Direct Booking Increases Your Bottom Line

Direct Booking Increases Your Bottom Line

June 10, 2016

 

Hotel values are driven by room revenue and net income.  So whether you are considering selling or refinancing now or later, the more revenue your hotel generates, gross and net, the greater it's value and the greater your exit profit.

 

Last month Choice Hotels became the latest Franchisor to join the so called ‘Direct Booking Wars’.[1]  Earlier this year Hilton launched its “Stop Clicking Around” campaign and claims that HHonors enrollment on its website is up 90% since starting the campaign.[2] Most other major franchisors also have direct booking initiatives including Marriott, Hyatt, IHG, and Wyndham.

 

In addition to promising the ‘Best’ rate, some Franchisors offer benefits like mobile check-in and free Wi-Fi when customers book direct. 

 

As a franchise hotel owner, these Franchise wide campaigns are a win-win for you and your franchisor. The cost of Online Travel Agencies has always been the burden of the hotel owner. The commission structure for OTAs can range from 10 – 30%. In addition, OTAs with the merchant model, that collect the consumer’s fare up front and then pays the hotel a pre-negotiated net rate, the cost of the OTA is never even accounted for in the P&L because you only show your income for that room sale NET of the OTA. Up until now the cost of OTA distribution has been largely unchecked.[3]  To the extent that the new push for direct booking moves rooms booked from the OTAs to your direct franchise channel, it will add to your hotel’s income and bottom line.

 

According to one report by Hospitality Upgrade[4], direct bookings are about 9% more profitable for the hotel industry, than OTA bookings, when costs including commissions, transaction fees, loyalty fees, and other direct channel costs are considered.

 

Marriott says it’s too early to tell the success of their members-only rate, but that early response is positive.[2] For the hotel owner too, we will just have to wait and see how the direct booking campaigns affect net profits, and influence hotel valuations, but we would expect any movement of revenue from OTAs to direct channels to be positive for hotel profits and values.

 

Have you seen any changes in reservation trends at your hotels since the start of the ‘Direct Booking Wars’? What are your thoughts on the push by franchisors? And the push-back from the OTAs? Remember to share if you like this blog.

 

Till next time;

 

Charlie Fritsch

 

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Sources:

1. http://www.hotelsmag.com/Industry/News/Details/66299?allowguest=true

2. https://skift.com/2016/05/16/hotel-ceos-wont-back-down-when-it-comes-to-pushing-direct-bookings/

3. http://www.hotel-online.com/press_releases/release/how-hospitality-can-heal-its-self-inflicted-wound?utm_medium=email&utm_source=Offer&utm_campaign=5-16-2016

4. http://www.hotel-online.com/press_releases/release/just-the-facts-maam-direct-bookings-are-9-more-profitable-for-hotels?utm_medium=email&utm_source=Offer&utm_campaign=5-23-2016


 

MBA Capital Funding Inc. is a commercial mortgage and financing services firm, specializing in arranging debt and debt structures.