31 January 2013 | InterContinental Hotel, Park Lane, London

EY Real Estate and Hotels Workshops

‘Setting a course for the future’

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Online travel agents are not the only option

Given the investment by major brands in sales and marketing, management agreements and franchise opportunities seem an obvious move for many owners in a flat market.

“A lot of people with stand-alone hotels would like a bit of an injection with a big machine putting distribution into them,” says De Vere’s CEO, Robert Cook.

However, many owners still find it hard to see the value accruing from
management contracts, which often have “ridiculous” terms:

“While in general terms, brands undoubtedly add value to many unflagged properties, it’s not the case that every hotel with a brand on the door is going to add value,” says Hugh Taylor of Michels & Taylor. “Owners and their representatives need to work hard to ensure brands deliver what’s promised, and we still need to see a far more flexible approach from brands in the commercial and contract terms being offered to owners.”

Owners appear to be increasingly resistant to some of the more onerous terms contained in management and franchise agreements, and one of the perceived benefits from branding, the access to a global internet reservation system, is under threat from the rise of online travel agents (OTAs) and their related commission charges. Indeed, half of delegates identified OTAs as the number one threat to hotel profitability.

Q.

Which area is the most important to focus on in terms of cost control?

Which area is the most important to focus on in terms of cost control?

Source: Delegate poll results from the EY Hotels Workshop 2013

“We’ve relied on it for far too long, and we need to control it,” remarked Cook.

Working with OTAs may be costly in terms of initial commission costs and the impact on net room rate, but it can help to achieve longer term goals.

“We have to play the game; we’re too small a player to take them on and beat them,” says Cook. “But you need to make sure you get people directly the next time they book by adding value.”

Ultimately, says Taylor, OTAs are a fact of life and can, in fact, often achieve an effective net room rate higher than direct bookings can.

Other companies appear to be following the route of Marriott's Autograph Collection in introducing a "soft branding" concept that may appeal more to owners than more formal franchise or management agreements. We would expect more operators to follow this route, but they will need to take care that the lessening of control that soft branding brings does not lead to brand dilution.

Judith Smith
Senior Manager — Assurance, EY, UK