EasyJet Is Making More Money From Bag Fees but Lags Competitors

EasyJet

EasyJet aircraft. The airline bought part of Air Berlin in December. EasyJet

Skift Take: It’s difficult to tell much from the first quarter results, but EasyJet seems on track to have a decent year. Acquiring some of Air Berlin’s operations will also enable it to grow in the lucrative German market.

— Patrick Whyte

Bag fees and other add-on now make up nearly 20 percent of EasyJet’s revenue, but it is very important for the airline to increase that total when measured against its flight ticket revenue.

EasyJet’s ancillary revenue grew by 20 percent in its first quarter with the airline now making $315.7 million (£226.3 million) from add-ons such as checked baggage and allocated seating.

The increase was modest, though. In the three months ending December 31, ancillary revenue represented 19.8 percent of the overall figure – a rise of 0.9 percentage points on the prior year.

Earning more money from selling add-ons is important for EasyJet because it makes the airline less reliant on ticket revenue, and would give the carrier more flexibility.

The airline industry in Europe has gradually woken up to the opportunities surrounding fare unbundling as well as other lucrative revenue streams. Chief executives like Ryanair’s Michael O’Leary and Wow Air’s Skúli Mogensen have even floated the idea that ticket prices could one day reach zero.

Although full-service carriers like Delta Air Lines might make more from ancillaries, they tend to represent a higher position of total revenues for low-cost carriers.

EasyJet still has some way to go before it can match its peers. In Ryanair’s third quarter results last year (its equivalent to EasyJet’s Q1s), ancillary revenue represented 41.5 percent of the total figure. In the same time period Wizz Air’s ancillary revenue was 43.8 percent of the total.

German Growth

EasyJet completed the acquisition of Air Berlin’s Berlin Tegel airport operations in December and started flights on January 5.

The deal gives EasyJet a much bigger foothold in the German market, enabling it to better compete with the likes of Ryanair and Lufthansa.

EasyJet expects to lose around $84 million (£60 million) from the new Berlin operations plus an additional $139 million (£100 million) in associated costs.

Solid first quarter

EasyJet did not include details on profits in its first-quarter release but the upbeat tone  suggests CEO Johan Lundgren, who replaced Carolyn McCall in December, is in for a good year.

The carrier has benefited from the demise of Air Berlin and Monarch, as well as the flight cancellations at Ryanair.

EasyJet has already secured around 60 percent of its expected bookings for the second quarter, slightly above last year.

“EasyJet delivered a strong start to the financial year with a significant growth in revenue in part driven by an increase in passengers flown and strong growth in inflight and ancillary sales as we offer more and better quality options for our passengers,” said CEO Lundgren.

“My aim is to help easyJet to go from strength to strength. Our customer proposition will continue to drive both passenger growth and loyalty. We have great revenue growth, strong cost control, a robust operation and a strong balance sheet.”

Ryan Wolkov

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Former Formula One Champion Overtakes IAG in Race to Buy Austrian Airline

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A Niki aircraft. The carrier was part of Air Berlin. Maarten Visser / Flickr

Skift Take: British Airways parent IAG was the odds-on favorite to take over Niki and merge it with low-cost carrier Vueling. It will be interesting to see whether Thomas Cook emerges as Niki Lauda’s mystery backer.

— Patrick Whyte

Former Formula One motor-racing champion Niki Lauda is poised to take back control of the airline that bears his name after fending off a rival bid from British Airways owner IAG SA.

Lauda made the best offer for Niki Luftfahrt GmbH, the Vienna-based leisure carrier that was left bankrupt following the collapse of its parent Air Berlin Plc, an Austrian insolvency administrator said in a statement Tuesday.

Niki was grounded in December after Deutsche Lufthansa AG, which had helped keep it afloat, pulled out of the bidding amid European Union antitrust concerns. IAG later said that German insolvency officials had picked it to buy Niki’s assets for its Barcelona-based Vueling discount arm, only to be thwarted after a court appeal saw jurisdiction transferred to Austrian authorities.

Lauda, a three-time F1 champion who came close to death when his Ferrari race-car crashed and burst into flames during the 1976 German Grand Prix, is now in pole position to regain Niki after Laudamotion GmbH was selected to buy the carrier following a creditor vote. No purchase price was given.

Niki had about 20 Airbus SE A321 aircraft and 850 employees before being grounded. Lauda had teamed up with Thomas Cook Group Plc’s German airline Condor for an earlier bid, though it’s not yet clear whether Niki will fly on behalf of the tour operator under the new deal.

IAG, which originally bid 20 million euros ($24 million) for Niki, is disappointed that it won’t be able to add the carrier to a group that includes Spain’s Iberia and Aer Lingus of Ireland, as well as BA and Vueling, according to a statement.

Niki, formerly Aero Lloyd Austria, was acquired by Lauda and renamed in 2003 before being partnered with Air Berlin a year later and sold to the larger carrier in 2011, ferrying Austrian and German sun-seekers to Mediterranean beaches.

The F1 ace earlier ran Lauda Air, which operated a variety of leisure routes from the mid-1980s before merging into Lufthansa’s Austrian Airlines business.

 

©2018 Bloomberg L.P.

This article was written by Richard Weiss from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Why Expedia or Priceline Might Just Be the Next Great Hotel Brand

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A photo illustration based on a image of the Economy Inn on Main St. in Corbin, KY. Brent Moore / Flickr

Skift Take: Whether or not you agree with this, it’s certainly an idea worth contemplating as everyone and everything in the travel industry are beginning to converge. Whatever you decide, please don’t shoot the messenger.

— Deanna Ting

What if Expedia, Priceline, and TripAdvisor had their own hotels?

What if there were less need for hotel owners to rely on hotel management companies like Hilton, Marriott, Hyatt, Wyndham, Choice, or IHG?

What if hotel owners just worked directly with online travel agencies, or even Airbnb, instead of paying hefty fees to the big brands or other consortium or marketing groups?

All these “what ifs” certainly seem a bit farfetched and outside the realm of possibility to the majority of the hospitality industry. But if we take a look at what’s happening right now and where the business of hotels is headed, we’d argue that these what ifs could soon become what’s now in just a few years.

In fact, we’d argue that this shift in the relationships among hotel owners, brands, and online travel agencies is already taking place, and we’ll continues to see it evolve even further going forward. And we’re not alone in this line of thinking.

At the Phocuswright Conference in November 2017, Kayak CEO Steve Hafner said, “The big guys in online travel, and I’m fortunate enough to work for one of them, are going to move into differentiation. And that, to my mind, means owning the assets. I would not be surprised to see people moving into the hotel space by actually owning floors or buildings or even chains.”

Earlier in that on-stage discussion, when asked where he sees the next big disruption or innovation in travel taking place, Hafner said: “I think we [in online travel] have all innovated on the service layer, and most of the people in the room are working on the service layers, but the true innovation is going to be actually owning and operating the assets — the airplanes, the hotels, not so much the cars actually. But that aspect is hugely capital intensive, and it’s ripe for some new ideas, and someone will get there. I have a $100 billion, so it won’t be me. If you own and operate the hardware, you can do a lot more on the innovation side than from the service and software layer.”

The ‘Differentiation’ Has Already Begun

In many ways, Hafner’s prediction about the online travel agencies moving more into differentiation has come true, and you see that playing out in their relationships with hotel companies.

The last two years have often been dominated by talk of the “direct booking wars” between hotel brands and online travel agencies for the hearts and wallets of consumers. Going forward, you should expect to see these two entities vying not only for consumers, but for hotel owners, too.

We already saw this last summer with Hyatt’s threat to take all of its hotels away from Expedia and its numerous booking channels. In its note to its hotel owners, Hyatt included justifications for why the company was raising its fees for owners of its North American full-service hotels and global select-service properties. Eventually, Hyatt and Expedia signed a new deal, but that hasn’t stopped Hyatt from making its case to hotel owners, demonstrating the power and value of being a part of the Hyatt family.

“The big guys in online travel … are going to move into differentiation. And that, to my mind, means owning the assets. I would not be surprised to see people moving into the hotel space by actually owning floors or buildings or even chains.”

— Steve Hafner

And even before last summer, there was the debut of Expedia Partner Central in October 2016. This platform was specifically created by Expedia to deliver business services for hotels that include — but are not limited — to marketing.

Google, too, provides similar promotional services for hotels, and TripAdvisor does the same for hotels that partners with the company. Priceline has its own Priceline Partner Network and even Airbnb is eyeing independent hoteliers, from bed-and-breakfasts to boutique hotels.

Perhaps we may not get to a point where we have physical hotels that are branded as Expedia, Priceline, TripAdvisor, or “powered by Google” anytime in the immediate future, but you can expect these online travel agencies and tech platforms to develop even more programs, or ways to bring more hotel owners into their fold — and try to cut out hotel management companies along the way.

This strategy was even hinted at as far back as 2012 when this “Distribution Channel Analysis” report was published by the Hospitality Sales & Marketing Association International (HSMAI) Foundation. In it, the authors wrote: “Some third-party distribution channels may start to offer similar services as those provided by current franchise and branded hotel organizations. They may develop into a kind of ‘soft brand’ to support client hotels by (1) maintaining a brand presence, (2) providing substantial reservation contribution, (3) maintaining quality metrics for customer evaluation and (4) offering the benefits of a frequency/loyalty program.”

Perhaps these companies will strike their own contracts with independents and change their fee models, offering packages to provide the services that hotel management companies traditionally do: distribution, marketing, loyalty, access to technology, and, maybe even operations expertise (or have that outsourced by another third party). Maybe they’ll launch their own versions of a soft brand collection. Or maybe they just might try to have their own versions of a hotel, similar to how Niido Powered by Airbnb apartment complexes will be.

And after launching their own versions of soft-brand hotel collections or lending their name to hard assets, who’s to say the online travel agencies won’t be willing to outright buy their own hotels or hotel brands down the line? Whatever these companies decide to do — and how to do it — just know that, at least for now, they are going to do all they can to woo hotel owners, especially independents, going forward.

Here’s a closer look at why these companies might just succeed at disrupting the travel industry all over again.

Online Travel Agencies Are Being Challenged

A Trivago television commercial.

Collectively, the online travel agencies had a tough third quarter in 2017, with investors taking away $20 million in market capitalization of such companies that included Expedia, TripAdvisor, Priceline, and Trivago. Now that they’re in an increasingly weaker position, there’s more pressure than ever for these companies to evolve and restore shareholders’ confidence.

“Online travel agencies are seeing their revenues go down and it costs them more to advertise on Google because the search criteria are going up,” said Raymond Martz, chief financial officer, executive vice president, treasurer, and secretary of Pebblebrook Hotel Trust, a publicly traded real estate investment firm that owns a number of both branded and non-branded hotels throughout the U.S. in major cities. “The search price is going up, and the online travel agencies had a tough third quarter. I think they see the writing on the wall. We’ve had overtures with online travel agencies reaching out to us and trying to find ways to partner more [with us].”

Not only that, but the direct booking campaigns launched by the brands coupled with their tougher negotiation practices have also made it more challenging for online travel agencies to compete.

Shawn Gracey, executive vice president of hospitality for Miami-based Key International, a real estate and development company with a number of hotels in Spain and the U.S., said, “I think you’ve seen the brands become very good at negotiating. We get communications from brands all the time that say they are going to hold strong on the fee structure.”

Martz noted that Marriott has publicly said it can negotiate a commission fee or 10 percent or less from the online travel agencies.

Robert Mandelbaum, director of research information services for CBRE Hotels’ Americas Research, also believes that online travel agencies must evolve somehow if they wish to succeed going forward.

“They have to evolve because there are fundamental threats to their existence,” Mandelbaum said. “They have to have a good relationship with hotels or they won’t have anything to sell.”

In addition to facing tougher rates with hotel companies and search companies like Google, online travel agencies may also have to concern themselves with another looming threat: blockchain, or the promise of a universal ledger.

“Blockchain could eliminate the online travel agencies because the transparency of all transactions will be much more direct,” Mandelbaum said. “The consumer goes right to the hotel — there’s no need for intermediaries anymore.”

And while online travel agencies do more than just book hotel rooms, the bulk of their revenue comes from hotels, so it makes sense for them to focus their efforts on the hospitality business as opposed to another one such as aviation.

The “Skift Research Report: A Deep Dive Into Priceline’s Competitive Position in Travel 2017″ pointed out the difference in what Booking.com makes from hotel bookings versus what it makes from airline bookings: “The key point that we want to reinforce is that hotel commission rates are in the 10 to 15 percent range for the large chains and 15 to 25 percent for smaller brands that make up the bulk of Booking.com’s inventory. This compares to airline commission rates that are anywhere from zero to one or two percent in most developed markets. The rationale for the airline inventory is having a complete product to drive traffic, but the margins on those bookings themselves are much lower than for hotels. Booking.com has recently added airlines, but this is simply pushing traffic into its Kayak platform …”

So, if online travel agencies are going to focus on evolving any one part of their business, the most logical one would be hotels.

Hotels Are Acting More Like Online Travel Agencies

As online travel agencies decide whether to become more like hotel companies, whether by providing some of the hotel brands’ services directly to hotel owners or actually owning hotel assets, their counterparts — the hotel brands — are wondering how they might become more like online travel agencies, in some ways.

The more hotel companies pursue asset-light and/or franchise models, the more they begin to resemble the distribution platforms such as Booking.com and Expedia. The reasons for going asset light, many hotel companies would argue, is to please investors; there’s nothing more sweet sounding to Wall Street investors than the words “asset light” when describing hotel company business models.

But being asset light has its other perks, too, and when you’re asset light and more like a franchisor — think Best Western, for instance — you don’t have to deal with the headaches involved in the day-to-day management of a hotel for a measly two to three percent management fee.

One high-level hotel ownership executive who spoke on background to Skift for this story said that the more hotel companies like Hilton, Marriott, and the like churn out more and more brands, “they are creating, synthetically, an OTA [online travel agency] proposition. They’re behaving like OTAs,” he said, and “they don’t have hard assets anymore. They’re going from management to the franchising of brands and they’re more focused on distribution.”

He continued, saying, “Both online travel agencies and traditional management companies are converging in the space of being an online travel agency, or being a distribution platform. The question becomes: What should the OTA do?”

For online travel agencies, providing their expertise in technology and marketing power to hotel owners seems like a natural progression.

However, for hotel brands, the transition from acting as a traditional hospitality management to acting like an online travel agency might prove more difficult, as evidenced by the demise of AccorHotels’ experiment with serving as a booking engine for independents, and the challenges faced by Room Key, an online travel agency formed by Choice, Hilton, Hyatt, IHG, Marriott, and Wyndham in 2012.

Flo Lugli, an industry expert and consultant in distribution, metasearch, digital online marketing, and online travel agencies, said she suspects AccorHotels’ experiment into distribution of independent hotels didn’t work because it was actually different from what the online travel agencies do.

“They were aggregating similar independent hotels with their own brands and it was a scale play,” she said. “But they didn’t have access to every single hotel in a market. To compete with the online travel agencies who are spending several billion dollars a year in marketing is an expensive undertaking. Just because you have the capability of having content doesn’t mean you’ll be successful in bringing customers to your site, or doing it in a way that’s economically viable to run a business. I’m not surprised it didn’t work; AccorHotels at heart is a hotel brand company and hotel operator.”

While history seems to suggest that it might be easier for online travel agencies to become more like traditional hotel companies, the same doesn’t seem to apply for hotel companies becoming more like online travel agencies. Regardless, it’s clear that both sides seem willing to learn from one another, and to test out whether their respective models could, potentially, work for the other.

Brands Aren’t What They Used to Be

Aside from Arne Sorenson and Bill Marriott, we highly doubt there are many people who can perfectly, and without hesitation, rattle off each and every single one of Marriott’s 30 hotel brands. And that’s just Marriott. That’s not taking into account the 14 brands and counting from Hilton, the 28 brands of AccorHotels, or the 13 brands of InterContinental Hotels Group, just to name a few.

Simply put, there are a lot of hotel brands out there. Why? Because having a lot of brands generates money. It lets companies open up new hotels in their brand family just down the street from another one of their branded properties without violating radius restrictions or area of protection rules that would prevent two Hiltons being built too close to one another, for example. That’s why you can have a Hilton and a Hilton Garden Inn, for example, on the same block.

Having a lot of brands is exactly what asset-light companies strive for as well. It’s how they demonstrate growth to their investors, and generate revenue with very few incremental costs, leading to greater profits.

And while some industry experts argue that there is infinitely enough room for even more hotel brands to emerge, others strongly disagree.

“A brand is less relevant today than it was 20 years ago,” said Martz. “Sixty percent of our hotels are in the independent sector. We have a front row seat to this.”

Still, Martz said that while he doesn’t see brands ever going away completely, they’ve simply lost their relevancy over time.

The hotel real estate executive with whom we spoke said the very fact that a company like Marriott can have 30 brands and still target the consumer is proof that brands don’t matter nearly as much as they used to. “It means the customer is becoming a little insensitive or indifferent to where they are staying as long as they are staying in a good hotel.”

Skift Research’s U.S. Experiential Traveler Trends 2018: Annual Survey on Traveler Behavior, Motivations & Preferences showed that a quarter of the more than 2,300 respondents in the study have zero preference for hotel brands or independent hotels. In other words, loyalty to a branded or a non-branded hotel doesn’t exist for them.

What really matters most to consumers today, he said, isn’t the brand itself but the rankings and reviews associated with an individual hotel property. “The first thing a customer checks are the rankings and the commentary. That’s a much better quality assurance than a brand can provide,” he said.

For further proof of that, he pointed to Airbnb. “People choose to stay at an Airbnb based on social ratings and comments from users. They don’t need assurance that there’s a brand on it. That’s part of the dynamics and in essence, the brands are disappearing and what prevails is distribution. If I get the best distribution from an online travel agency, why would I sign up with another company?”

However, as many industry experts have pointed out before, the decision for a hotel owner to choose a brand or not depends on the market his or her hotel will be in. In a market such as New York City for example, which is very crowded but always seems to have high demand for occupancy, being a part of a brand isn’t as crucial. But in a smaller market, going with a brand might be better than going it alone.

And other owners still might consider a different option: joining a soft brand collection like Marriott’s Autograph Collection, Hilton’s Curio Collection, or Choice Hotels’ Ascend Collection, for example. These “soft brands” allow independent hotel owners to keep their own hotel names while having access to the bigger brands’ distribution, marketing, and loyalty platforms for a fee. Lenders, in particular, favor brands and soft brands over independent hotels.

“The brands are disappearing and what prevails is distribution. If I get the best distribution from an online travel agency, why would I sign up with another company?”

— Raymond Martz

While it’s hard to pinpoint exactly how much these owners pay in fees to join these soft brand collections, most estimates say that owners who join soft brand collection are paying, more or less, the same amount of money to be a part of a soft brand collection as they would to carry the flag of a Hilton, Marriott, or Hyatt.

A preliminary Skift Research investigation into the difference in royalty fees paid for soft brands versus normal brands showed that, on average, soft brand royalty fees were approximately 30 basis points lower than the overall average for a traditional hotel brand. For example, franchise disclosure documents filed in Wisconsin for Choice Hotels showed a five percent royalty fee for its Ascend Collection and a 5.3 percent average fee for its other brands. For Marriott, the difference in fees for a soft brand versus a traditional brand is approximately 50 basis points. However, when you consider other fees owners pay to the hotel companies, such as fees for loyalty, marketing, reservations, and brand standards, the total amount in fees that they would pay to be a part of a soft brand are more or less the same as to be part of a traditional brand.

What these owners are paying for with soft brand collections isn’t for the names gracing their front doors; they’re primarily paying for access to the brands’ booking engines and loyalty members.

David Roedel, partner of Roedel Companies, a Nashua, New Hampshire-based owner-operator of hotels, event centers, food-and-beverage outlets, and government lodging, said his company decided to join Hilton’s Curio Collection soft brand for its latest hotel primarily because of the access to Hilton’s reservations system and its loyalty members and to “mitigate risk.” Roedel said the cost of being a part of Curio versus being a part of one of Hilton’s other brands is “about the same” but that having the Hotel Saranac, an historic boutique property in Lake Saranac, New York, part of Curio meant having the “freedom to develop the best brand for that market.”

But even before approaching Hilton and joining its Curio Collection, Roedel and his team needed to make sure they had a brand story or narrative to present to Hilton. “You come to them with your story and the brand,” he said.

Joining a soft brand also comes with various brand standards for hotel owners to adhere to, although they’re generally not as numerous as those attached to a branded flag.

Roedel and the Hotel Saranac’s lead interior designer, Susan Pollio, principal of RSJ Associates, said that while there weren’t as many brand standards for them to meet as if they were working on a Hilton property, there were still some standards they needed to fulfill when working on the Hotel Saranac — not an easy feat when you’re dealing with a historic property.

Which begs the questions: Can a hotel owner ever retain real, true independence if he or she joins a soft brand collection? Are the costs associated with these collections worth it? And if a soft brand isn’t all that different from a “hard brand,” what’s the point?

Independents Are Thriving

The independent boutique hotel group 21c has 90 rooms integrated into a museum and restaurant at its Louisville, Kentucky, property. Credit: 21c Museum Hotels

Another reason why online travel agencies may have visions of having their own branded hotels, or at least desires to have more direct relationships with hotel owners, has to do with the fact that independent and/or boutique/lifestyle hotels have been very successful, and that’s in large part due to the level of transparency that online travel agencies and metasearch engines have provided when it comes to hotel pricing.

According to STR data, independent hotels have exceeded the revenue per available room growth of many branded hotels in recent months and, according to the hospitality real estate executive Skift spoke to, “That begs the question about the relevancy of the brands. You’re going to have a lot of owners question the real benefits of a flag in an era where TripAdvisor and Expedia ratings and social media are very powerful vehicles.”

In its most recent Boutique Hotel Report, The Highland Group notes that the boutique hotel segment in the U.S. alone was a $15.8 billion industry in 2016, and that independent boutique hotel supply grew six percent annually since the year 2000. It also noted that boutique hotels generate more annual room revenue per available room than most comparable traditional hotel concepts overall, something that may also be influenced by the fact that independents and boutiques tend to skew more toward the upscale and luxury markets.

The same executive also noted that the recent sale of Avendra, a hospitality procurement services provider, to Aramark by Marriott, Hyatt, Fairmont Hotels, ClubCorp, and InterContinental Hotels Group shows that independents no longer need to worry about the purchasing power that brands used to provide for their owners.

“You can now get the same benefits of the supply chain from someone else like purchasing agents,” he said. “You don’t have to buy it from the hotel company anymore.” That means that owners can choose to adjust the amount they want to spend on certain amenities, for example, to adjust their costs to their average daily rate.

Loyalty Can Be Expensive

Aside from distribution, another driving force behind many owners’ decisions to go with a brand or soft brand relates to loyalty: access to millions and millions of loyalty members who collect points in the hopes of redeeming them for free hotel nights, special access to unique experiences, and perks like complimentary amenities.

But loyalty, some developers and owners have argued, can be expensive and costly for hotel owners.

The hotel development executive who spoke to Skift on background said the hotel management companies “are building loyalty on the back of the owners.” He added, “There’s also a conflict of interest where management company credit cards aren’t providing better credit card fees to owners, so the argument of the cost effectiveness of joining a branded company are not coming to fruition.”

But what about all the benefits that the direct booking campaigns launched by Hilton, Marriott, IHG, Choice, Hyatt, and their peers? These campaigns often employed discounted rates for loyalty members and they encouraged consumers to book direct on brand.com sites instead of an Expedia or Booking.com, and Martz said he saw a boost for both his branded and non-branded hotels because of them.

“Whenever Hilton, Marriott, and Hyatt go to war with the OTAs, we love it as owners,” Martz said. “Our branded hotels benefit if the commission fees to online travel agencies go down, and our independents benefit too. There’s a big difference between what online travel agencies charge independent and branded hotels.”

But not everyone is convinced that the investment in direct booking campaigns was really worth it. The same hotel developer executive Skift spoke to said he’s not convinced by data recently presented by Kalibri Labs, which Kalibri said showed that the direct booking campaigns were successful and financially beneficial to hotel owners.

“If you look at the specific profit-and-loss statements for hotels, the cost of management and loyalty fees is very close to the commission fees you pay to an online travel agency,” he said.

Lugli said that the real cost of loyalty for owners is something that needs to be taken into consideration.

“Brands want more customers coming to them so they created those loyalty discounts,” she said. “Let’s say 60 to 70 percent of a hotels’ business is loyalty members, but what’s the dilution factor, or the number of people who would have booked anyway, without a discount? The owner pays that dilution factor at the end of the day. The brands try to sell more franchises, and it certainly drives more revenue to them id those members adopt the loyalty rate. But at the end of the day, what’s the cost for the owners?”

What this all boils down to, effectively, is that hotel owners want to acquire guests, to build their business, in whatever channel costs them the least amount of money. That’s just good business practice.

The purest form of a direct booking isn’t when a guest books a hotel on a brand.com site, because that hotel owner is still paying money in the form of fees to whatever brand with which it’s affiliated. It’s still paying something to be distributed on the brand’s platforms, just as it pays to be advertised on an online travel agency. The only 100-percent direct booking takes place when a guest books through a specific independent, non-branded and non-soft-branded property’s own channels.

One long-time hotel industry executive with experience working in online travel as well as a for a major hotel company and hotel owner told Skift that when you do the math, all of the costs that hotel owners pay to be a part of a brand or soft brand, which is estimated at around 15 percent of all revenues, is equitable to the amount an owner would pay in commissions to the online travel agencies, a percentage that generally ranges from 15 to 20 percent, but only on a consumed room revenue basis.

“If I am paying 15 percent [to a brand] on all of my bookings, but only getting, for example, 35 percent of my bookings from that brand effort, my equivalent commission on a per consumed room basis is close to 45 percent,” he said. “The online travel agency can therefore be a cheaper option if you are deciding between a big brand or being independent and levering up on OTA business and potentially other channels. OTA channel costs are often an overstated issue in making this tradeoff. Meanwhile, an owner is paying fees to a brand for the revenue expertise, or potential RevPAR [revenue per available room] upside, due to lender requirements, or as a perceived safety net in an economic downtown. Especially in big city environments, owners may feel like they can overcome these issues and save on costs.”

The purest form of a direct booking isn’t when a guest books a hotel on a brand.com site. The only 100-percent direct booking takes place when a guest books through a specific independent, non-branded and non-soft-branded property’s own channels.

Another thing to note is that a hotel owner can choose how much inventory he or she wants to put on an online travel agency platform and when to open it; commission fees are only paid when a booking is made. Skift Research estimates that hotels that are part of major chains pay commission rates between 10 to 15 percent to online travel agencies, while independents pay anywhere from 15 to 25 percent.

By contrast, when a hotel is a part of a brand, its owner is paying fees to that hotel company no matter what, and regardless of whether or not the hotel is getting bookings via the brand’s channels.

Lugli said that if online travel agencies can provide a better value proposition for hotel owners, that might persuade some to work more exclusively with them instead of choosing to work with the hotel brands.

“I was having conversations as early as 2009 and 2010 as online travel agency volume continued to grow and as transparency continued to permeate the market,” Lugli said. At some point, with a franchise brand, is there a better value proposition that an online travel agency can offer than a brand? What if Expedia created Expedia Hotels as a brand, just like Amazon is doing with its retail stores? The name recognition is there. As long as they’re able to get their reviews, I think consumers would be amenable to staying in an Expedia hotel or a TripAdvisor hotel. How much of a risk is this for the core franchise model? It must be in the back of minds for the brands.”

What Could This Look Like?

If online travel agencies were to start getting more into the hotel business, what exactly would that look like? We have some ideas and many are based upon what they’re already doing today.

One prime example of this is Expedia Partner Central, which is led by Melissa Maher, the senior vice president of Expedia’s Global Partner Group. Speaking to Skift, Maher told us about the extensive networks of local market managers it has employed to work directly with hotels worldwide. “We want to make sure we’re working directly with hotels to help support them on any of the needs they have to drive the business they want to drive,” she said.

Gary Isenberg, president of asset and property management services for LW Hospitality Advisors, said the online travel agencies’ deployment of global market managers is the inverse of the approach taken by hospitality management companies.

“They’re taking a decentralized approach to developing relationships with the individuals making decisions at the lowest level in the organization as possible,” Isenberg said. “Brands are working from the top down and online travel agencies are working from the bottom up and that gives them that juggernaut control.”

Maher said some of the ways Expedia works directly with hotels at the individual hotel level include using Expedia’s data to help them, whether through marketing and technology, and her division’s primary focus is on especially working with independent partners.

Targeting independent hotel owners, versus those with branded properties, makes a lot of sense, considering the fact that so many branded hotel contracts can last for decades or even longer in some cases. Not only that but many independents already rely heavily on online travel agencies for their business, as this chart from Skift Research’s “2017 Outlook on Direct Booking” report demonstrates:

“There are many independent hotels that rely on these online travel agencies anyway,” said Laurence Geller, founder and chairman of Geller Capital Partners, a luxury hotel investment and management firm. “For the most part, I can think of three in Chicago where 50 percent of their business is coming from an Expedia-type situation. It’s almost inevitable that the Expedias of the world will try and lock up certain hotel companies.”

Expedia is also developing tools especially designed for hotel employees to use, such as RevPlus, a free revenue management tool.

Expedia’s advantages for hotels and hotel owners, Maher said, include those free tools, their expertise in technology, their access to data that’s hard to find anywhere else, and their investments in marketing.

“Most of the time, when we have conversations with owners, they’re looking to us to ask about how they can better maximize their rates and occupancy and get more business from us,” she said. “They’re also looking for us for some of that data we have and we also spend time talking to them about additional tools they might want.”

And companies like Expedia are also, in some cases, working directly with the brands themselves to develop products like packages for Vacations by Marriott and loyalty schemes with Red Lion Hotels and Motel 6, for example.

Advantages in Technology, Marketing, Loyalty, Distribution, and User Experience

“We want to make sure we’re talking to all levels, to make sure we have relationships at the individual hotel level but the chain level too,” Maher said. “The value we bring to hotels is certainly demand, and demand from various points from all around the world. It’s the marketing opportunities, and the technology expertise.”

That technological expertise is something both CBRE’s Mark Woodworth and Pebblebrook’s Martz noted as an advantage for online travel agencies.

“Because they are so much more tech savvy and able to assist owners in getting up to the level of tech competency that they need to get to, it seems like this is a natural role for online travel agencies to fill,” Mark Woodworth, CBRE’s head of hotel research in the Americas said.

“Expedia is very smart — they have more engineers at Expedia than all the brands combined,” said Martz. He recalled a conference call he recently had with the company about one of his hotel’s websites, and recalled being impressed with the level of detail they presented to him. “They do so much researching and invest in so much monitoring — they said for every 0.2 seconds it took to download the site, we could lose this specific number of customers in the booking process.”

The amount that online travel agencies invest in marketing, in comparison to what the brands spend, is also much larger. Both Priceline and Expedia outspend hotels more than two-to-one on marketing. Seeing that kind of monetary marketing investment in Expedia- or Priceline-branded or affiliated hotels could potentially be much more significant than what hotel brands are currently spending on their hotels. And all those marketing investments have led to incredibly high levels of brand recognition and awareness for the online travel agencies.

Both of the major online travel agencies, Priceline Group and Expedia, also have their own various loyalty programs, too, although they are relatively modest in comparison to the hotel loyalty programs from the large chains. As of the second quarter of 2017, Expedia’s Hotels.com Rewards program had more than 30 million members that have redeemed more than 10 million free nights since the program launched in 2008, and the Expedia+ program has more than 24 million members. Marriott’s three loyalty programs, for example, have nearly 110 million members.

“Online travel agencies’ loyalty programs are also attractive to smaller hotel players who wouldn’t have the resources to build the infrastructure for a program of their own,” said Jeff Maling, co-CEO of Isobar, a digital agency. “All the digital infrastructure surrounding it, like a hotel-branded app, digital concierge, etc. could be built by an online travel agency and scaled across multiple hotels.” Maling believes that the online travel agencies’ abilities to develop more of a virtual concierge or app at scale for independent hotels is also a compelling proposition.

The experience of using an online travel agency to book travel is also, for some, superior than using the brand.com sites. “The fact that they have a cross-segment of so many hotels in any one given destination on their sites has helped make their success,” said Isenberg. “They are so consumer oriented. A consumer can be loyal to Expedia and stay at a Sheraton or a Hilton or all these independent hotels in all these different locations and still earn loyalty points with Expedia. It’s a challenge for brands to overcome that consumer convenience.”

The online travel agencies’ expertise in distribution also goes without saying, and that could also have serious appeal for independent hotel owners that want to get the highest occupancy rates for the lowest cost of acquisition.

Pebblebrook’s Martz, for one, is one of those hotel partners willing to work more with whomever can help his business the best. “We’re going to take what’s best for our hotels. If they come to us with a model that works better and is cheaper and allows us to be more profitable, we can use that model more. If Arne [Sorenson, Marriott’s CEO] and Chris [Nassetta, Hilton’s CEO], can get fees down below 10 percent, the brands get more appealing. We want to have all that pushed down; we’re agnostic.”

Some Potential Models and Approaches

Airbnb’s offices in San Francisco, California. Credit: Open Grid Scheduler/Flickr

If online travel agencies can indeed craft a model that makes it more reasonable and affordable for hotel owners to rely more on their distribution channels than on the brands’, that would be a compelling selling point.

One simple way to do that is for online travel agencies to simply offer lower commission rates below the current 15-25 percent rate for independent hotels who rely solely on the online travel agency for distribution.

Another possible method, perhaps, is for online travel agencies to start acting more like a traditional hotel brand does. Online travel agencies could ask to collect just three percent of all hotel revenues instead of the 13 to 25 percent in revenues generated from bookings made on their platforms. Some industry estimates place the overall percentage of revenues paid to brands in various fees can be approximately nine or 10 percent, or even more in some cases.

“If it costs an owner nine percent of gross revenues to be affiliated with a brand and that comes with distribution, an online travel agency should be less because, at least right now, they don’t offer a hotel owner as much as the brands do,” Bjorn Hanson, clinical professor with the New York University Preston Robert Tisch Center for Hospitality and Tourism, said.

Maling said he envisions a “revenue-sharing scheme” in which online travel agencies might guarantee hotel owners a certain volume of business or premium placement. “Today, a small hotel might have 28 percent of its revenue coming from an online travel agency and it could be 100 percent in the future.”

What’s stopping online travel agencies from launching their own independents-only hotel booking sites and/or giving certain hotels preferential rankings or treatment on their own sites, too? Already, they have multiple brands and sites — would it hurt to add more? And would these “collections” operate similarly to how the brands’ soft brand collections do, or to how traditional independent hotel marketing collectives like Leading Hotels of the World, Small Luxury Hotels of the World, or Preferred Hotels & Resorts do?

“This could go against the Preferred, Leading, and other collections of hotels that are cooperatives,” said Geller. “They [online travel agencies] could knock them out of business. They could be cheaper than these people. That would best be done by them linking with one of these conglomerates. Online travel agencies could say, ‘Get rid of your systems and we can give you more occupancy.’ But in general terms I don’t think that will give them enough outlets — they need the branded hotels, too.”

And what of branded hotels? Will we see the emergence of TripAdvisor- or Priceline-branded hotels at some point? Or will one of the online travel agencies design to develop their own hotel brands, or buy an existing one?

“I once said to Expedia, ‘Why don’t you buy a hotel chain with your market cap?’” Geller recalled. For his part, he doesn’t see that happening anytime soon: “They don’t need to. They’re a delivery system.”

Another potential model to follow could be similar to what Airbnb is doing with the multifamily housing developer Niido to create Niido Powered by Airbnb apartment-hotels.

Or perhaps the online travel agencies borrow from the managed marketplace model that India’s OYO Rooms has built. In 2015, OYO Rooms founder and CEO Ritesh Agarwal told Skift, “That distributors are launching sub-brands is, to me, an endorsement of the fact that travel preference in general will move to brands being their own distributors. What remains to be seen is if advantages provided by a brand versus a distributor create greater relevance for the customer.”

Why This Might Not Happen After All

No endeavor is without its potential pitfalls and if online travel agencies do indeed decide to deepen their involvement in the hotel business they will have to consider the following.

Firstly, as much as some may believe that brands aren’t as powerful as they once were, the fact is that there are those who still care about and value the power of brands. “People do care about brands,” said Geller. “Underpinning these hotel brands are standards, safety, etc. — there’s so much that goes into it. With a brand, there’s somebody to sue, rely on, complain to, a way to redeem and earn points. I think it’s hard to compete with the brands.”

Another fan of brands, perhaps even more important than the general consumer, consists of the lenders. “Some lenders won’t lend to a hotel owner unless there’s a brand affiliation. Owners and developers would not do it otherwise,” said Hanson. For hotel owners, brand affiliation has its benefits not only in financing but in operating technology, purchasing, and recruitment.

Another important part of the business that Hanson sees as being neglected by the online travel agencies include corporate negotiated rates, and the brands’ massive sales forces that power meeting and group sales. Expedia’s Egencia, he said, “has a different competency” and he doubts online travel agencies can understand the “optimal mix” of group and non-group business that hotels require.

The brands’ expertise in actual hotel operations, such as training for staff, is also something not to be overlooked, Geller and Hanson both noted. Those brand standards for quality are still important and challenging to maintain.

Hanson sees the potential of online travel agencies getting deeper into hotels as an “interesting intellectual exercise more than a likely business outcome in the short term.”

“With a brand, there’s somebody to sue, rely on, complain to, a way to redeem and earn points. I think it’s hard to compete with the brands.”

— Laurence Geller

He said, “Online travel agencies are really good at what they do but what they do is a really narrow part of the hotel industry. They can find other people to do the other parts but at that point they’re just putting together a variety of service providers. [Partnering with an online travel agency] might actually cost more than just going with a franchisor for some hotel owners.”

And what of Google or Airbnb? Both of those entities pose threats to the online travel agency business as well. Google is currently building up its Google Hotels business, and balancing the growth of its travel products with its highly lucrative advertising business.

Airbnb is also making it clear that it wants to attract more hotels, especially independents and boutiques, onto its own platform with its more attractive three to five percent commission rates — a much lower rate than what the online travel agencies currently charge for both independent and branded hotels. And what if Airbnb’s business model followed a similar franchise model like Best Western has? What if Airbnb began to approach hotels with its own version of a soft brand collection?

Another potential challenge to online travel agencies developing their own hotels is that they might find themselves in competition with themselves. “Online travel agencies have the ability to drive you to the lowest price point or best convenient option you’re looking for without prejudice — they’re not controlling that now,” Isenberg explained. “But if they build their own hotels they are going against that. Wouldn’t they direct more inventory to their own hotels and would that end up hurting their business more than help it? Now that they have a horse in the race, it takes away the edge they have with consumers today.”

Airbnb, on the other hand, he said, doesn’t face that problem, even as its partnership with Niido develops actual Airbnb-branded hotels with units that are rented out to tenants. “It’s complementing their current platform,” Isenberg said. “They are just adding more hosts. If an online travel agency adds hotels, they’re more in conflict with their own platform. Online travel agencies have to depend on hotels. Airbnb doesn’t have to depend on hotels. They just need hosts to rent units on their inventory.”

And that therein, lies the eternal struggle between online travel agencies and hotel companies: It’s hard for one to exist without the other. As much as the hotel brands and hotel owners may lament the commission fees paid to online travel agencies during good times, they are grateful for the business these intermediaries give to them when times are not as kind.

Geller sees online travel agencies and hotel brands continuing to battle over independent hotels and soft brands, but he believes that as hotel companies get bigger and more consolidated, the more likely they “will coexist with the Expedias of the world.”

Whether this concept remains merely an intellectual exercise or becomes an actual reality, one thing is for sure: the brands and the online travel agencies aren’t going away anytime soon, and the battle for dominance in travel among all the brands continues.

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Voice Search Will Change Travel Marketing Faster Than You Think

Apple

A man pairs his Apple Watch Series 3 at an Apple Store in New York City. Wearables and smart speakers are driving forward a revolution in voice search technology. Apple

Skift Take: Voice will change the current travel marketing funnel much faster than we think. Savvy marketers and technologists should begin thinking about ways to make an impact on this burgeoning channel.

— Colin Nagy

Colin Nagy, head of strategy at Fred & Farid, a global advertising agency, writes this opinion column for Skift on hospitality, innovation, and business travel. “On Experience” dissects customer-centric experiences and innovation across hospitality, aviation, and beyond. You can read all of his columns here.

Images are essential to travel marketing. Whether it is an old-school print advertisement for a cruise company in Departures Magazine or an influencer-centric Instagram campaign for a new boutique hotel, a lot of time and effort is spent to seduce the eye with beautiful visuals.

This is based on how we consume content: using our desktop or laptop throughout the day, or drinking in frantic spurts from our mobile feeds. Instead of digging through big blocks of text, we are drawn to things that can convey a story or a feeling quickly. Great visuals are seductive and make their way to our heart quickly.

Luxury brands know this and have re-aligned their strategies to up the volume of content output, making sure exceptional art direction shines through in fragmented (and often low-fi looking) mediums like social media.

But for travel marketers and those in charge of building brands and setting a visual tone, the rise of voice interfaces needs to be considered and planned for soon. The shift will happen quicker than we realize, and may represent as large of a shift as the rise of bottom-up social media.

Aaron Shapiro, the founder of digital agency Huge, wrote a piece in Adweek claiming that the post-phone world is happening faster than we think. For all of the accolades earned by the iPhone X, he argues that the connected Apple Watch represents a bigger sea change:

“The Apple Watch Series 3 is a big deal because it comes with LTE cellular connectivity,” Shapiro wrote. “This means that—when coupled with Airpods — it will become the first truly credible post-phone internet device.”

Apple Watch Series 3 “makes all the things we currently use our phones for—playing music, text messaging, making phone calls, getting directions, or ending a debate with a Wikipedia factoid, possible without your phone.”

When you think about it, we spend a ton of our time interrupting our field of vision with a device in front of our faces. Right now, voice commands through Google Assistant, Siri or Alexa are in their early phase of development. It’s useful to ask for a new NPR morning briefing while you’re tying your shoes or for remedial information based on Web searches. But as the technology gets more advanced, voice will insert itself into the modern marketing funnel in a meaningful way.

How will this look? In the research phase, perhaps it is being read an article from a top travel publication about the destination you have in mind to visit in four months. Perhaps a device is narrating the work of the novelist Graham Greene when you’re thinking about a trip to Hanoi. Or posing a query about the most in-demand boutiques from Tablet Hotels.

When it comes to purchasing, maybe it will be as simple as saying: Send me the best flights on Oneworld based on these dates. It is clear that the final meter won’t be conducted via voice, but the channel will have an important role in the ecosystem.

As for the much-touted hotel in-room voice experiments? I think the privacy issues are too much for this trend to see meaningful scale. It is one thing to have an assistant device in your home when you decide you want to buy it. It is another to have a device you didn’t ask for in the middle of a hotel room. After all, you can use a personal device.

Voice is certainly already on the to-do list of inspired marketers and chief marketing officers. This is just the beginning and this friction-free interface can have a seismic impact on how travel is positioned and bought if it receives the right amount of creative thinking from agencies, brands, and technologists.

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Travel Megatrends 2018: The Hotel of the Future Needs to Be Everything to Everyone

Bett Norris

Bett Norris

Skift Take: Think of this as mixed-use 2.0. As consumer demands and mobile technology evolve, hoteliers are becoming smarter about designing their spaces to accommodate our multitasking lives.

— Deanna Ting

Earlier this month we released our annual travel industry trends forecast, Skift Megatrends 2018. You can read about each of the trends on Skift, or download a copy of our magazine here.

At this point, the rise of Airbnb and alternative accommodations has loomed over the hotel industry for nearly a decade and despite the impending threat,
the global hotel industry continues to thrive.

But hotels are finally beginning to understand consumers’ growing desires for alternative lodgings — and why they sometimes choose to stay at someone’s apartment instead of in a hotel, whether for the value or for the experience of living like a local. It’s really a difference of experience and, in response, hotels are beginning to double down on the things they already have, the experiences that the Airbnb down the street can’t always easily deliver.

The biggest advantage hotels have today is the ability to deliver a true sense of community: to be the gathering place for locals and guests alike. And more often than not, hotels are delivering that sense of community through mixed-use projects, or spaces that enhance the way we live our daily lives.

While the idea of mixed-use hotel concepts has been around for some time, those projects are increasingly blurring the lines between traditional residential, commercial, retail, and hospitality.

Today, hotels have become converging points for co-living and co-working; living, breathing showrooms for retail brands; and in some instances, immersive entertainment centers all their own. They’re also becoming more fluid, flexible, and adaptable spaces.

“As lines become more fluid and you can use spaces more fluidly, there are new ways for hotels and developers to compete and new ways to use their space to pull individuals in and develop new business models off of that,” said Marcie Merriman, executive director and brand strategy and retail innovation leader at EY, the global professional services and accounting firm.

Co-Everything

In late 2016, Ski ft wrote that “the tenets of ‘co-living’ — that emphasis on collaboration and community — will permeate much of the hotel guest experience in 2017.” It has, and it’s something that will continue into 2018 and beyond.

Whereas mixed-use 1.0 would have commercial offices in the same building as a hotel, but located on different floors and largely separated from the hotel itself, mixed-use 2.0 brings the office inside the hotel so that they’re almost one and the same. You see this especially in hotels that are opening up their lobbies to serve as informal co-working spaces, or those that are adding formal co-working spaces of their own. They’re often a seamless extension of the lobby or main bar area — a place where everyone is encouraged to gather, commune, or “be alone together,” as the saying goes.

Not only that, but hotels also increasingly want guests to really feel like they “live there,” even if it’s only for a few days. In some instances, the lines between purely residential and purely travel are becoming more blurred than ever. This includes Zoku Amsterdam, which is home to a mix of long-term guests or residents, extended-stay guests, and short-stay guests. Another example: Airbnb’s new branded apartment building, in which tenants are encouraged and incentivized to rent out their units on Airbnb to ensure the property has a mix of both travelers and long-term residents.

Hotel as Interactive Showroom

The concept of hotel retail is no longer being limited to the hotel shop. The surge of retail brands entering the hospitality market are not like the ones that preceded them. It used to be that only high-end luxury designer brands like Versace, Fendi, and Ferragamo dared to enter the hotel market.

But today, we’re seeing retail brands like West Elm, Restoration Hardware, Muji, and Shinola opening their own branded hotels. And in doing so, they’re transforming entire hotels into more accessible, interactive showrooms for their brands, and the lifestyles they promise to deliver to guests.

Some brands are also experimenting with new ways of delivering retail experiences. At the Four Seasons Resort Orlando, guests can send a message through the Four Seasons app to request their own hand-selected outfits be delivered straight to their room. It’s on-demand fashion retail in a hospitality setting.

Next-Level Immersion as Entertainment

For proof of the existence of the mega-resort/entertainment complex, one need only look to Las Vegas for some prime examples. But going forward, expect to see hotels that aspire to deliver truly immersive experiences, like the upcoming Star Wars hotel that Disney is building in Orlando.

Another example already in operation is the Legoland Hotel, as HVS president and CEO Stephen Rushmore Jr. told Skift in June: “When you go in the hotel, you feel like you’re in a Lego movie. It’s like a whole Lego world, and you’re totally immersed in a Lego ecosystem. You forget that you’re in a hotel. The experience is just so dramatically different. In so many hotels you feel like you’re in a hotel or you’re in someone’s house. This takes you to another place.… It’s that type of experience where you go in and you totally forget where you are, your sense of where you are.”

Rushmore added: “Sometimes people just want to escape. They just want to escape from reality. There’s no question there’s a market for that, but so few hotels really go out and go take the experience that far.”

Fluidity of Spaces

Over time, hotels have evolved to serve a multitude of purposes: sleeping, eating, drinking, socializing, entertaining, and learning, among them. However, what’s changed today is that hoteliers are realizing that the spaces that they are creating can’t just be designed for those specific needs in particular spaces. Guest rooms are no longer just for sleeping. Bars, lobbies, and restaurants aren’t just for eating and drinking or socializing or entertaining.

All of the spaces in a hotel need to be able to transition from one sort of need to the next, seamlessly and without any friction whatsoever. They need to be flexible and adaptable. One of the primary reasons for this is because of technology; the ubiquity of mobile technology has made it that much easier for us to multitask as never before.

Architecture firm Gensler charted this phenomenon in a recent report. The Gensler Experience Index noted how “single-use spaces are becoming obsolete” and “traditional uses of spaces are blurring.”

The survey of 4,000 people identified five different “experience modes”: task, social, discovery, entertainment, and aspiration. Responses showed the best spaces are those that can cater to many — or all — of those modes at a single time. The best design is design that isn’t just beautiful or novel, but also authentic, clear, inspiring, and welcoming.

In short, for the hotel of the future to stand out from the rest, it needs to deliver a truly differentiated experience, and one of the primary ways for hoteliers to do that is through exceptional design. It’s about taking the concept of “mixed use” to another level, to create spaces that encompass a multitude of experiences and needs beyond our traditional concepts of what constitutes accommodations, retail, lifestyle, work, and entertainment.

Download Your Copy of Skift Megatrends 2018

This year’s Megatrends are sponsored by our partners at AccorHotels, Allianz Worldwide Partners, Hilton Garden Inn, Intrepid Travel, onefinestay, and Upside.

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American and Alaska Are Giving Away Elite Status — Business of Loyalty

Alaska Airlines

Alaska Airlines is making it easier to obtain elite status in its loyalty program as competition with Delta intensifies in Seattle. Alaska Airlines

Skift Take: If these new promotions are any indication, airline loyalty programs may be once more warming up to frequent flyers — for varied reasons, but out of necessity.

— Grant Martin

After the first full year in which revenue-based loyalty programs have dominated the U.S. airline industry, the consensus is still out on whether mainstream travelers have entirely given up on frequent flyer miles. One indication, however, may suggest that airlines are willing to cede some ground to passengers: Promotions expediting elite status are starting to seep out.

Both Alaska Airlines and American Airlines have recently been targeting customers to offer a fast track for free elite status.

American’s campaign started in September but has recently scaled up to include direct mail sent to customers’ homes or offices. The campaign offers a range of complimentary Gold, Platinum or Platinum Pro statuses (earned at 25,000 flown miles + $3,000 in annual spend, 50,000 flown miles + $6,000 in annual spend or 75,000 flown miles + $9,000 spend, respectively) — including upgrades — to targeted members.

Most invitations for free status from American have come through email, though some targets are getting physical mailers. According to the blog Angelina Travels, anyone can try to sign up for the free status through a promotional landing page but only a certain segment of accounts have been targeted.

Launched last week, Alaska’s offering is slightly more modest. To some targeted members who let elite status lapse in 2017, the airline is offering a fast track back to the same status after a fixed set of flights. Scott Mackenzie, a writer at Travel Codex, was offered MVP Gold (typically earned after 40,000 flown miles) after only flying a 10,000-mile challenge. Others have reported receiving similar offers.

Though Alaska and American may both be trying to woo back frequent flyers, they may be doing it for different reasons.

Now that American’s revenue-based loyalty program is fully in place, it’s likely that the airline saw some attrition within the ranks of AAdvantage. Beyond that the airline has recently been suffering from a glut of bad press over its product. Many frequent travelers have complained about slowly degrading service and catering (further compounded by a listeria outbreak at the airline’s catering contractor in Los Angeles).

Additionally, American has received widespread criticism over its new ultra-dense 737 MAX aircraft. In its initial review of the new configuration, Airways Magazine concluded that “while there is no doubt that the 737 MAX represents a potential money-making machine for American, there is also no doubt that part of that potential will come at the expense of passenger comfort and overall product.”

To earn back some of its good favor with frequent flyers, there’s also no doubt that American may need to extend this olive branch of free elite status.

Alaska’s olive branch comes at the expense of its merger with Virgin America and a long fight with Delta for dominance in its Seattle hub.

After a protracted merger with Virgin America through last year, operations at both Alaska and Virgin America have suffered. For 11 months, Alaska’s on-time performance was worse in 2017 than in 2016 — and the Bureau of Transportation Statistics hasn’t reported the 12th month yet. Pressure from Delta, which has strong aspirations for expansion in Seattle, is also keeping Alaska’s marketing department on its toes.

Between grumpy passengers unhappy with performance and the constant threat of passengers defecting to Delta, Alaska’s incentives to keep elite passengers are well-justified.

Whether the trend of loyalty friendliness will continue may depend on how many passengers give up on revenue-based programs and shrug off elite status altogether. But if Alaska and American are any indication, things may soon start getting better for frequent flyers.

— Grant Martin

Skift Stories and More Expert Insight

points internationalPoints International Claims 2017 Growth for Its Loyalty Tech Platform: Points International, the world’s largest miles and hotel points reseller, thinks its stock price should go up after three and a half years of little movement.

United Airlines Will Add Premium Economy to Match Delta and American: United Airlines intends to add a premium economy section with comfortable recliner seats on long-haul aircraft soon, matching a product already offered by American Airlines and Delta Air Lines, its two main competitors.

Onefinestay Launches Concierge Service With Loyalty Elements: In March, Onefinestay will introduce a concierge service for customers, who will be able to access a mobile concierge through an app after making their first booking on the platform.

United Will Begin Giving Passengers Details About Why Their Flights Are Delayed: United Airlines executives know few things frustrate customers as much as not knowing why their flights are delayed, so starting Monday it plans to test a new system in Phoenix and Houston that’ll tell passengers far more about their late flight than they ever expected to learn.

Wyndham Worldwide Is Buying La Quinta for $1.95 Billion: When we said there’d be more mergers and acquisitions in 2018, we weren’t kidding. The first major hotel industry acquisition of the year involves Wyndham Worldwide and La Quinta Holdings.

JFK Airport Is Getting an American Express Centurion Lounge: American Express, which uses a network of luxury airport lounges to help it attract and retain high spenders, often in larger markets, soon will open its first club at New York’s John F. Kennedy International Airport.

Trump Hotels Is Losing Premium Customers: Room rates at hotels bearing Donald Trump’s name have dropped sharply during his first year in the White House.

Is the Hotels.com Rewards Program Worth Anything? Hotels.com offers a very simple value proposition. It doesn’t matter which hotel you stay at, nor does it matter which loyalty program you belong to. You’ll get one free hotel night after 10 stays. The value of the free stay will be an average of your previous 10 nights.

American Will Offer Free Booze on Chicago-New York Shuttle Flights: American announced hourly flights Monday through Friday between Chicago and New York LaGuardia. These flights are part of a broader expansion at O’Hare for American, and passengers on the flights will see some exclusive benefits. But let’s face it, out of all the “benefits,” free drinks cabin-wide is LEGIT!

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Choice Hotels Debuts New Booking System for Franchisees to Replace Outdated Tech

Choice Hotels

Shown here is the Choice Hotels western regional headquarters in Phoenix, Arizona. The company developed its new central reservations system in Phoenix for use by hotel owners and franchisees worldwide. Choice Hotels

Skift Take: Choice’s decision to build its own reservation system in-house is a poke in the eye to the many technology companies that sell systems to hotel chains.

— Sean O’Neill

Choice Hotels has moved its 6,500 franchisees to a new central reservation system it built in-house.

The tool aims to help the hotel chain — whose 11 brands include Comfort Inn and Econo Lodge — better analyze data about customers and hotel owners.

The Rockville, Maryland-based chain has begun to use the platform to set rates and availability and to manage bookings made via its desktop, mobile websites, and mobile app.

Remarkably, there have been no reports of disruptions, as the company deployed the system on a property-by-property basis in phases in recent months.

The system processes bookings for hotel rooms, meeting rooms, vacation rentals, and vacation package offerings all in one interface — instead of the patchwork of systems the company had used before.

Like other hotel groups, Choice had found that its technology platform had become outdated and was no longer able to support a recent exponential jump in data requests. As more people search for travel online, they are sending more data requests to hotel systems.

Choice’s mainframe-based legacy systems — a patchwork of in-house hardware pieced together on systems from Pyramid Technology with an IBM foundation and Microsoft glue — were unable to handle the volume well. But its new cloud-based systems can scale in size to meet surges in volume and maintain fast response times, the company said.

The new platform, called ChoiceEdge, offers a foundation that is particularly relevant for its vacation rental and meeting space products. Since 2015, those two products have become promising lines of business, but the underlying hotel-focused software wasn’t enabling the company to develop these products to their full potentials.

Advanced IT platforms may also help hotels compete with online travel agencies by providing more comparable qualities of direct online service.

Choice’s franchisees have seen more than 60 percent of their revenue come from direct bookings so far this year, said new CEO Pat Pacious on the company’s third-quarter earning’s call late last year.

Choice’s new system will be more flexible in adapting to new technologies, such as voice search and machine learning, than its old one was, Pacious said.

The company is already experimenting with voice tech, Pacious previously told Skift.

In-House Is in the House

Choice’s move is the first U.S. hotel company to build a central reservation system in-house in a few decades.

Pacious compared it to updating transportation infrastructure, saying it can sometimes be easier to build new bridges than fix existing ones.

The project represents lost business for the major technology companies that sell comparable systems. Commercial talks are private, but the usual suspects of hospitality technology providers — Amadeus Hospitality, Oracle Hospitality, Sabre Hospitality, and Shiji — probably pitched their services.

In 2015, the same year Choice began its in-house IT effort, the comparably sized InterContinental Hotels Group hired Amadeus Hospitality to switch it over to a new cloud-based reservation system.

That project — affecting brands like Holiday Inn and Crowne Plaza — is expected to be fully deployed by late 2018 to early 2019.

Other hotel groups need to review their central reservation systems, too.

A case in point: During an investor day last week, Carlson Rezidor, which has 1,440 hotels, said it intended to update several of its IT systems. It will move from an old system, developed in-house, to cloud-based platforms overseen by Sabre Hospitality and based on SAP technology.

When asked why Choice decided to create the project in-house, Brian Kirkland, vice president of engineering, said, “We understand our customers’ needs and what our priorities for the future better than anyone, and we already had a track record of technology innovation.”

The move cost “tens of millions,” the company has said.

But it was “not a cost-savings play” as much as “infrastructure investment,” Kirkland said.

One staffing issue Choice might have to deal with is what to do when the project is complete. Since 2015, Choice has added 190 positions for software engineers, technical analysts, and IT leadership positions at its Phoenix operation.

It didn’t say how many of those it would retain now that the system has been all-but-fully-implemented.

Choice is in the final phase of its project, with about a month or so left. It is now mainly focused on integrating with 30 third-party channels, such as online travel agencies and distribution systems, to distribute its rooms. Some, such as tech distributor Sabre, are already connected.

Analytics Tools

Consumers may see little obvious change in their experience. But subtle differences will become more apparent over time as the company said it will be better able to market to guests and to build profiles that reveal the preferences of repeat customers.

The system includes integration with a business intelligence suite of tools that will analyze the company’s data, such as to identify customer intent via booking behavior and analyze past booking behavior to provide more personalized services both for booking and when guests arrive at a property.

Choice will not be selling its software to others, the way it has for its property management systems through its SkyTouch Technology unit.

That unit offers technology services to its franchisees and independent hotels but has struggled to break even. A year ago the company had explored selling shares in the unit to industry partners but did not find an offer it liked, it said last year.

The company denied the conventional wisdom from some industry critics that the SkyTouch unit is treading water, pointing to its most recent financial statements showing it is approximately break even.

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Statue of Liberty and Grand Canyon Get Funds to Stay Open During U.S. Government Shutdown

brunomes  / Flickr

The Statue of Liberty, pictured here, is staying open during the government shutdown. brunomes / Flickr

Skift Take: U.S. National Parks lost more than $414 million in visitor spending the last time the federal government shut down in 2013. States that have their acts together better than Washington lawmakers are determined to not make the same mistake again.

— Dan Peltier

Visitors to most national parks and monuments such as Joshua Tree and Mount Rushmore can’t use the full-service restrooms and visitor centers, but the Statue of Liberty and the Grand Canyon will open as usual Monday.

As the U.S. government enters its third day of a shutdown, the Internal Revenue Service won’t be issuing refunds and will also stop conducting audits. But the mail will still get delivered, airport control towers will still be staffed and the border patrol will continue to guard the country.

In ways large and small, the shutdown that began at midnight Friday could touch almost every aspect of American life. Although, in some cases, states and charities are stepping in to provide funding for federal services to bridge the gap until Congress finds a way to fund the U.S. government.

The Commodity Futures Trading Commission will stop investigating new victim complaints and taking fresh action against suspected wrongdoers. The National Labor Relations Board will stop investigating charges of workers’ rights being violated. The Bureau of Land Management will stop issuing permits for oil and gas drilling. The Federal Aviation Administration will stop issuing approvals for drones. The Justice Department will suspend civil litigation. The government will stop issuing Social Security cards, and anyone trying to visit a U.S. military cemetery overseas will find themselves barred at the gate.

Over the weekend, some states said they would step in and pay federal workers to keep federal facilities open. New York state will fully fund National Park Service personnel and the $65,000 per day to keep the Statue of Liberty National Monument and Ellis Island open to visitors, Governor Andrew M. Cuomo said in a statement Sunday. In addition, Arizona officials said that state will ensure the Grand Canyon remains open for visitors — even if the federal government remains closed.

Meanwhile, the non-profit Fisher House Foundation has pledged to pay the families of two soldiers killed in a California helicopter accident Saturday government death benefits during the shutdown. Late last week, the Pentagon had said that it would suspend $100,000 death gratuity payments to the families of troops killed in the line of duty while the government was closed.

Agencies have no shortage of options for declaring some of what they do exempt from the shutdown. Government functions that don’t depend on annual appropriations from Congress, for example, activity financed by user fees or multi-year funds, will continue; so will activity that Congress has specifically exempted. Perhaps the largest exemption is any function deemed “necessary for the safety of human life or protection of property.”

Yet some of the Trump administration’s decisions on what services to exempt and what to close down were being questioned by those familiar with the Antideficiency Act, an obscure 134-year-old law that bars federal agencies from continuing to keep on many workers and services that cost money if they don’t have funding to pay them.

How long the shutdown will last is impossible to guess; so too is which party will take more of the blame. The Senate meets at 10 a.m. Monday and resumes consideration of a measure that funds the government through Feb. 8. The chamber will hold a procedural vote at noon. The House meets at noon and lawmakers have been told by Republican leaders that they will take up whatever bill the Senate sends over.

But for as long as it continues, the shutdown demonstrates the nearly endless ways in which the federal government has come to affect the economy, the financial sector, the workplace and the environment.

Parks & Public Lands

The administration is taking steps to mitigate the effect on national parks, which generally were closed in past shutdowns.

“National parks and other public lands will remain as accessible as possible while still following all applicable laws and procedures,” said Interior Department spokeswoman Heather Swift.

  • The Trump administration is planning to keep some parks and concessions open. Most outdoor “wilderness-style restrooms,” like composting toilets and pits, and open roads should remain open; campgrounds, full-service restrooms and other services that require staffing and maintenance won’t be. Private concessionaires may be permitted to continue operations, provided they find a way to remove snow and trash without government staff.
  • Any closures pose a threat to local economies that depend on tourism dollars tied to park visits — from the vendors inside the facilities to the hotels, stores, and restaurants outside of them. This is the peak season for some sites, including Death Valley and the Everglades. During the 2013 government closure, five governors agreed to pick up the tab and spend state dollars to reopen at least a dozen national parks.
  • National forests will remain accessible, but are not officially open, said Agriculture Department spokesman Tim Murtaugh in an interview. Visitors centers will be closed and rangers will not be on the job. Still, law enforcement will continue to be present in the forests for visitors who enter at their own risk, he said.

Transportation

The transportation system will function at close to its normal level, at least initially.

  • The Federal Aviation Administration’s air-traffic division will continue guiding flights and the Transportation Security Administration will operate airport security checkpoints, according to the agencies’ plans.
  • While FAA’s aviation safety inspectors will initially be furloughed, the agency’s plan is to gradually bring those employees back to work as they are needed to ensure airlines and other aircraft operators are safe, the agency said.
  • The FAA will cease approvals for drone operations requiring waivers, development of new air-traffic technology and training new air-traffic controllers.
  • A shutdown will slow work on the FAA’s certification of new aircraft. Work on approvals for two Boeing Co. models, which are expected to be completed within days, could be affected, said the National Air Traffic Controllers Association, a union representing FAA certification workers.
  • The agencies monitoring the borders — Customs and Border Protection and Immigration and Customs Enforcement — are largely exempt from having to furlough employees during a shutdown.
  • A majority of the National Highway Traffic Safety Administration’s 560 employees will be sent home, as the agency suspends enforcement, defects investigations, rule-making work and some research efforts.
  • Federal Transit Administration grants are to be halted, as are grants for high-speed rail projects administered by the Federal Railroad Administration.
  • Most investigative work at the National Transportation Safety Board will cease; the agency can bring back teams temporarily to investigate accidents with “significant casualties” or that identify urgent risks, the agency said.
  • Amtrak, the government-subsidized passenger train system, will continue normal operations, the railroad said on Friday.

State Department

  • The State Department issued guidance on Friday saying that passport and visa services, as well as other agency functions, will stay open until the money runs out. Many bureaus in the department have reserves because they’re funded every few years or with money that can be saved indefinitely rather than spent within a year.

This article was written by Christopher Flavelle from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Top Ski Resorts in Europe Cut Off With Avalanche Risk at Maximum

Bloomberg

Ski resorts in Austria and Switzerland are facing their most dire avalanche threat since 1999. Bloomberg

Skift Take: Ski resorts in Switzerland and Austria are seeing their most severe avalanche risk since the “avalanche winter” of 1999. This follows last year’s extreme hurricanes in the Caribbean and parts of the U.S., and historic heat waves in parts of Australia a few weeks ago. We’re not sure if there are any dots to be connected here, but it is worth asking the question.

— Dennis Schaal

Some of Europe’s top ski resorts, including Zermatt in Switzerland and St. Anton in Austria, are cut off as the avalanche danger was raised to the highest level across large swathes of the Alps.

“The last time the risk was over such a widespread area was the “avalanche winter” of 1999,” said Julia Wessels of the Davos-based Institute for Snow and Avalanche Research.

In February 1999, an avalanche hit the village of Evolene in the Swiss canton of Valais, killing 12 people. Just two days later, more than 30 people died when an even bigger avalanche engulfed Galtuer in Austria. The difference now is that warmer temperatures mean there has been a lot less snow at lower altitudes, while safety measures have also improved, according to Frank Techel, an avalanche forecaster at the institute.

“It’s important to listen if authorities impose restrictions on ski and walking areas,” said Techel, adding that snowfall has been close to a record around Davos, where the World Economic Forum starts on Tuesday. “Some buildings have been evacuated in high hazard zones.”

The avalanche danger will diminish during Tuesday as the snow stops falling in the early hours of the morning, according to the institute.

Rail Disruption

Zermatt was cut off for a second time this year on Saturday evening as road and rail links were closed due to avalanche risk. While 300 people arrived and 500 left by helicopter on Sunday, poor visibility prevented the service from operating on Monday, Zermatt Tourism said.

“The road and rail links are definitely closed until tomorrow morning, and maybe longer,” said Simona Altwegg of Zermatt Tourism. The pistes are currently shut to the 9,000 tourists in the village.

About 30 roads and passes were closed in the Austrian Alps after about a meter of fresh snow fell in the western parts of the Tyrol, partially cutting off the ski resorts of St. Anton and Ischgl. In the Arlberg, Silvretta, and Stubai areas, the avalanche risk level was raised to the highest level of 5 for the first time since 1999, Rudi Mair, head of the Tyrol avalanche warning system, told Austrian public radio Oe1.

While tourists have the option of leaving St. Anton by road, there were no further arrivals and the Zurich-Vienna railway line was also halted between Landeck and Bludenz. Some lifts were still operating in St. Anton, but the resorts of Stuben and Ischgl are currently shut.

©2018 Bloomberg L.P.

This article was written by Dylan Griffiths and Boris Groendahl from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Malaysia Air Finds a New Use For Its Surplus Superjumbos

Bloomberg

A Malaysia Airlines A380. The carrier wants to use the jets for Muslim pilgrims. Bloomberg

Skift Take: Once seen as the future of the airline industry, the A380 is now on life support. Airlines are going to have to come up with creative ways to make it viable.

— Patrick Whyte

Malaysia Airlines Bhd.’s Airbus SE A380s are flying full on trial services taking Muslim pilgrims to Saudi Arabia, prompting the carrier to say it will establish the operation as a new division as early as the end of this year.

The Asian company has been using two of its six A380s to transport people headed to Mecca for the year-round Umrah pilgrimage since November, Chief Executive Officer Izham Ismail said in an interview. The planes will ultimately be used for the annual Hajj gathering, one of the world’s biggest travel events.

“I felt we needed to go to market fast,” said Ismail, who inherited the proposal when he took over as CEO two months ago. “We’ve been flying these charters daily to Jeddah or Medina and we fill them up every day.”

Airbus, which broke a two-year sales drought with the A380 last week, is keen to see the Malaysia plan succeed as it pitches the model for new markets, and has agreed to convert the jets to as many as 700 seats from 498. Ismail said that would have to wait until 2020, when the A380s will be out of service for maintenance, and that the current density may in any case be sufficient.

‘Tin Can’

“The passengers who go to the Umrah and Hajj are often elderly, so we can’t cram them into a tin can,” he said in London. “We can keep the current configuration and offer a product that’s superior to the current Hajj product. It’s a captive market, so we can move the pricing up a little bit.”

While flying to Saudi Arabia from Kuala Lumpur, the A380s have already carried groups originating in Indonesia, China and Bangladesh, as well as Malaysia, booked via a network of travel agents.

Fares will still be lower than for a normal commercial ticket, though there’s an appetite for business-class perks among some pilgrims that the current layout could address, Ismail said. The project, a brainchild of Ismail’s predecessor Peter Bellew, has been named Amal, meaning “hope” in Arabic.

About 1 million people from the Asia-Pacific region make the trip to Mecca each year, with Malaysian typically carrying around 40,000. The carrier has already secured 175 flights for this year’s Hajj, which takes place in August, compared with 120 in 2017, supported by prepaid bookings, the CEO said.

The trial flights are operating under Malaysian’s own license but should be established as a standalone charter brand in the fourth quarter or early in 2019, he said. The operation will probably use four of Malaysian’s A380s, supplemented by smaller Airbus A330 twin-aisle models, though Bellew had estimated the market might ultimately support 20 superjumbos, including jets offloaded by other carriers.

Malaysian views the A380s as too big for its scheduled flights and is replacing them with new Airbus A350 wide-bodies on routes to London and Tokyo. British Airways looked at taking over the superjumbos to expand its own fleet of the planes, but is now pursuing an order for new examples, people with knowledge of the plan said Friday.

 

©2018 Bloomberg L.P.

This article was written by Christopher Jasper from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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