TRAVEL used to be a simple business. You’d visit your travel agent, look through a few brochures and, after the usual procrastination, book a trip. At that time, toward the end of the 1990s, the airlines often led the transaction, determining where you could go, with hotels a secondary consideration.
It was flights first, hotels second.
This booking pattern was accelerated by the arrival of Low Cost Carriers, which would push cheap airfares out through their vast databases, leading to spontaneous purchases – flights booked with no other consideration than they were a deal, an opportunity that could not be wasted.
Of course the internet, which really took off in the early years of this century, facilitated that, allowing consumers to transact direct with the airline, often immediately, without having to go through their friendly local travel agent.
The traditional travel agents often didn’t have the cheapest air deals anyway because carriers like Jetstar restricted access, preferring to sell direct to consumers without incurring agency distribution costs, which at one stage were 10% for domestic carriers, much more for internationals.
Then, after buying their flights, your average consumer would then go to an Online Travel Agent such as Wotif.com and book their holiday accommodation, cheap and plentiful thanks to a lack of demand caused by fortunate confluence of events: SARS, the Asian economic crisis, 9/11 and the Tech Wreck.
That’s been the pattern for many years, almost decade now, but over the past year the booking transaction chain has been turned on its head – again.
Now it’s hotels first, airfares second. And once again the Internet is, as travel agents like to say, to blame.
However it is different this time around. For a start Australia’s hotel industry is in much better shape than it was at the turn of this century, especially CBD properties where corporate demand is strong, driving up room rates and guest occupancy levels.
Leisure, as has been well documented, is still slow, diabolical in some of the more remote markets, so the growing number of hotel yield revenue managers across the major properties and groups, have been doing their best to restrict access to their most lucrative.
Like the airlines before them, they want to sell direct and lower distribution costs.
Meanwhile the Online Travel Agency sector has matured. Wotif.com no longer has total control of the market, although it remains, by a long margin, the market leader. The difference is that there are now numerous competitors, in particular global brands such as Expedia and Booking.com.
Each of these brands is competing ferociously for harder-to-get inventory with the biggest profits in online travel still found in accommodation. While airfare commissions have shrunk to virtually zero, there are still juicy commissions available from hotels, up to 25% in some cases.
Consequently over the past year these websites have used hotel deals as their main point of consumer leverage. Airfares are nowhere to be seen, an incidental add-on.
Now new competitors have emerged in the guise of the so-called Daily Deal sites – Spreets, Living Social, Groupon, Scoopon and so on – that live and die by pumping out ridiculously cheap, time-sensitive accommodation deals via their huge email databases.
They also want content and here an interesting dynamic has emerged – good quality, well-located Australian hotels have no need to use these distressed inventory channels to shift rooms, especially when the cost to distribute through Daily Deals sites can be onerous.
These sites are generally demanding 50% off the Best Available Rate and then take 50% of the revenue generated. Simply put this means hotels can end up with just 25% of what they would have made by selling that same room direct through their website.
So what’s happened is that the Daily Deal sites are – like so many Australian travelers these days – heading offshore to source the best deals. More often than not, that means Thailand, which is awash with quality properties struggling to fill rooms.
As I said, travel used to be a simple business. Not any more. Now it is truly global and incredibly dynamic. There’s no guarantee, for example, that the current scenario will remain, Change, you would have to say, is the only constant. What’s next? Watch this space.
This article first appeared in The Weekend Australian where the author, Martin Kelly, who also publishes TravelTrends.biz,has a weekly column in the commercial property section called ‘Checking In’.