Picture the scene.

It's the start of the season. You've got a healthy base of early bookings, you've adjusted your rates to snare in some more, and you're settling down for an early night before a long day of revenue management in the morning.

But then, all of a sudden, you get a cancellation. And then a couple more. Before you know it, a handful of those secure early bookings have cancelled their reservation with you - and re-booked via an OTA at your recently-lowered rate.

Okay, so we may be being a little over-dramatic - but the scenario we've just described is one feared by an increasingly large number of hoteliers as price-drop alerts and automated re-booking sites continue to appear in the B2C travel marketplace.

The service offered by these sites is generally as follows:

  • Guests sign up after booking a hotel stay, giving the company access to their booking information (this can be on the direct site or on an OTA)

  • The company monitors their specific room rate (usually by automatically scraping OTAs)

  • If the room rate drops, the company either (a) notifies the guest to suggest they manually cancel their room and re-book it or (b) automatically cancels the guest's existing hotel booking and re-books it at the lower rate

  • Depending on the service, this may involve channel-switching the guest from direct to OTA (or vice-versa)

So on face value, we can understand why hoteliers are concerned. When you drop a rate, it's because you're forecasting lower occupancy - so it would really do you no favours at all if your existing reservations all cancelled to re-book the lower rate, keeping occupancy the same but your revenue sorely depleted.

But could hoteliers benefit from resisting that initial knee-jerk reaction of fear? Do these sites have more to offer than meets the eye? And just how often are these cancellations really going to happen?

We spoke to a few key players to find out.

View from the revenue manager

We spoke to Adrienne Hanna, Founder & CEO at Right Revenue, about the potential impact of re-booking sites on revenue management strategies. With 15 years of revenue experience under her belt, Adrienne has seen her fair share of industry upheavals - so, we asked for her thoughts on whether re-booking and price-drop alert sites such as Service and Yapta are a force for good or ill.

"Are re-booking sites a friend or foe? At first glance, you might say it depends on which side of the fence you sit on - hotelier or customer," muses Adrienne.

"But does it really? Do sites like these really offer the best value for either? Let's take a look at the facts from a hotel's perspective. A clever hotel is revenue managing - and by that I mean they're selling the right rate, to the right person, at the right time, for the right duration, on the right distribution channel, and for the right cost of sale. In real terms, this means the hotel strives to offer each guest the very best rate possible at all times. Gone are the days of static pricing and hooray for the era of dynamic pricing!

"We know that the 'Best Available Rate' on a hotel's website is actually the very best rate the hotel can offer at that time. Let's have a look at a UK-based example.

"A room sold for £100 loses:

  • £20 in VAT

  • £18 in commission (for an 18% OTA)

  • £14 for e.g. breakfast allocation

  • £38 cost of sale (industry average for a 4-star non-branded hotel).

"That leaves a somewhat pitiful £10 profit per room - and this is often a best-case scenario! Cost and profitability is an issue that hotels struggle with every day, and every penny counts. Then we have to factor in the fact that 40% of all bookings made through an OTA end up being cancelled - and that's a huge consideration for a Revenue Manager. This 'risk of cancellation' should and must be built into forecasts, and rates have to be adjusted and aligned with this potential drop in bookings," Adrienne explains.

"So, not only do we have OTAs such as Booking.com telling our customers that they have 'Free Cancellation' (though in reality they must adhere to the hotel's own policy), now we have automated re-booking websites that actively tell our customers that they will cancel and re-book the same hotel if they find a better rate. Who's winning here?

"Certainly not the hotel," she continues. "They're losing a booking with already little profitability to a lower rate with even less. And don't forget, the only reason a hotel would lower the rate is because they are predicting lower demand. As for the customer, is this really better for them? Are the lower rates at lower room categories? With extras removed? There are many cases of guests arriving at hotels to be told they have to pay for the breakfast they thought was included in their booking, for example.

"This doesn't seem to be a healthy way of doing things. What could make it better? Well, hotels would give more availability and better rates if OTAs simply reduced their commission to a fair amount - perhaps even reduced commission on repeat bookings. As an industry, we gave too much control over to OTAs at the start of the recession. We should be careful of embracing these sites that encourage cancellation and re-booking - wouldn't our hard-earned cash be better spent marketing our own property online?"

View from the re-bookers: DreamCheaper

Adrienne's point is a tough one to argue with. The hotel industry has an unfortunate history of handing over too much of its business to third-parties - and once handed over, it's a struggle to get that business back. But that uneven power dynamic is exactly what automated re-booking can help with, argues Nathan Zielke, Managing Director of DreamCheaper. DreamCheaper itself has recently filed for preliminary insolvency after failing to conclude a funding round at the end of 2017. The founders say they are continuing with the business idea.

"We see an oligopolistic market on the OTA level with the big players charging hotels 10-25% commission, spending almost 50% of their revenues on marketing (fighting against each other), and still reporting 30%+ in net revenue - this has to change," Nathan told us.

"Our top priority is getting a saving for the consumer, but our second priority is giving power back to the hotel," he continues. "The market share of OTAs is misused. A fully-automated marketplace like Booking.com or Expedia doesn't justify that level of commission - an incremental booking on Booking.com is almost zero cost to them."

So, could these supposed disruptors actually be on the same 'side' as hotels? According to Nathan, the service helps hotels to recapture bookings already lost to expensive sales channels.

"(Once a customer shares their booking details with us), we can go to the hotel and say "we know this person has booked your room on an OTA." We even show them how much commission they probably paid on that particular booking. We say to them, "offer us a better rate and we'll pass it on to the customer." The hotel then converts the existing booking for next to nothing in terms of marketing cost. The customer enjoys a cheaper stay, the hotel benefits from higher net revenue and we are paid with our 20% cut of the savings achieved - win, win, win."

In effect, then, the DreamCheaper model does hoteliers the courtesy of letting them know before they cancel and re-book the guest on an OTA, in the hope that the hotel will come back and offer the guest a bespoke rate (and secure the intermediary a cut in the process). Hotels don't have to be working with the service to receive these notifications - they email you regardless. Nathan told us that in general, 50% of bookings DreamCheaper monitored received at least a 3% cheaper deal. It is likely that the majority of those are re-booked on third-party sites. While Nathan has certainly identified a pain point in the industry, we predict that many revenue managers would struggle with being asked to provide cheaper-than-expected rates on a case-by-case basis.

And then there's the issue of wholesalers. Our Spotlight on... Wholesalers report revealed the true extent of the industry's struggle with rogue 'unbundled' rates being passed onto guests via OTAs. Nathan was open with us about placing "quite a few" of the re-bookings they make at wholesalers, with the argument that "they (wholesalers) set their own prices, and the revenue for the hotel is not changed at all by re-booking there." At last year's Direct Booking Summit in Barcelona, Hyatt's Geneviève Materne made clear that hotels need to be doing more to tighten their wholesale contracts to prevent rooms ending up where they don't want them: her advice was to "check your terms and conditions! Right now you're giving wholesalers everything they need to sell your rates on OTAs and metasearch. Don't be angry at them - evaluate your own contracts." It's worth making a decision on whether you'd be happy for your wholesale rates to be picked up by re-booking services, and if not, returning to your agreements and making sure you spell out exactly where your rates are to be sold.

View from the re-bookers: Service

Where Nathan posits DreamCheaper's value to hotels as potentially lowered sales and marketing costs, Service's CEO Michael Schneider points more to loyalty and guest engagement as outcomes of their offering.

"We're democratizing access to the best rates and engendering loyalty in the process," Michael tells us. "We don't channel switch. If a guest books on a hotel's website, we're not going to switch them away to an OTA. We want to work with the industry, and with hotels in particular."

Though their hotel product is still young (it only launched at the beginning of 2018), Service have been in the marketplace for some time with their flight compensation offering.

"We began in the airline industry," Michael explains. "We file for compensation for customers whose flights get delayed or cancelled. The way our flight service works, we're connected to our customer's inbox. We see where they're travelling and what they're booking. We kept seeing hotel bookings and car rental bookings around the flight information, and we thought that hotels seemed like the next logical place to go."

Unlike DreamCheaper, Service don't contact individual hotels asking to lower the rate. They track guests' upcoming hotel stays and automatically re-book once they find a cheaper rate. They operate on two models: one where the guest pays an annual membership and keeps 100% of savings, or a pay-as-you-go option where Service keeps 30% of the saving. Service estimate that the rate drops around 40% of the time after the guest first books it - though Michael is quick to point out that this varies from place to place.

"For example, we know that in New York City rates start high and then drop towards check-in," he says. "In San Francisco though, they start low and get higher."

We asked Michael what he would say to revenue managers worried about the consequences of guests using automated re-booking services.

"I would encourage hotels to take credit for it - I'd be proud if I was offering my customers the cheapest rate!" he told us. "Let the customer know that you're happy to play ball with us because you want them to get the best value.

"We're also in a unique position with our data. It's very early days, but we know how loyal customers are to a hotel or to a hotel chain. We know when they're being promiscuous with loyalty programmes and when they're not. We could help hotels to change consumer habits in a really positive way through this product.

"In terms of its effect on revenue management, there's always going to be a segment of customer that books early and tries to get the lowest rate. There's also always going to be a business customer that books last-minute (in the airline industry, the vast majority of revenue comes from that last-minute segment). When you book last-minute, there's less time for the rate to move. I don't think we're making it impossible for hotels to have a proper rate strategy. We're making it better for early bookers that care about the stay."

Looking forward

Michael's last point is perhaps most pertinent to hoteliers concerned about this issue. A robust rate strategy should (in theory) be able to withstand the impact of automated re-booking, if there is the ideal balance of cheaper non-refundable rates and more expensive, flexible ones. The hotels likely to be hit the hardest are those with a tendency to drop their rates en masse when trying to increase occupancy last-minute. Preeyanuj Chawla, Executive Assistant Manager at Adelphi Forty-Nine in Bangkok, warned against panic-dropping rates in our interview earlier this year:

"I've noticed for a really long time that all the hotels (in my region) seem to panic and drop their rates when it's the low season. But when the customers aren't coming, they aren't coming! Dropping your rates really low won't gain you any market share at all. In fact, it's bad for you in the long run as you won't be able to increase it later as customers are really price-sensitive. Once you've lowered your rates, you can't expect the same customers to book when you've increased them."

So, while last-minute sales and promotions will always be a part of hotel marketing, it's crucial that they are wrapped up in a well-thought-out rate strategy focused on the long term rather than the short. At the heart of it, automated re-booking services are focused on the consumer and gratifying their innate desire to get the best deal. We know that hoteliers are at their best when they are striving for the same goal.

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