (or I should say dollars) that are spent on advertising every single year. There is however something else that has had an impact: Pricing!
When I visited a major Revenue Management convention in the US recently, I asked many Revenue professionals about their booking behaviour when it came to their flight and hotel. Apart from the odd person working for a major brand, the vast majority showed almost identical behaviour. They all booked 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 said something along the lines of:” we all know that hotels drop their rates last minute”. This was no surprise to me, especially seeing a study of the hotel market in Manhattan that showed that around 85% of all hotels dropped their rates within the last three days before the day of arrival on a consistent basis. This highlighted a big problem that we have in our industry, which is that we often drop our rates last minute, teaching our guests that booking later is smarter.
Agencies make virtually no money on airline bookings and therefore heavily rely on hotel bookings to generate their income. Thomas Cook traditionally based its business model on people booking in advance, so that “Mr & Mrs Archer” would secure their flight as well as their hotel room including buffet breakfast, lunch, dinner and unlimited cheap local booze, so they could spend their entire year dreaming about aquarobics, the in-pool bar or simply bronzing in the Mediterranean sun.
As hoteliers started dropping their prices more often as the arrival 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 commit to high hotel rates early on, when we can simply sit it out and wait for those hotel prices to come down?
I know that most hoteliers don’t like dropping their rates and 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 it changes the booking behaviour of your guests. As bookings are now coming in later than ever, it makes it harder and harder for us to forecast demand, which in turn 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 from this.
The first is that we should not just blindly follow the competition when they change their pricing but try to calculate or at least understand the effect it will have before blindly following them.
Secondly, hoteliers that hire a Revenue Manager, should let them do their job. If you hired them to improve performance, interfering is only going to hinder them and ultimately will have a negative impact on that performance.
Then it is important to understand what it is your guests want and don’t forget that many of your guests might not consider your competitive set as alternatives for them. So, focus on what you are trying to offer your guest and remain focused on what they want and what you can offer them.
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!)