Is Rate Leakage a problem for hotels?

Question

Wholesalers who have negotiated discounted rates with the hotel under the pretext of needing wholesale rates to bundle with air or local activities, etc. into packages, and then leak the discounted rates "naked" online-primarily via the OTAs or their initiatives like Booking.basic. This is a huge problem in Europe and APAC, not so much in the U.S. See this article by HotelBeds, trying to present itself as anti-rate leaker, while a lot of hotels accuse this wholesaler to be one of the rate leakage offenders. What's your take?

Charlie Osmond · Answer

The awesome rise of Google's meta and the launch of Booking.basic, make rate leakage the #1 challenge for hoteliers in 2019 and 2020 - and certainly the most requested topic at the Direct Booking Summit this year.There is no escaping the cost of undercutting today - our data suggests direct bookings drop 30% when hotels are undercut. The sad news is that the future looks worse not better. Rate leakage is a growing problem for most hotels (by volume and % discount) and the impact of each leak is also getting worse.What to do? Dynamic rates are a start but not a full solution. Test bookings fight the symptom and not the cause. Contracting and closeouts can be highly effective, but as with everything, it's the focus, intensity and energy that a hotelier brings to the problem that determines success or failure.

Max Starkov · Answer

There is a very simple solution to the rate leakage menace: 1) Subscribe to a rate parity monitoring solution like RateGain or OTA Insights to catch in real-time rate leakage offenders; 2) Investigate quickly each instance of rate leakage; 3) In case of the property working with multiple wholesalers, “put two and two together” to trace the source of the reservation and see which of the wholesalers is the offender; 4) Immediately cancel your agreement with any rate leakage offender. Better off, send a memo to all of your wholesale partners warning them that you are monitoring them and any case of rate leakage the offenders will be dealt with decisively. Remember, the wholesalers need your property more than you need them!

Peter O’Connor · Answer

Given the transparency of the Internet and the growing role of metasearch in the travel distribution process, rate leakage is a challenge that hotels can no longer ignore. Although it might be painful in the short run, AMPUTATION is the only solution that will work!. If enough properties cut the worst offenders off, they will finally get the message that hotels are no longer willing to tolerate their shady practices. As a sector, we have faced and failed to deal with this challenge for many years. Now is the time for action!

Ross McAlpine · Answer

As someone who works with hotels on their direct booking strategy, I know the serious impact rate parity issues have to website conversion. The OTAs also understand parity is crucial to their own website conversion and revenue. Simply put, if a hotel doesn't provide the best rate to an OTA they'll source it from someone who can regardless of who that seller is. Just like a consumer, an OTA is now rate shopping! This is rate parity 2.0 and I wouldn't be at all surprised to see it become more commonplace in the US as it has become in Europe and Asia. So how do you plug holes in a leaky bucket blindfolded?! That's the problem with rate leakage, there's little visibility over where the leak is in order to fix it. Dynamic rates would solve most (not all) of the rate leakage problems but the issue we have as an industry is that guest shopping online is moving faster than our distribution technology, meaning many wholesalers aren't capable of dynamic rates. Hotels have to take back control by consolidating wholesale distribution to just a few providers and then test additional smaller wholesalers from there. Audit religiously and attempt to troubleshoot rate parity issues with that partner, be ready to disconnect that partner if issues persist. And always sell with a best rate guarantee on the hotel's own website because that should always be the hotel's best guest experience and most profitable distribution channel.

Mark Fancourt · Answer

In general it's a sad situation and does nothing to foster good relations between the distribution network that have no tangible product to sell other than a hotel product presented through someone else's effort and expense. The sign of a great business relationship is where both parties benefit and consider each other's best interests. The nature of these relationships to date seems to be one sided where what is good for the revenue commission will just have to be satisfactory for the product provider who bears the real expense of producing a product. The overall distribution network environment has in my view been a catalyst for the creation of mega brands, diluting the overall quality of the hospitality experience if for no other reason that trying to create a block at such scale and breadth that a level of direct competition or negotiating power exists to balance the relationship. The recent Marriott negotiations being an example. Through the process everyone loses in this model. Brands become a product by name only. Product standards slide based upon whittling down of a fair rate. The idea of hospitality service begins to disappear from the product offering all together. It's a race to the bottom where the new version of hospitality in some sectors will resemble not much more that a dormitory. On the flip side I sense a change coming. A change that will shift the balance in favour of hoteliers in general on the back of a much broader distribution network where commission on room sales will not be the motivations for being in the market. I'm looking forward to this change and crossing my fingers that the new player will be much more interested in positive commercial relations with the hospitality industry.

Simone Puorto · Answer

Whether we like it or not, hotels' associations should be held accountable for the current European rate leakage issue. This is, I am aware, an unpopular opinion, but it's not so far fetched. First of all, the lack of unified European legislation on the matter creates too many grey areas. Italy, France, Austra, and Belgium (and, next in line, Switzerland), for example, prohibit OTAs' parity clauses "en toto", while Germany and Sweden only apply this rule to specific OTAs. Why? Who knows? I remember when, back in 2017, the Italian Senate approved the "Competition and Market Law", and how Federalberghi made a big fuss about it. The demonization of OTAs is -at best- populism, but it's a strong political statement. "Booking.com is evil" is an elementary concept, but it can be exploited easily. Problem is that populism is the recipe for disaster, with no exception. NONE. I am not sure what hotels associations had in mind when they imagined a post-rate-parity-clauses industry: 100% direct revenue? Intermediaries cut-out? Unicorns and rainbows? Sounds like naivete to me. Truth is that intermediaries simply started taking countermeasures, re-gaining their competitive edge by commission-undercuts or by distributing wholesalers/bedbanks static rates at hilariously low markups. The approval of competition and market law created a Maelstrom of rates, discount, opaque offers, B2B2C rates, and contributed to the rise of metasearch engines (that, in a world where hotels offer the same rate to all of their distributors, would have no reason to exist... Jawrdop!) and the consequent rise of direct guest cost-per-acquisition, and so on. In a word: chaos. Can this be fixed? Unlikely. Adding more rigid contract clauses for OTAs and wholesalers produce little to no effect, narrowing the number of intermediaries makes no difference. In a nutshell: with the current cached-data based distribution model, there is no hope. My two cents? Save the antitrust cases money and spend it in what could really (re)create a trustworthy distribution system: immutable distributed ledger technology. Am I optimistic about it? Hell, no! Why? Because -as I said- the industry -at least in Europe- is way too politicized, obsolete, lazy, tech un-savvy and, again, populist. Saying "We'll sue Booking.com and Expedia!" sounds way sexier than "Let's invest in a proper, immutable, trustworthy new rate/inventory distribution system, so we fix the issue at the point-of-sale", doesn't it? But, until our industry is represented by lawyers and politics, well... we're f____d.

Klaus Kohlmayr · Answer

The problem of “rate leakage” is not new. I remember working for a global brand in the early 2000s in APAC, and we were very active in trying to control onward distribution which went against contracts. With technology and integration, the issue has become more widespread and obviously critical for hotels to control. Hoteliers need to take a firm stance against wholesalers (and OTAs) who act on the fringes (or beyond) their distribution agreements. Rate parity reporting tools are now widely available and can help identify reservation sources. Offenders (and their sources) must be cut off from a hotel's distribution strategy. Ultimately, a rogue wholesaler without any hotel rooms to distribute is not going to survive very long. The power is in the hands of the hotels.

Is Rate Leakage a problem for hotels?

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