Trend analysis: Going online

Hotels are working to increase direct online bookings, but many still also rely heavily on online booking giants such as booking.com and Expedia, pushing up commission costs. Could smaller, local OTAs offer more beneficial partnerships?

Hotelier Middle East has long documented the effort and investment from hotels to increase direct bookings through website upgrades and mobile transitions but still, many pay commissions of up to 30% to online booking giants to help widen their sales net.

And according to Naeem Darkazally — VP sales and marketing MEA, Millennium & Copthorne, this situation is unlikely to change in the near future.

“OTAS have become monsters that hotels created — they are a big source of business; we can’t live without them,” Darkazally told Hotelier at the recent GIBTM in Abu Dhabi.

“OTAs ... control a lot of a hotel’s inventory and it has put them in a situation where they have the upper hand. So they say ‘I want so much commission’ — the hotel’s options are either yes or no, and then you lose all their business because for that online operator that hotel is only one business out of 600,000 hotels, so it makes no difference to them.

“For the hotel, it hurts a lot,” comments Darkazally. “The commission level is always high ... we have websites and we try to improve all the time and it costs us a fraction of what these OTAs take from us as commission, so it would make more sense for the business to come through our websites, that’s not a secret, but we’d never go to the extent of saying ‘we don’t want that business’ or — ‘let’s not give them the rates’ or ‘let’s not give them the availability’. They’re there to remain and in my opinion they will grow even further as customers go online anyway.”

Research certainly shows the potential for remarkable growth in driving online travel and hotel bookings in this region. A report from Google found that 39% of leisure travellers in the United Arab Emirates use the internet to plan a trip, but only 12% actually purchase online — compared to around 75% in the UK.

Speaking at the inaugural Web In Travel Middle East event in Dubai in March, Google Middle East and North Africa head of travel Ivan Jakovljevic noted that within the region, the UAE was the most mature market with “one out of two people” going online when they are thinking about travel.

However, considering the low conversion to purchase rate, is there an opportunity for local hoteliers and local OTAs to work together, possibly reducing reliance on the bigger aggregate sites, to make online booking easier and more efficient?

“There is quite a lot of room for growth when it comes to online bookings. The challenge is how to facilitate that process, how to most effectively try and close that gap of where the customers are and where they make their booking,” he said.

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MakeMyTrip chief commercial officer and co-founder, Keyur Joshi noted that the Middle East as a region should be an easy market for online travel agencies to exist in.

“It is quite a large market and it is not that difficult to crack. What we are seeing is that people are wide open to transacting online. It is quite an open market and it is not something that should be avoided,” he said.

He addded that the Indian company was keen to expand in the region, but that the “area of interest is in hotels”.

“Even if we are looking at packages, we are eventually looking at selling a hotel rooms. [We would be open to acquiring] anything that will help us accelerate growth for selling hotel rooms”.

Cleartrip senior vice president Tarique Khatri noted that there was a perception that the Middle East is a “very tough market” to enter, but that it is actually very receptive and that the company has seen “phenomenal” growth in the past 1.5 years.

Locally founded Musafir.com was hesitant when it began operation in 2007, pulling back until until Cleartrip made a bullish approach on the market a few years ago.

Sharing the company’s experience, Musafir co-founder and marketing & technology director, Albert Dias said: “We weren’t in the very beginning confident about the consumer market online. There have been very few companies in this region that have focused on being a true OTA.

“There are a lot of international players coming in and making their presence felt, but it’s the local players that in the long term will have the greater success story based on local knowledge and the local ability to access those customers.”

He added that one of the main reasons the local market had not had the same success as those internationally, was down to the fact that the market was still emerging and hadn’t had the time to grow at the pace that the international companies have.

“You will see in the next five to six years that it’s the local companies that I strongly believe will grow to that level,” Dias noted.

Kuoni Group launched its online travel resource EmiratesYOO last year and according to its managing director Girma Wossenseged, the site has already received interaction from visitors across the UAE looking to share their experiences. He added that “about 72% are repeat or customers that use us as the DMC, and 28% are new”.

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Emergence of META
An area of the online travel sphere that is offering fierce competition to OTAs is the emergence of metasearch sites, which have already had significant success with the region’s consumers. HotelsCombined.com regional manager — MENA Amer Al Halabi noted that metasearch had grown in popularity due to its ability to offer consumers a spectrum of choices on one platform.

“It is the concept that compares and brings everything in front of the users. The users don’t rely on one brand, they go from one site to another. So the metasearch concept is not always the cheapest. We don’t show the cheapest to the highest, we show according to the most booked or more viewed hotels and then it is up to the consumer to decide,” he added.

But Trivago CEO and co-founder Roif Schroemgens was sceptical of the ability of the Middle East in accommodating such sites, saying: “Meta always likes the more dense markets; it is more attractive for consumers when more players are in the market.”

Schroemgens said that markets such as UK, Germany and the USA were more suited to the online model and it was too early to look at the Middle East.

Wego Middle East & North Africa managing director Mohamad Ibrahim Masri agreed, noting that more players would facilitate the expansion of the metasearch model.

“If we had more local OTAs it would make it more exciting for us to do business, but we see that there is more appetite for local OTAs to move from offline to online,” he added.

Comparing the two business models led to some surprising opinions. While the majority of parties remained on their own side of the fence, there were some metasearch experts who noted that OTAs had the greater appeal for the consumer.

Travelstart CEO and founder Stephan Ekbergh said that investors “love” metasearch platforms and in his opinion in terms of business it was a “superior model”.

However, he added that from a customer point of view OTA provided “somebody that supports the customer through the whole trip”.

MakeMyTrip’s Joshi added that there should be no classification between OTAs and meta, as they were both intermediary services. “It’s who services the customer. Sure technology is progressing and allowing you to do much better things, and different models are diverging,” he added.

A similar approach is often taken by hoteliers, who tend to class OTAs and metasearch providers in the same bracket. Millennium & Copthorne’s Darkazally pondered the validity of comparison sites.

“I know one car company website in the region that gives you the details of a car, and once you click on it, it gives you the rate and all the USPs and says ‘do you want to see a comparison?’ and on the same website it shows you all the competitors — the other brands’ cars — and their prices. Imagine — can you see Sheraton.com putting the price of a Millennium hotel on their website? I don’t think we can comprehend the idea.

“It’s a big cultural shift — I think there was a consortium of a few hotel companies that tried to do this a few years ago through a website called Roomkey — it didn’t see much success.

I think it’s a tradition in hotels where we like the competitiveness of the hotel business but it’s something serious we should all look at. I don’t want my website to produce business for Sheraton — but what if Sheraton’s website is giving me business as well? Maybe it’s a good idea ... then it would save all these commissions,” observed Darkazally, although he added that this was unlikely to be a project for any hotel in the next two to three years.