We may not be in the Wild West anymore, but who will come out on top?
- A major OTA has started to offer its customers the ability to cancel bookings for “non-cancel” hotel rates
- The increase in short term cancellations made it exceedingly difficult for hotels to achieve optimal revenues
- Be wary of the “risk free” reservation program offered by OTAs
You’ve seen the classic western movies with the intense quick draw scenes. The purpose being to quickly draw one’s pistol and fire with the most accuracy at your opponent. But did you hear the most recent shot fired? One of the major online travel agencies (OTA) has started to quietly offer its customers the ability to cancel bookings for rates which the hotel had fenced with “non-cancel” policies. Yes, you read that correctly; the OTA is offering to replace the original guest with a new guest or pay the hotel for the cancelled room.
Can you see it now? All the hard-working revenue managers putting appropriate rate strategies in place in hopes to attract the right mix of consumers. These revenue managers are considering the perfect amount of people who value flexibility and are willing to pay a higher price for it, people who value a lower rate and are willing to give up flexibility for it and of course, people who fall somewhere in-between. And then, along comes this OTA who tells its customers to not be concerned with the the fact that the hotel has clearly stated that the reason for the lowered rate is because this rate is not flexible. Or in other words: “Go ahead and book that ‘non-cancellable’ rate, because we let you cancel anytime you want.”
Everyone is chasing “A Fistful of Dollars”
The industry changed once the pendulum of distribution power between hotel brands and the OTAs slowly started to shift back towards direct booking. In 2016, Hilton started a campaign called “stop clicking around” offering loyalty rates for guests who were booking directly. This was the opening salvo of an aggressive effort to increase direct bookings throughout the hotel industry. “Stop clicking around”, and other campaigns launched shortly after by other hotel brands, proved to be an effective counter message to the perception of lowest rate through OTAs.
Next in the line of fire of the brands was the proliferation of cancellations in the industry. With demand increasing over the last years, the increase in short term cancellations made it exceedingly difficult for hotels to achieve optimal revenues. As a result, over the last 18 months many hotel brands have started to tighten their cancellation policies to gain control back over their short-term inventory. With the OTAs no longer being able to claim to offer the lowest rates and flexibility reduced by the extension of cancellation periods, growth in booking volume slowed and ultimately forced the OTAs to counter the hotel brands’ move.
It’ll take “True Grit” to win the duel
An industry expert in a recent conversation on this subject suggested that this is not just a slippery slope, rather a Sarlacc Pit (for my Star Wars fans). From a revenue management perspective, if other OTAs follow – and hotels agree to participate – it has the potential to significantly hamper a hotel’s ability to drive successful pricing strategies.
So, to all revenue management professionals who are working hard to utilize the best strategies to make the most revenue for your hotel, I have one word of advice: Draw! A “risk free” reservation program offered by your favorite OTA might not be as risk free for your hotel’s ability to optimize revenue and profit.