With the economy down, fuel costs up, and businesses tightening their belts, the hotel industry is beginning to see a downturn as fewer people are traveling for business and leisure.According to Smith Travel Research, a Hendersonville, Tenn.-based independent hotel industry research firm, occupancy reached only 59.1% in the first quarter of 2001. While that’s only a .3% decrease versus first quarter 2000, things aren’t looking much better for the second quarter. Preliminary research for April 2001 shows that industry occupancy will be down 4-5% versus April 2000. Revenue per available room (RevPar) should be down 2-3% in April 2001 versus last year. This coupled with an increase in room capacity means that hotels need to work harder to fill their rooms, and increasingly, hotels are turning to the Internet to increase sales.
The Internet offers opportunity for wider distribution than ever before. According to The PhoCusWright Online Travel Marketplace 2001 - 2003, hotel Internet bookings totaled $2.6 billion last year, accounting for 18% of the total online market. The market is expected to grow 55% this year with 5% of all hotel bookings reserved online.
According to a recent survey of hotels by Arthur Andersen, respondents expect the percentage of total bookings made online to triple over the next three years to 15.4%
Part of this is due to the fact that online agencies have been building up their hotel business as a way to diversify from low-margin air sales. “Respondents indicate that the impact has been marginally positive as it relates to Internet strategy, customer satisfaction and competitive positioning,” the Andersen Hospitality and Leisure Executive Report says.
Non-hotel sites are also expanding into hotel reservations. Southwest, for example, recently launched a hotel reservations service using Galileo.
Expedia is having tremendous success online. In March, it announced that it sold more than one million room nights in less than three months. Comparatively, it took Expedia three years to sell its first million room nights. Through its Travelscape division, which operates on the merchant model, Expedia contracts for special room blocks to resell to consumers at a margin, guaranteeing revenue for the hotel.
Hotels can sign on to become an “Expedia Special Rate Hotel” through Travelscape to help fill unsold inventory. Travelscape helps hotels maximize revenue during peak, shoulder, and off-peak travel periods. Travelscape also provides hotels an extranet tool that allows them to manage inventory and rates online.
“Our relationship with Expedia has been extremely beneficial in increasing our exposure to travelers. Expedia`s flexibility helps us find innovative ways to dramatically increase our occupancy, and their unique business model has enabled us to increase our RevPar,” says Shannon Barnett, director of sales and marketing for the Argent Hotel, a Destination Hotels and Resorts property. Expedia`s new vacation package offering is also popular with hotels looking to fill excess capacity, says Expedia product manager Christina Kozoff.
“With vacation packages, we can offer even deeper discounts,” she says. “The hoteliers really like it because it keeps their process completely opaque. It gives them more pricing integrity while selling more rooms.”
Travelocity, as the top online agency, gives hotels access to more than 25 million customers. In March, the online agency expanded its hotel offerings through its relationship with hotel consolidator Hotel Reservations Network, (HRN). In addition to Travelocity`s current inventory of more than 50,000 hotel properties, this alliance gives members real-time access to the discounted independent vacation rental inventory provided through HRN`s Condosaver.com, giving the participating properties a new avenue of broad distribution.
Hotel Reservations Network is one of the hottest hotel booking sites on the Internet, although it has roots as a call center business. In fact, it claims to be the Internet’s top provider of discount hotel accommodations and supplier of room availability during sold-out periods. HRN booked $305 million on the Internet in 2000.
“During slower economic times a much larger number of consumers look for value rates on hotels, and consumers know the best pace to find them is on the Internet,” says HRN president Bob Diener. “Hotels are much more anxious to put their inventory in our system, so we have a lot more hotels, especially in the upscale category.” As the economy slows, Prime Hospitality Corp. is among the hotel companies that have been finding success filling rooms through Internet distribution. It recently expanded a relationship with HRN that places AmeriSuites and Wellesley Inns & Suites room inventory on HRN’s various online distribution channels. In addition to its deal with HRN, Prime has also entered into an agreement with WorldRes that will place its inventory on PlacesToStay.com as well as WorldRes` partner sites, and it works with Priceline and Hotwire.
“With these partnerships, we`re able to guide or funnel their demand into our properties,” says D.J. Vallauri, Prime’s vice president of e-commerce. “HRN and WorldRes work with thousands of other Web sites, so we can reach into the those markets, which we couldn`t do by ourselves. If we manage their systems correctly, we`ll be able to capture more of the business they have to offer for our properties and fill rooms that would otherwise go empty.” By expanding its online presence through third parties, as well as making improvements to its own Web sites, Prime has seen its Internet bookings jump from about 2% last year to a projected 5-10% this year.
On June 11, Marriott International announced that it set a single-day company record in bookings on its Web site, Marriott.com, generating more than 10,000 reservations. In addition to finding success with its own branded Web sites, Marriott has developed an online strategy that includes working with third party sites like Expedia, Travelocity, Biztravel and Priceline.
“We are one of Priceline`s largest hotel providers,” says Bruce Wolff, Marriott`s senior vice president of distribution and sales marketing. “It fits into our overall strategy of rational pricing.” With new business models on the Web, hotels have new ways of selling their excess capacity without compromising pricing integrity. Since January, Hotwire has been offering hotel rooms at prices that the company claims are substantially lower than competitors’ Expedia or Travelocity through exclusive partnerships with hotels. For hotels, Hotwire offers anonymity until the customer actually makes the reservation.
Site59.com is a prime example of a new business model that can greatly benefit hotels. Site59 caters to the spontaneous traveler by selling last-minute pre-packaged getaways. This gives the hotels the opportunity to sell distressed inventory without undermining published rates. Among Site59.com’s backers are UK-based Bass Hotels and Resorts, which operates more than 3,000 hotels, and Accor, a European hotel operator with 3,500 hotels in 90 countries. With the long awaited launch of Orbitz, hotels now have yet another place to sell rooms online. When Orbitz launched on June 4, four major hotel companies - Marriott International, Hyatt Corporation, Wyndham International, and Hilton Hotels Corp. - were charter members. In addition, Orbitz entered into an agreement with Pegasus Solutions Inc., a major provider of reservation distribution solutions for many online agencies and other distribution channels.