Last week, I witnessed a reversal almost unimaginable before the recession: On a panel sponsored by the Association of Travel Marketing Executives (ATME), an airline representative was both more satisfied with last year's performance (rating it nine out of 10) and more optimistic about prospects for 2012 than a hotelier (6.5 out of 10).
To be fair, the aviation exec, Dennis Corrigan, works in sales at JetBlue and not at American Airlines, and the hotelier, Greg Brown, Choice's loyalty vice president, based his assessment on slow franchise sales rather than average daily rate or revenue per available room.
But when considering industry segments rather than individual companies, a number of recent trends and developments point to sunnier skies for airlines and increasing challenges for hoteliers.
Consolidation among airlines, which were never as fragmented as hotels, underscores that, at times, there is strength in fewer numbers.
What ultimately helped the airlines was discipline. For years, commercial carriers were only as strong as their weakest competitor, and there was no shortage of desperate weaklings who would reduce fares to spur cash flow. Pre-alliances, carriers would fly routes at a loss rather than cede the market to a competitor.
But by reducing capacity, choosing alliances carefully and focusing on profit rather than market share, in 2011 some airlines, as Corrigan noted, were able to see revenues rise faster than the price of fuel.
Hotels certainly have different issues. A 300-room hotel cannot shed capacity. Meaningful industry consolidation appears to be on hold. Big brands must compete with myriad independents as well as for the loyalty of fickle owners.
Hoteliers' biggest headache, however, may be in their distribution strategies, enabled and influenced by an ever-increasing number of creative online options. As reported in Travel Weekly last week, the online travel agency (OTA) merchant model (in which hoteliers wholesale rooms at low rates to sites like Expedia, Travelocity, Priceline and Orbitz, which then mark them up) resulted in revenues discounted to an amount equal to twice what they pay in commissions on standard agency sales, according to Smith Travel Research and the American Hotel & Lodging Association.
Collectively, discounts by U.S. hotel owners to OTAs amounted to $2.7 billion, more than double what they paid in agent commissions. The study predicts that number could double again over the next few years.
OTAs rightfully point out that the numbers do not take into consideration the contribution their marketing and advertising makes to put heads in beds. That applies to travel agents collectively, as well.
If, as a hotelier once said to me, the OTAs "are like heroin" ("I'd like to stop using them, but I can't"), then social buying/coupon sites like Groupon and flash-sale sites like SniqueAway are crack cocaine. As explored in a Travel Weekly cover story on Jan. 9, some hoteliers see these sites as a way to attract new clients, but ATME moderator Henry Harteveldt of Atmosphere Research Group said his company determined that shoppers at coupon and flash sites tend to buy from brands they have previously purchased.
"I see it as highly delusionary," he said. (From the context, I wasn't sure whether the root of his comment was "dilute" or "delusion." Either could work.)
I did speak with an executive of a travel agency group who said his organization has discussed fighting fire with fire: obtaining net rates and having members promote their own flash sales to clients. So far, no decision has been made.
But if flash sites are crack cocaine, I'm not sure there is yet a drug to describe the potential impact of BackBid.com. After travelers book rooms through their "channel of choice," they post their confirmation information. Other hotels can then underbid the confirmed price or perhaps offer upgrades or amenities/services to entice the guest away.
From a consumer's perspective, what's not to love? But if hoteliers participate in large numbers, I can think of no better example of a race to the bottom. It could not only impact hoteliers, but the traditional agents and OTAs who went to the expense of booking the original hotel in the first place could feel stung.
No question, BackBid is a great model of empowering consumers with additional choices. But the airlines' turnaround suggests that a disciplined industry can go a long way to determining what choices consumers are ultimately offered.
Email Arnie Weissmann at [email protected] and follow him on Twitter.