End of hotel commissions and merchant model predicted
10% commission to disappear over the next 5 years as well merchant model as we know it, transformed into a “Commission Override” model, predicts Hospitality eBusiness Strategies, Inc. (HeBS).
The explosion of the “merchant model” after 9/11 caught the hospitality industry by surprise. Over the last 4 years many hoteliers have successfully struggled to decrease their dependence on the online merchants and to develop direct online distribution strategies of their own.
“In our view the standard travel agency commission, which is currently 10%, will disappear over the next 5 years in the same manner as it vanished in the airline and car rental sectors.” predicts Hospitality eBusiness Strategies, Inc in a report released yesterday by it principals Max Starkov and Jason Price.
The report sites the main reasons standard agency commissions will disappear to be the diminishing importance of this channel and the GDS in general. For the first time in 2004 the Internet hotel bookings surpassed GDS hotel bookings. In 2006-2007 the Internet is predicted to generate twice as many hotel bookings as the GDS, with the trend to continue thereafter.
HeBS firmly believes that the merchant model will evolve over the next few years and into a “Commission Override” model where higher booking volume production will earn the intermediaries better commissions or overrides, but at a fraction of today’s high discounts of 18%-30%.
Travel agency commissions is predicted to shrink from the current 10% level to 8% then 5%, in the end becoming a flat fee of $5-$10.
“In the near future major brands and smart hoteliers will start introducing restrictions on how net wholesale rates can be marketed on the Internet by the third parties, which will gradually lead to a requirement that net rates should be bundled with other services and cannot be exposed “naked” on the Web (i.e. like it is today with the merchant model)…
Online intermediaries will further embrace the dynamic packaging model thus turning themselves into typical online wholesale packagers/tour operators.”
Due to a lack of understanding of how online distribution worked, exacerbated by the industry-wide desperation after 9/11, hoteliers saw their discounted rates posted all over the Internet –on merchant sites and thousands of affiliates–and suffered severe consequence to rate and brand integrity.
This unhealthy industry practice was best illustrated by one industry executive who described the state of confusion as “Selling Waldorf-Astoria on Hotels.com is like buying Armani in Wal-Mart.” Since those days, hoteliers have sobered up, but the hangover still lingers and too many hoteliers are still having difficulty weaning themselves away and adopting better online distribution strategies.
Reported by Charles Kao
Charles Kao
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