Direct is Always Better: How to Boost Direct Bookings, Lower Distribution Costs and Increase Bottom-Line Profits

Key Performance Indicators -

Reason for Major Concern

Key Performance Indicators in U.S. Flattening Out

STR, September 2016

2.0%1.6%-0.3%3.1%2.8%

Supply

Demand

Occupancy

ADR

RevPar

2016 Forecast 2017 Forecast

1.6%1.6%0.0%3.2%3.2%

Over Supply in Top Markets

STR, September 2016

7%7%8%10%14%

Houston, TX

Nashville, TN

Seattle, WA

Denver, CO

New York, NY

Market Rooms Under Construction % of Existing Rooms

5,6252,7033,3584,29716,301

Over Supply = Negative Growth in Top Markets

MarketTotal Hotel Rooms in

MarketAugust YTD Growth

in OccupancyAugust YTD

Growth in ADRAugust YTD Growth

in RevPAR

New York City 112,468 0.20% -2.90% -2.80%

Miami 53,488 -1.30% -2.00% -3.30%

Chicago 112,455 -1.90% -0.30% -2.20%

57.2 MMUnits Available

(+110%)

27.5 MMUnits Sold (+104%)

Airbnb Satisfies Some Demand

$4.7 BRevenue Generated

(+135%)

AIRBNB IN THE U.S.LAST 12 MONTHS (JULY 2015 – JUNE 2016)

Source: CBRE Hotels’ Americas Research; Airdna, Q2 2016.

Hotels Losing Market Share to OTAs

Shifting Share to the OTAs Destroys the Bottom Line

Kalibri Labs, 2016

2014

2015

$135.5 billion$145.5 billion (+7.4% )

Guest Paid Revenue

Generated by U.S. hospitality industry

Yet, the industry captured LESS in net revenue.

Result? $600 million not added to NOI (Net Operating Revenue)

How Can Hoteliers Grow

Profitability?

Top 6 Cost Drivers

Labor Costs Debt Service Franchise Fees

UtilitiesReal Estate Taxes

Distribution Costs

Labor Costs Debt Service Franchise Fees

UtilitiesReal Estate Taxes

The Only Cost Within the Property’s Control

Distribution Costs

How Can Hoteliers Grow Profitability?

HOTELIERS CANNOT CHANGE:

▪ Top Cost Drivers beyond their control (Ex. Labor costs - Productivity has reached its peak)

▪ ADR (with supply and demand equalizing)▪ Supply: Over supply nulls any benefit from

rising demand ▪ Demand: Even with increase in demand,

companies like Airbnb to compete with

THE ONLY OPPORTUNITY:

▪ Lowering distribution costs: shift bookings to the hotel website (book direct)

The Distribution Cost Conundrum

How we account for distribution costs in hospitality.

WhatAre YourCommissionsCostingYou?

How do we measure the cost of distribution

from the OTA channel?

Accounted for as COGS in a single line item.

Usually unclear whether these are paid for Travel Agents, GDS, CRS or OTA.

OTAs collect room revenue and pay the hotel the negotiated net rate.

It is not even accounted in the hotel P&L!

Merchant Commissions

AgencyCommissions

What does this mean?

OTA distribution costs are being completely ignored.

This “unlimited commission potential” allows OTA bookings to grow without restraint.

How do we measure the cost of distribution

from the direct online channel?

From the Sales & Marketing Budget; a line item in the

property budget.

Distribution Costs via

Brand.com

Irrespective of how profitable, the property can

rarely spend more to get more direct bookings.

What does this mean?

The most cost-effective bookings are severely restricted

by the sales and marketing budget.

The most expensive bookings are not restricted and

can grow exponentially.

Direct Online

ChannelOTAs

Action Plan: How to Heal the Distribution Cost “Self-Inflicted Wound”

Treat Direct Online Channel Commissions the Same as OTA Commissions

Treat both as COGS, deducted from the gross room revenue.

Direct Online

ChannelOTAs=

Adopt a “Direct is Better”

Strategy

Adopt “DIRECT IS BETTER” top-down strategy

Direct is Better Strategy

Provide Adequate Funding for the Direct Online Channel

Sell on Value, Not on Price - Improve Merchandizing Strategy

Who “owns” the website and its results and performance?

Whose salaries and bonuses are tied to the website’s

revenue?

Who is incentivized when you lower your distribution costs?

Direct Is Better: Start with a Top Down Strategy

WHY BOOK DIRECT? give your guests a reason

Early Check in/Late Check Out

Free Breakfast/Dining Credit

Free Wi-Fi

Free Room Upgrade

Every hotel should have book direct initiatives

Members Only specials to encourage direct bookings.

Educate and Empower Your Staff

Direct Guests = Best Guests

Create an Employee Guide to Increasing

Direct Bookings

Sell on Value, Not on Rate – Merchandising Strategy

Saturday in the CityJoin us for a weekend getaway and enjoy free

breakfast and free parking.

BOOK NOW

Family Museum PackageTake the kids on a wild ride this weekend. Get 4

museum passes, free breakfast and free parking.

BOOK NOW

Happy Anniversary!Celebrate with a bottle of champagne, chocolate

covered strawberries and late check-out.

BOOK NOW

Example: Generate weekend demand for predominantly business hotels with weekend leisure or special occasions packages

Allocate sufficient budget for the direct online channel.

Snapshot of the 2017 Digital Marketing Budget

Case Study: How much do independent hotels budget for the property-level direct online channel?

SPEND PER ROOM$649

Independent Hotels – HeBS Digital Portfolio

Time Frame: 2016

Case Study: How much do other branded hotels budget for the property-level direct online channel?

SPEND PER ROOM$250

HeBS Digital Branded Property Portfolio: Hilton, Marriott, Starwood

Time Frame: 2016