Take Skift
Hotel chains are quietly planning to change their distribution strategies. They want to bypass traditional middlemen and encourage direct bookings from business travelers. But with billions at stake, resistance from established providers is to be expected.
Sean O’Neill
Hotel chains are quietly developing plans to bypass traditional booking agents and thus increase the number of direct bookings from corporations and companies.
Why it is important: This move could fundamentally change the way business travel is sold today and potentially push traditional travel management companies and online travel agencies out of the market.
Why hotels are pushing for change: Some hotel managers believe that they can attract more business travelers to book directly by offering more interesting deals not found through third-party providers, so they are working on technology upgrades to offer distinctive deals.
Hotels Unbundle the hotel room
Major hotel chains such as IHG, Choice Hotels, Marriott and Hilton are testing a new pricing and booking process called “attribute-based booking.”
- Attribute-based booking is a bit like the “Build a Bear” toy concept. A traveler can choose à la carte from the things they want in a room – for example, a queen-size bed or a corner room. Travelers bundle their selections and receive a “custom” price.
- The key point for business travelers is that hotel groups are currently working on variants of attribute-based booking that are relevant for frequent travelers. If this succeeds, the hotels’ distribution costs could be significantly reduced.
- “I believe adoption will skyrocket over the next two to three years,” said Abhijit Patel, vice president of revenue management and global sales at Choice Hotels.
Direct bookings reduce hotel costs
Hotels are motivated to increase direct sales in order to save money by eliminating middleman fees.
- Today, most companies use travel management companies to manage their employees’ business travel bookings. These companies source much of their hotel (and flight) bookings through third-party providers who charge commissions to the hotels (and other suppliers).
- Small and medium-sized companies can let their employees book themselves through online travel agencies.
- “For hotels, the cost of distributing through traditional TMCs (travel management companies) and OTAs (online travel agencies) is quite high, so we obviously have an incentive to drive this discussion,” Patel said.
Some players are pushing for reforms
Some business travel buyers are craving change and want improved analytics and reporting capabilities.
- “We’re ready for change,” says Bryan Bachra, vice president of lodging and ground partnerships at Salesforce, where his team organizes the travel program for Salesforce employees. “But of course we need to make sure our hotels, our technology and our TMC (travel management company) partners are ready, too.”
Hotel executives argue that the property-based booking platforms they are working on will help companies understand their travel costs better than traditional intermediary systems.
- “On existing distribution platforms, a hotel cannot effectively tell its story and differentiate itself from those around the corner because they only offer 80 characters of text or the maximum number of characters,” says Rita Visser, Director of Global Travel Sourcing at Oracle.
In interviews, Navan and HRS said they want to work with hotel groups to adopt the new workflows. These smaller players say they are seeing interest from large corporations looking to adopt more modern technology. Some hotel managers are also hearing from corporate buyers seeking change.
- “At Choice Hotels, there are some very large managed accounts that are moving toward a better user experience by moving from traditional TMCs (travel management companies) to newer providers,” Patel said. “They’re looking for lower costs, better payment integrations and better reporting. That’s going to put pressure on the big incumbent providers to catch up.”
Technology challenges
There are several hurdles to the transition, one of which is the lack of industry-wide standards for attribute-based bookings.
- Some industry observers wonder how the fragmented hotel sector, which uses different systems, could introduce new distribution methods without an industry association setting common standards.
- Without a standardized code for, for example, a certain type of room upgrade, how are different systems in different countries supposed to recognize the upgrade and set the right price for it?
- However, some industry associations, such as HEDNA (Hotel Electronic Distribution Network Association), are working on this issue.
- “Even if the standards don’t materialize, new technology companies will find a way to aggregate and normalize the data using generative AI and machine learning to meet this challenge,” Patel said.
Other uncertainties
If hotels want to implement attribute-based booking, they need to modernize their technology to ensure smooth synchronization with travel managers’ often outdated software.
- Proponents argue that the changes are more technical than procedural. “Attribute-based booking will formalize some existing negotiation practices,” said Ryan Pierce of Salesforce.
- Today, travel managers of large companies require hotel groups to offer perks such as guaranteed last-minute refunds when negotiating preferential rates as a type of volume discount.
- The new technology simply does this within the software without having to send RFPs (Requests for Proposals) back and forth.
Possible counterpressure from industry
One uncertainty is whether business travel managers are willing to learn new processes. Mastering attribute-based bookings would require a certain learning curve.
- Travel managers must balance frequent travelers’ preferences for perks such as nicer rooms with program goals of controlling costs. However, hotels could share the savings from eliminating middleman commissions by offering the best available rates exclusively through their direct channels.
- However, hotel executives say attribute-based booking could help solve so-called leakage problems in corporate travel programs. Many employees today book travel outside of approved channels and charge the costs as a makeshift. Leakage is a bane for companies trying to track, manage and predict costs and ensure fairness.
- Hotels also argue that their revised system would offer more customized options, encouraging employees to adhere to policies. Hotel groups may only offer generic rates to third parties, making these channels less attractive.
The conclusion
Hotel groups are betting that by offering personalized options through direct channels, they will potentially change the travel booking landscape to attract business travelers and corporate clients.
