Part 3: Where has all the profit gone?

Who picks up the cheque?

In parts one and two of this series, we took you on a journey from ‘the good old days”, where owners and managers enjoyed healthy profits and a work/life balance, to an industry where online distribution and our responses to changing consumer behaviours created a new era of challenges for us to deal with.

Read Part OneRead Part Two

Now let’s fast-forward about three years. Consumer behaviours continued to change. Families no longer needed to book their annual holiday 6 to 12 months in advance. They quickly learnt that this brave new world of last-minute bookings afforded them some great savings, and the OTAs extensive stock lists meant they would ‘always find something’.

This new attitude towards bookings caused the cycle to shorten, creating heightened levels of anxiety among operators who were concerned about unsold rooms. In turn, to keep the ‘bums in beds’ and owners and investors happy, they offered further rate reductions and last-minute offers.

Apartment owners and investors who were used to seasonal variances and stable income cycles, started to question their returns. With lower rates they faced lower income, and in many cases, this had far reaching implications for their ability to service mortgage repayments. Managers and operators faced increasing pressure from their owners to fill vacancies. The catch phrase for operators was no longer WOTIF, but “What if?” What if the room remains vacant; what if we don’t get that last-minute booking; what if the owner sells the unit or pulls it from the pool…you get the gist.

Modern conditions called for an introduction to new technologies to alleviate the pain. Operators began digging their hands deep into their pockets to sign up for the latest tools to ensure their rooms had the highest visibility. They quickly waved goodbye to the big red book and welcomed software and contemporary marketing techniques with arms wide open.

Think back to where we started in Part One. Wholesalers acted as booking ‘facilitators’. They were provided with property stock, and in return for a 25% commission paid to them per booking, they took care of the marketing. It worked well as wholesalers knew how to market to ensure rooms were sold in advance and at a fair price that held a reasonable margin for owners, managers and themselves.

Looking at the state of the industry in 2020, some 20 years on from the start of WOTIF, the picture is concerning (current COVID-19 repercussions aside). OTA’s are requesting upwards of 15% commission in most cases yet their marketing efforts result in your property displayed side by side with your direct competitors. In many cases now, they even seem to undercut each other by reducing their visible price and using a portion of their own commission income to make the price appear lower. Somewhere along the way, the return on investment has become less about working cohesively with the supplier, and more about the profits of the corporation at any cost.

Your marketing efforts, Google ranking, website and social media presence, all of which you pay good money for, is geared towards capturing direct bookings, improving your visibility and alleviating these OTA charges. The question is, how do you compete when they are using the commission you pay them to reduce their visible rate?

Business owners now find themselves in the unenviable position of having dwindling profits and increasing costs attributed to modern tools and technology. We have to ask, is this sustainable? And who is the true beneficiary of the technology, marketing and associated costs that the business owner is absorbing?

Smart, seamless technology should result in more bookings. It would be a fair to pose the question of whether the property owner should absorb these costs. However, don’t forget that they too have had their bottom line impacted by reduced rates.

So, should the OTAs themselves be responsible for these technology costs? After all, they have no business if they don’t have access to the stock in the first place. They need real time access to stock to ensure they have something to sell when they most need it.

It seems that the evolution of our industry may have reached a tipping point. We need to find a solution that provides the best way forward for property owners and business owners alike. Stay tuned for Part Four of this series, when we will explore some options for the future.

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