High levels of cancellation, high commissions from Online Travel Agencies (OTAs) and competition from Airbnb are big issues that a giant chain like Hilton have in common with independent owners.
In a recent interview, the CEO of Hilton talked about rising cancellation rates, high commission from the OTAs and competition from Airbnb. Every day is a school day so I thought I would consider his comments and try and interpret them for independent accommodation owners like yourself.
High levels of cancellation
Nassetta, from Hilton, says “customers…have been trained to do multiple bookings and do things that have created a scene where cancellations…have skyrocketed.” He is talking about certain OTAs encouraging customers to book and cancel. OTAs don’t really care about high cancellation rates if the customer books again through them it doesn’t matter to their profitability, they still get the booking; it’s the cancelled property who loses out.
If cancellation levels are an issue for Hilton they are an even bigger issue for independent accommodation owners where each room is so much more precious. To put some numbers on it I looked at our statistics from the last 10 months and they show that certain OTAs have an average cancellation rate of 26.5% compared to 8% on direct bookings.
Our advice here is to make sure you have a cancellation policy that does not penalise direct bookings. If you can maximise your direct bookings you will also lower your cancellation rate because direct bookings are more than three time less likely to cancel.
Hilton has responded by increasing their cancellation deadline from same day to 48 or 72 hours and made sure that their direct booking cancellation policy is always the best.
High levels of commission
Many of our customers tell us about the rising commission bills which seem to get larger every year as OTA bookings keep rising. Hilton mentions a lack of competition “More competition would have the effect of driving down distribution [commission] costs.” We have seen less competition as the OTAs take over rivals leaving only two major OTAs (Bookingcom and Expedia, who own most of the others). Nassetta, of Hilton, thinks that Airbnb could change to become a competitor for the OTAs and help drive down commissions.
Is there a place for another OTA with lower commission? Hilton certainly thinks or maybe hopes so. In common with many independent owners Hilton feels the pressure from very dominant sources of bookings and hope for a path to lower commission.
Airbnb is not competition
Hilton sees Airbnb as catering to “different travel or trip occasions” this may be true for Hilton because a big hotel chain clearly has little in common with a bedroom in a home. Airbnb feels far closer to the independent small businesses that are our customers. We also know that many of our independent customers already use Airbnb as a channel for low cost bookings so they can be an ally for everyone.
In summary, it seems that there is a surprising amount in common between Hilton and independent accommodation owners. A closer look does reveal that the same issues are faced by everyone irrespective of size along with a hope for more competition in the online travel agent space.
Previous related blogs on direct bookings
20 thoughts on “3 Things to learn from Hilton CEO”
There you go boys …. here’s your opportunity …. you are half way there already so why not team up with Hilton (only for their clout!), other chains and of course not forgetting us little minnows, and start your own low cost OTA.
Last year we paid around £50 for the month of July in commissions. This year we the cost has reached over £700 in one year. With the advent of OTA’s and their handy smartphone apps why would potential guests book direct when they can see such a choice in one list. It feels like a losing battle. I urge all of you to support the new low commission OTA Hotel Bonanza who are just launching who will only ever be charging 8% and I am aware that Freetobook are working on a connection. Just two massive companies control practically the entire globes hotel booking channels and this should be investigated. 15 to over 20% commission is not sustainable in the long term. Also note they are stealing most of all of yours and my repeat bookings with their huge Google adword campaigns that no small accommodation businesses would never be able to match financially. They will always be right at the top of the search results when people are looking for accommodation. They certainly bring in the business but at what cost?
Hello gentlemen… Very professional and gracious on your part at FREETOBOOK to advise us and others of the competition out there and the fact that you your company is consistently finding ways to help us manager are establishments better for our guests. Best regards, Tony Spagnolo, owner-chef & managing host: REPOS & MANNA B&B, Montreal Quebec Canada.
Mmm…… I agree that we may have a lot in common up to a point BUT I suspect that if someone in Hilton found a highly profitable format for self catering accommodation, they would trample independent operators to death without so much as a backward glance.
However, as it stands I guess there is some sense in “my enemy’s enemy is my friend”.
The OTAs are hyper ruthless particularly Booking.com but the flip side though is that they are generating us a lot of business. Our challenge is to gather as much data as we can from guests (all the things that they and the others don’t want us to have- like telephone numbers, email addresses, addresses etc) and then work that information really hard in e newsletters etc to get those guests to come back bypassing the OTA they originally booked through.
It’s a slog and at best we are currently likely only ever to mitigate the dominant part they now play in our business BUT every commission free booking is a victory. The little tips and suggestions we get from these blogs are really helpful and we have made use of the Book Direct logos from a week or so ago.
What is worrying is the total lack of accountability of these organizations and the fact that no-one seems willing or able to tackle them. All the terms are totally slanted in their favour and individual businesses are really powerless. As Nassetta says only increased competition holds out hope. So, it will be good when Free to Book’s connection with Hotel Bonanza is ready. (When will that be??) It may well be a log shot but as they say in the movies, “It might just work.”
That is interesting. I agree OTAs are ruthless. Cancellations are high but if I want to cancel a booking they will not accept my request. Keeping an eye on bookings is becoming more stressful.
It’s good that some of the bigger guns are now speaking out and changing their cancellation policies. I have been associated with the OTA’s and from the outset the cancellation rate was always 20 % +. I finally had enough of that 3 years ago and now have very strict cancellation and booking policies in place and I stick to them. Has it affected my bookings, I would say not to any great degree and any such loss is offset against the gain from secure bookings which ensures high occupancy levels. The trick is set your policies and stick to them i.e. non refundable deposits at time of booking. The more accommodation providers who do this and react to the aggressive tactics of the OTA’s the less impact these organisations may have and might then re-think how they conduct their activities. At the end of the day accommodation providers are no different to Airlines – i.e. the guests – book the flight, pay for it, miss it – loose it. Hard skinned it may be but that reflects on the society we live in today and also the very important fact – it’s our livliehood.
Airbnb are indeed different however, they too are progressing at such a rate and currently do not have the personnel or systems in place to professionally deal with the volume or different levels of accommodation providers they are now enlisting.
What the OTA’s cannot compete with is the level of professionalism, competence and product knowledge that respected organisations like Hilton have due to the enormous amount of investment they make in staff training etc. This in turn will always make them stand out from the ‘Barra Boys’ aka OTA’S. there is no doubt that the OTA’S have been instrumental in bringing the market place within reach of smaller operators like myself but instead of being satisfied to being the link between bookers and providers which is how they started out they are now dictating to how a business functions which is not right nor is it right to actively, encourage guests to cancel and re-book elsewhere.
I have not considered making my cancellation policy different for direct bookings but I will give the matter more thought as you say every day is a learning day.
Thank you for an interesting blog. I agree with the content. Cancellations are high and keeping an eye on bookings is becoming more stressful.
We have been monitoring more closely lately our rate of cancellations (especially the ones who cancel within 24 hours) and are keen to either review the cancellation time or simply do as one of our colleagues does and charge a non refundable deposit upon booking with an agent. Feedback welcome.
Hi Patrick I have a cancellation policy where anybody cancells before 24hr I charge 20% of the booking
Saw this problem a couple of years ago, so started charging a 10% non refundable deposit from OTA’s and the effect was drastic, from the said %, we found about 20% to between 1–2%. We do not charge a deposit for direct books and offer better deals
We need 2 things to happen….Build a direct booking system for all hotel operators. Anybody in the world can join. Say for 20 dollars a month. On monthly basis not yearly. Once the system is up and running cancel out all OTA companies. They are worthless without us operators.
All the hotel associations need to promote booking direct and to not use Online Travel Agents unless they have to while at the same time creating a booking system for all hotels operators to use for a nominal fee. Something similar to Free To Book.
Charge each guest a dollar to book and a dollar to cancel and make changes.
Anyone who does this will get the loyalty of all operators and will put OTAs out of business overnight.
Hi, interesting article. Thanks
AirBnB is not a competitor to Hilton but it surely is to us, the small B&B’s
The FTB channel managers for Expedia and Booking are great and very easy to use so we can really co-operate with those OTA’s but the iCal solution to work with AirBnB is troublesome. Define each room as unit, connect all units, do pricing individual per unit. Not great.
Please FTB helps us benefit from the success of AirBnB. Give us a channel manager that smoothly integrates with AirBnB. Make it much better than iCal. I trust you guys can do that. Thanks in advance. Hans, Hotel The Champs, Dominica
The ball is in the court of Airbnb, we are ready to do a full connection whenever Airbnb is ready 🙂
Great Article right there. I totally agree that tweaking the cancellation policy and making it customer friendly is the way go for the independent owners who want to maximize their direct bookings. Another solution that has worked for hotels I work with is to make sure that their booking system has a payment gateway system integrated. This with some little motivation can push customers to commit some deposit if not all the payment at the time of booking. This, in turn, reduces the possibility of canceling the booking. #My two cents.
Have seen these sort of cancellation rates from Booking.com, but not as high from Expedia, especially where it is managed through FreetoBook and the guest opts to pay Expedia.
Decided that with Booking.com I would use their policy that allows you to collect the cost of the booking any time after the booking is made. I then take the amount for the first night of the stay, which is in effect our direct short notice cancellation policy, guest pays the balance on check out. This has reduced bookings, except at times of shortage of beds in the area, however it has decreased our work load in re-selling, and it has actually increased the quality of the guest, if I can say that!
There has still been the odd cancellation and request from Booking.com that I refund the guest, but I refuse and remind them of the cancellation policy. It really is up to the guest to read the T&Cs before making the booking. If the likes of Booking.com advertise “free cancellation” and some of their users get caught out, then maybe they will learn and book direct. I have told Booking.com that if they don’t like it they should stop advertising “free cancellation”. Let’s face it, free or not, someone, somewhere is paying for it!
I find Freetibook the best option for online booking. The OTA’s charge heavily and curb direct contact with your guests. Besides booking.com and airbnb (never got a booking, only enquiries) I work also with TripAdvisor which shows our telephone number and website on our page on their portal for which I pay an annual “listing” subscrption of €400. In the beginning they showed our website room rates, but since they became an OTA themselves they never guide guests first to our website but show prices from booking.com or expedia, etc. So,I have decided to quit my listing subscription with them and use the € 400 for other promotional platforms like Facebook, Google Adds or LinkedIn on which guests will land directley on my website with Freetobook booking facility.
I agree with all Gerardus (above) says, and will not be renewing my TripAdvisor subscription next year and for some unknown reason have almost no traffic from AirBnB.
My payment policy is that I take full payment two weeks prior to a stay with us, giving plenty of time for guests to change their minds if they need to, yet also protecting my business as I can usually re-let a room with two weeks notice. This really works for me.
I entirely agree with the above article and wish there was a more competitve rate than Bookiing.com but aslo with the same search engine ranking. Even a 10% or 12% charge to pay for the ranking would make me and I suspect many other B&B’s jump ship. I notice that Booking.com have introduced a discount scheme but again its at the hoteliers expense whilst still maintaining the 15% fee for themselves. I try to encourage all of my guests to go direct and save money but Booking.com is still taking the lions share in the presently uncompetitive market. I even thought of starting a chain letter with a cc back to me each time it moved to a new hotelier and then find a developer to make our own independant site at a very much reduced rate and high up on Google.
As an independent, small hotel in France, we have seen our cancellations almost triple overnight this year via Booking.com, thanks to a misleading advertising campaign over here which suggest FREE cancellations across its entire portfolio. We can confirm that customers are booking 2 or 3 hotels for the same night, waiting until just before the cancellation period kicks in, then choosing the best deal, and releasing the others. This is hardly fair on the small hotels that cannot resell their rooms. Some have left it too late and are aggrieved when they realise that charges now apply. As a 5 bedroom property, 1 unsold room equates to a 20% shortfall in revenues for that night. It is a despicable game they are playing with the hotels, and they have even added a new facility (despite our policies) that the customer may electronically ask for cancellation fees to be be waived. This invariably has led to angry guests when we refuse to waive the fees. i.e why even suggest it in the first place? Theres a niche out there for someone who has the balls, the vision and the determination to rock the OTA industry, become a “fair-deal-for-all” platform, and expose the greed and market dominance that exists.
OTA’s are anti competative and should be investigated by The Competition Commission on two counts – Firstly they tell our Guests that they are not charging a commisssion for making the booking and whilst technically this is true we all know their commissionhas to be built into our charges. Secondly I am VAT registered – when does 15% not equalk 15% – answer When you are VAT registered, on a £120 booking a well known OTA charging 18% takes £21.60 in commisssion (or 21.6%of revenue earned) whereas the VAT man takes £20, it is my belief that knowing we are VAT registered they should only tkae their commisssion on the booking LESS taxes – which would make £18, or the actual 18% of revenue earned.
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