ITB 2018 Special Reporting
Fitch: US hotels gain incremental negotiating strength over OTAs.
Friday, 16th September 2016
Source : Fitch Ratings

The balance of power has shifted in favor of US hospitality companies in their tenuous relationship with online travel agencies (OTAs), according to Fitch Ratings, solid industry fundamentals have allowed many lodging brand owners to negotiate more favorable commission rates and contract terms, and hotel brand consolidation will perpetuate this trend.

However, OTAs have several avenues available to offset the latest round of the long-standing trend of commission rate pressure. The scale and breadth of their bookings platforms will continue to make OTAs a relevant and valuable hotel-distribution partner, especially for higher margin independent hoteliers who may not already have the loyalty base or marketing budgets of the larger chains.

Fitch expects more hotel M&A (and related potential bondholder event risk) during the one- to two-year Rating Outlook horizon as scale increasingly demarcates lodging company success. Larger brand owners, such as Marriott International and Hilton Worldwide can negotiate more favorable OTA contract terms, including lower commission rates and no last room availability and price parity clauses. These are attractive benefits for current and potential franchisees that should result in outsized unit growth.

Hotel brands with comparatively limited geographic scale and product segmentation are consolidation candidates.

"Smaller lodging franchisors will need to lean more heavily on their balance sheets to grow their rooms systems, which could heighten credit risk" said Stephen Boyd, Senior Director, U.S. Real Estate and Leisure.

Examples include asset acquisitions/re-brandings or management and franchise investments, such as key money, sliver equity investments and development loans and off balance sheet guarantees.

Higher market penetration, particularly in Asia/Pacific and Latin America, will continue to more than offset the ongoing earnings pressure from lower commission rates. Also, OTAs should see some benefit from a revenue mix shift towards higher margin independent hotels, whose bargaining power and commission rates will not change due to lodging consolidation, but could decline due to heightened competition between OTAs.

OTAs provide operating flexibility that hoteliers (including the large brands) generally value, notwithstanding some dissatisfaction over their perceived high commission rates.

"OTAs have an unmatched ability to quickly fill hotel vacancies by putting "heads in beds" that is especially valuable during weak economic periods," said Colin Mansfield, Associate Director, U.S. Real Estate and Leisure.

Even in good times, hoteliers can use OTAs to quickly drive traffic and fill last minute cancelations, for example.

The full reports, "Hotels Put OTA Commissions in the Crosshairs: What U.S. Lodging Companies Are Saying" and "Growth, Scale Offset Ongoing OTA Commission Pressure: What OTA Companies Are Saying" are available at www.fitchratings.com.

 Latest News  (Click title to read article)

 Latest Articles  (Click title to read)

 Most Read Articles  (Click title to read)

~ Important Notice ~
Articles appearing on 4Hoteliers contain copyright material. They are meant for your personal use and may not be reproduced or redistributed. While 4Hoteliers makes every effort to ensure accuracy, we can not be held responsible for the content nor the views expressed, which may not necessarily be those of either the original author or 4Hoteliers or its agents.
© Copyright 4Hoteliers 2001-2018 ~ unless stated otherwise, all rights reserved.
You can read more about 4Hoteliers and our company here
Use of this web site is subject to our
terms & conditions of service and privacy policy