The Hotel Industry's New Direct-Booking Discounts

Hilton Worldwide, Marriott International, Hyatt Hotels Corp., InterContinental Hotels Group and Choice Hotels International, have begun offering discounted rates for loyalty members who book directly on the brands' websites or mobile apps. The industry move, meant to project that travelers can find the best deals with a hotel and not through third-party channels, presents an added challenge for corporates.

"We are seeing a monumental change in behaviors and the structure of programs, and it really concerns me," said Mary Bastrentaz, managing director of global travel and events at Accenture. "Many of us grew up in this industry, and we had a one-stop-shop for booking hotels, air, limo. They never thought of going outside the system. But over the years, certainly with the Internet but the onslaught of all the apps and the hotel and air campaigns, it has continually chipped away, and now we are in a very fragmented environment."

2016 corporate negotiated rates in North America increased 2.7 percent for BCD Travel clients and more than 2.9 percent for Carlson Wagonlit Travel clients, while hotels have started offering rates with discounts around 10 percent, travel managers face the question of how to address the opportunity for travel-program savings that direct booking provides.

Why Direct Booking?

Shortly after Hilton announced it would introduce preferred pricing to HHonors members who book direct, CEO Christopher Nassetta told investors during the company's fourth-quarter earnings call: "The ultimate objective is … about having direct relationships with our customers. We want them to get the best value that they can get, get the best experience, and we obviously want to lower our distribution costs for both ourselves and our owners."

Choice CEO Stephen Joyce spoke more candidly during Choice's first-quarter earnings call, indicating that preferred pricing challenges online travel agencies, which charge commissions near 20 percent. "We're not anti-OTA, but we are not at all happy with some of their practices and we've never been happy with their pricing," Joyce said. "It's overrated for what they provide, and so, as we look at this going forward, one of our sole missions is to try to limit the amount of activity going from the OTAs and coming from [them] into our primary channels. If you look around the industry, everybody else is doing the same thing."

Less than a week after Joyce spoke on the matter, Choice announced it would introduce direct booking rates to Choice Privileges members in the latter half of the summer.

Industry players may seem to be marching in lockstep following Hilton's lead, but Hyatt and IHG said their implementations were the products of pilots conducted last year. "We kicked this off in April of 2015 in pilots," Hyatt CEO Mark Hoplamazian explained during a recent earnings call, adding that the company tested in seven markets in the United States and one in Australia. "We really tested what the profile was going to look like before we decided to take it nationally, and it was really a program focused on driving loyalty and customer engagement."

Hyatt Gold Passport signups more than doubled year over year in the pilot markets. He said "a clear majority" of bookings made in those markets were from new or previously inactive loyalty customers. Hoplamazian said the discounts are also yieldable rates, which means properties are not required to sell the discount rates and they can decide how much to discount.

Hilton saw marked results after the launch of its preferred rate. "The business we received through Web-direct is higher than it's ever been and is growing faster than ever, thanks to increasing share shift," Nassetta reported during Hilton's first-quarter earnings call. "The share of Web-direct channels in our distribution mix is growing five times that of the OTA share of growth in the quarter."

The Corporate Travel Ripple Effect

The move to tie preferential rates to direct bookings is not so different from the move hoteliers like Marriott and Starwood made in 2014 to tie free Wi-Fi to loyalty and direct booking on brand websites.

In that instance, the hoteliers faced criticism from groups like the United Kingdom and Ireland's Institute of Travel & Meetings for being "anti-business travel." Other companies like Hilton and Hyatt also dropped Internet charges for loyalty members, but they didn't tie the arrangement to any one booking channel.

If the industry shift toward loyalty rates is intended to challenge the OTAs, the question is whether managed travel programs and corporates booking through global distribution systems could once more get caught in the crossfire. "A lot of the TMCs wish that the communication would be a little bit clearer around lack of impact on travel management companies," said Eric Jongeling, Carlson Wagonlit Travel director of Americas hotel solutions. "It creates a lot of behind-the-scenes saying, 'How does this actually impact us as a managed travel program?'"

Hyatt at first made its rates available only to corporate partners and third-party bookers that book directly through the hotel company's website. The American Society of Travel Agents criticized the program, stating that forcing agents to book directly on Hyatt's website rather than through the GDS makes comparative shopping difficult for agents.

Hyatt has since shifted course, joining Marriott and Hilton in making its rates available on the GDS. When IHG announced its rates on May 3, it stated, "Over the coming weeks, these rates may also be booked by select travel partners on behalf of any IHG Rewards Club Member through eligible channels."

As for Choice, chief commercial officer Robert McDowell said in a statement provided to BTN: "Given our continued focus on growing share of midweek business, we will evaluate expansion to travel agents and plan to include input from travel managers in our decision making process."

One travel manager, who preferred not to be identified, previously told BTN the trend concerned him: "It confirms my suspicions that the sales teams are not working close enough with [the loyalty teams] to protect the integrity of the corporate rates offered. I am almost convinced that they are trying to take our travelers from our managed programs and push them right into their own brand.com. This tactic may seem good right now, but long term they will hurt themselves as they hurt the relationship between the buyer and supplier."

TripBAM founder and CEO Steve Reynolds said managed programs could realize savings if they embrace the preferential loyalty rates. Transparency, though, is still key. "It begs the question, if you've got a negotiated rate and they're going to offer travelers something less, why do you have a negotiated rate?" he added. "If the hotel across the street gives you a better deal, can you get your travelers to shift, or because of loyalty points are they going to keep sticking to that one property? Then you have to quantify it. How much is it costing you? If you let your travelers do this, how much in lost savings did that result in?"

ITW director of global travel and expense services Cathy Sharpe said loyalty and the benefits that come with it can be an advantage for corporate programs. "I'm piloting Triplink with Concur, and we are working with our suppliers, working with Concur to focus on extending loyalty programs … to include as many employees as possible," Sharpe said. "What we really want to do with our strategic partnerships is to set their service apart from everyone else. We are working with them to create programs that show the ITW traveler … the value of using our strategic partners."