Category Archives: Airline Fees

The battle between American Airlines and Online Travel Agencies has hotels cleared for take off

Along with a brighter outlook for the hotel industry comes a new alternative to the high cost of doing business with online travel giants like Expedia and Orbitz.

If you conduct a Google search for “hotels in New York City” the search return will provide more than 84 million results where most feature links to third-party travel sites offering rates for hotels in New York City.

When a consumer elects to book his hotel room through one of these third-party sites it could cost the hotel more than eight times the transaction cost as compared to if the same transaction were to be booked directly with the hotel.

According to a much discussed article released by Hospitality eBusiness Strategies titled In Hospitality, Not All Internet Bookings are Created Equal a direct booking through the hotel’s website is approximately $13 per transaction whereas a booking through a third-party site could cost the same hotel nearly $108 per transaction.

“During tough economic times hotels historically relied on the OTA distribution model to help get rooms sold,” said Chris Wenz, Partner & Co-Founder of Hotelmine, “but now that the hospitality industry appears to be in a recovery mode, there’s no better time than now for them to re-think their distribution strategy.”

‘Digging in their heels”

OTAs are not going away and most industry insiders would suggest that they may be digging in their heels with hoteliers much the same way they are with American Airlines in order to control product offerings, pricing, and lucrative contracts that provide abnormally high commissions and wholesale rates.

“A number of hoteliers and hotel management firms that we have known for years are suggesting that they will address their online marketing strategies and ‘best practices’ in order to take back some of the ground that they lost over the past four years,” Wenz said.  “That’s why a direct connect distribution model makes sense for both the hotel and the consumer because the hotel can reduce their distribution and conversion costs and have more of a profit margin to create incentives and value-adds for the consumer.”

Examples of these best practices include;

  • Strict rate parity, a best rate guarantee, and don’t allow a third-party to undersell a hotel.
  • Hotels will need to expand their social media presence on sites like Facebook and offer special deals or promotions to those who are following them on the site.
  • And finally, a hotel needs to begin to analyze options that will move them beyond traditional search methods and engage prospective consumers the very moment they start thinking about travel.

“The Concept”

Wenz, who has a background in developing technology solutions for group and leisure travel, recognized a void in the marketplace and began to design a solution that would directly connect a customer with a hotel.

“I have been following online leisure travel and social media trends for the past five years and came up with the concept that is now Hotelmine,” said Wenz.

Hotelmine may look like any other leisure travel site but that’s where the similarities stop.

The site’s model combines a Business 2 Consumer platform with a Peer 2 Peer social media architecture that allows consumers to book direct with the hotel and to share their research, travel plans, and transactions with family and friends on the top social media sites.

Hoteliers have full control over their offerings and sell products, services, and value-adds the way they want to sell them in a transparent environment where consumers can make an informed decision about which hotel best suits their taste or budget.

When it’s time to book, the consumer books directly by calling the hotel or through the hotel’s website booking engine.

“The countdown’s on”

“We are now tying up some loose ends with the site and should have it ready for the scheduled soft launch on February 14th,” Wenz stated, “and we are continuing to pre-register new hotels on almost a daily basis.”

“We couldn’t be at a better place and at a better time,” suggested Wenz, “and the feedback and response from the hotel community has been overwhelming and continues to spur us on to the successful launch of Hotelmine.”

Tom Costello is the CEO, Partner & Co-Founder of Groups International, a company that provides marketing, consultative services, and technology solutions to the group and leisure travel markets.  Connect with him on TwitterLinkedIn, and Facebook or contact him by email.

Advertisements

A Hotel’s Case for Direct Connect

If it costs the airlines billions to conduct business through OTAs and the GDS then what will it take for the hotel industry to re-think its current conventional distribution strategy?

The recent actions by American Airlines to move forward with their “direct connect” model has ushered in a new era of how products and services are marketed to travelers.

According to an article released by Fairlogix, “A Picture is Worth $7 Billion, The real story behind airline distribution, travel supply chain, and consumer value”, it costs the airlines roughly $7 billion annually to conduct business through their current indirect distribution channels such as Orbitz and Sabre.

To set the record straight “direct connect” is not a new phenomenon in fact Orbitz introduced its own version of direct connect in 2002 with none other than the same airline that they are now battling.

The technology known as “Supplier Link” was designed to lower costs and avoid Global Distribution Systems (GDS) fees but Orbitz eventually went on to become AA’s highest-cost OTA (Online Travel Agency) per booking.

The OTAs and the GDSs have made their sentiments against direct connect very clear: They want to control the airline’s product, pricing, distribution, and at the end of the day remain status quo.

Likewise the intentions stated by American Airlines, Air Canada, AirTran, and Southwest Airlines are equally as clear: They want to control their product and inventory and establish closer ties to their customers.

The hotel industry and the OTAs

While the OTAs and the GDSs continue to dig in their heels in this uphill battle with AA, let’s take a look at another market segment that is under their thumb, the hospitality industry, where especially the OTAs are blamed for commoditizing hotels, decimating rates, and training travelers to demand deep discounts.

According to a much discussed article released by Hospitality eBusiness Strategies titled “The Billion Dollar Leak – The Impact of the Merchant Model on US Hotel Profits” revenue leaked from hotels to the OTAs in the form of abnormally high commissions was estimated to reach $5.4 billion in 2010.

In addition to this leakage, which primarily represents leisure travel, hotels are paying millions in commissions to “other” third-parties for business that represents meetings and events that are held at their hotel.

In total, we estimate the hotel industry is currently in the same predicament as the airline industry and don’t appear to be moving toward a “direct connect” distribution model.

Why hasn’t the hotel industry developed a strategy to wean themselves off OTAs?

Due to the lack of demand from 2008 through 2010 most industry pundits would suggest that hotels were too busy playing catch up and desperate to capture revenue from any source that was available.

We certainly can’t blame the OTAs for the adoption of that strategy but because of this hotels lost any momentum and market share that they could generate on their own.

Over that same time period OTAs demanded and got new agreements that were against everything the hospitality industry stood for: last room availability, guaranteed best rates (only found on the OTAs websites), penalties for hotels that don’t use the OTA, thus tightening the noose.

What are some options for hotels moving forward?

In order for the hotel industry to take back some of the control that they relinquished over the past three years, they must adopt some if not all of the following initiatives:

  • Move beyond traditional search methods and engage prospective customers the very moment they start thinking about travel.
  • Reverse the trend and reward customers who book in advance and not necessarily at the last minute.
  • Maintain strict rate parity, a best rate guarantee, and in the future don’t give any distribution channel the ability to undersell your hotel.
  • Expand social media presence and promote special offerings that are only available to individuals who are following your hotel.
  • Make it a point to elevate current and prospective customer’s online experience before and after their stay at your hotel.
  • Look for and adopt emerging direct connect distribution channels like Hotelminethat allow customers to book direct with you and not through an indirect channel.

Tom Costello is the CEO, Partner & Co-Founder of Groups International, a company that provides marketing, consultative services, and technology solutions to the group and leisure travel markets.  Connect with him on TwitterLinkedIn, and Facebook or contact him by email.

American Airlines – Distribution Disruption 101

A feud between American Airlines and several companies that sell its tickets shows new determination by airlines to lower costs and could spell new business challenges for online travel agents.

American is steering those third-party sellers toward its in-house technology that the airline says will save it money and allow customers to shop for flights based on more factors than just fares. This is needed, the airline says, because carriers now charge separately for so many travel-related perks and items such as bag checks, meals and priority seating.

But a shift to new technology operated by American and its peers could disrupt the lucrative business model now favored by travel agencies like Orbitz Worldwide and Expedia Inc and the companies that provide the data they publish.

AMR is leading the charge to cut distribution costs because several of its key distribution contracts expire in 2011. Other airlines may follow suit and force more changes to the business model, said Andrew Watterson, an airline consultant at Oliver Wyman, a management consulting company.

“This dust-up will change the economic landscape of this relationship,” Watterson said.

“There are sophisticated actors trying to change, improve and benefit from how we search. We can’t even imagine what our experience is going to be like in five years,” he said. “But we do know over the next year or two the economic, behind-the-scenes, who-gets-paid-what will change dramatically.”

Delta Air Lines announced last month that it removed its flight listings from smaller online sites CheapOAir.com, OneTravel.com, and Bookit.com. Last week, the Atlanta based carrier said it has notified Airfare.com, CheapAir.com, Vegas.com, AirGorilla.com and Globester.com that it would end participation on its websites in the United States and Canada Jan. 7.

“Delta continues to evaluate its online distributors, and intends to be more selective in its use of online travel sites in the future,” spokesman Trebor Banstetter said in a statement.

Cheap Travel Comes With Additional Fees

I’ve been in Kaua’i for the past few days, and on Saturday, when I was at the evacuation center listening to the news, the broadcaster mentioned that “in the spirit of aloha,” Hawaiian Air would waive any flight changing fees that day.

It was a very real consolation: roads across the island had been closed to traffic for a few hours, thereby making it impossible to get to Lihue Airport, so there were doubtless hundreds of travelers who were going to need that break.

Hawaiian Air’s response also underscored an airline fact of life travelers have learned to live with — there’s a fee for nearly everything. There are baggage fees, there are in-flight concession fees, headphone rental fees, blanket-and-pillow fees … and wifi fees are coming.

Trying to avoid fees can bring its own set of hassles — stick to bringing only a carry-on bag, and you’re facing a packing challenge if you also want to avoid concession charges and maybe bring a light wrap to keep you warm on a chilly plane. Forget using your own headphones on some airlines — the armrests aren’t wired for your standard earbuds.

When it comes to paying extra fees on a flight, the criteria I always use is: Will this make my trip much more pleasant? Does paying $5.50 for a bag of taro chips (going rate on the flight from Oakland to Lihue) outweigh the discomfort of waiting until the flight layover in Honolulu to grab a snack? (Not for me.) Does paying $20 roundtrip to check my bag make my life easier? (Yes. For one thing, it makes running to catch my connecting flight a breeze. For another, it means I can stock up on only-in-Hawaii goodies without worrying about packing space.)

Source Lisa Schmeiser San Francisco Chronicle