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FinalReport2May2018ExaminationofthecostsassociatedwithdirectandindirectdistributionchannelsforHotels,togetherwiththeimpactof‘channelshift’AlldatainthisstudyhasbeensourcedfrompublicallyavailablesourcesorfromETTSAmembercompaniesonaconfidentialbasis.Theconfidentialdatahasbeenanonymizedandaggregatedtoensurethesourcedatacannotbeidentifiedandthedatacannotbe‘reverse’engineered.SponsoredbytheEuropeanTravelTechnologyServicesAssociation(ETTSA)PrivilegedDocument.ThisdocumentissubjecttosensitivedataprotocolsHotelDistributionCostsDistributionCostStudy-Hotels©Infrata2018ThisreporthasbeenpreparedinaccordancewiththescopeofInfrataLimited’sappointmentwithitsclientandissubjecttothetermsofthatappointment.Infrataacceptsnoliabilityforanyuseofthisdocumentotherthanbyitsclientandonlyforthepurposesforwhichitwaspreparedandprovided.TheconclusionsandrecommendationscontainedinthisReportarebaseduponinformationsourcedinthepublicdomainandprovidedbyothersandupontheassumptionthatallrelevantinformationhasbeenprovidedbythosepartiesfromwhomithasbeenrequestedandthatsuchinformationisaccurate.InformationobtainedbyInfratahasnotbeenindependentlyverifiedbyInfrata,unlessotherwisestatedintheReport.CertainstatementsmadeintheReportthatarenothistoricalfactsmayconstituteestimates,projectionsorotherforward-lookingstatementsandeventhoughtheyarebasedonreasonableassumptionsasofthedateoftheReport,suchforward-lookingstatementsbytheirnatureinvolverisksanduncertaintiesthatcouldcauseactualresultstodiffermateriallyfromtheresultspredicted.InfrataspecificallydoesnotguaranteeorwarrantanyestimateorprojectionscontainedinthisReport.InfratadisclaimsanyundertakingorobligationtoadviseanypersonofanychangeinanymatteraffectingtheReport,whichmaycomeorbebroughttoInfrata’sattentionafterthedateoftheReport.DisclaimerDistributionCostStudy-Hotels©Infrata2018HotelDistribution:ExecutiveSummaryPage3DistributionCostStudy-Hotels©Infrata2018ShiftingcustomerstodirecthasnoimpactonnetcontributiontohotelsPage4Theclaimthatdirectdistributionis‘considerablycheaper’thanindirectdistributionforatypicalhotelisextensivelyreported.(pg8)Ouranalysisshowstheaveragenetcontribution*ofallthedirectdistributionchannelsis€4.59perbookinggreaterthantheaverageofalltheindirectchannels.(Theoverallnetcontributionfromallchannelsis€80.94)(pg9)However,ifwecomparesolelythenetcontributionoftheOTAwithBrand.com,thenthenetcontributionis€78.43withOTAchannelcontributing€0.12moreperbookingthantheBrand.com.(pg10)Wereahoteltoshifttheirentireinventory(awayfromtheOTAchannelstoBrand.com),therewouldbeastatisticallyinsignificantchangeintheoverallnetcontribution**.Thisshiftassumesanetcost***rebalancing.Thisalsoassumesallothermarketdynamicfactorsremainthesame.(pg11)However,ahotelislikelytofaceasignificantdropinoccupancy,whichwouldrequireamaterialincreaseinspendintheareasof:customeracquisition,onlinemarketing,technologydevelopmentandcustomerservices.Whensellingindirectly,thesecostsareusuallybornebytheintermediaryfromcommissionproceedswhereasifthehotelwouldhavetodirectlyexpendresourcesintheseareasiftherewasashiftfromindirecttodirectchannels.Furthermore,thehotelislikelytolosethepositiveimpactofthebillboardeffect(between€7-€10perbooking).(pg12)Source:Infrata*NetContributionisthepreferredKeyPerformanceIndicatorasthistakesintoaccountbothchannelcostsandtheirrespectivechannelrevenues.Av.ADRof€112normalisedacrossallchannelstoallowexaminationofcostsinisolation.**areductioninaveragenetcontributionfrom€80.94to€80.92(or0.03%)***e.g.removalofcommission,additionofSEOcosts,etcDistributionCostStudy-Hotels©Infrata2018Thehotelindustryhasawiderangeofchannels*toconnectwithandgeneratebookingsfrom,endconsumers*ChannelsincludeIndirect:OTA(4subchannels),TMC,Wholesaler,Direct:Brand.com(2subchannels),CRO,localdirectandOffline:MICE-thisisnonexhaustive**OTAshavedifferingfinalconnectivityoptionstotheHotelviatheswitch,extranetorCRS-eachwithdifferentcostimplicationsThisgraphicillustratesthemaindistributionchannelsandlinkagesandtheauthorsrecognizethatotherconnectionsexistandvarygreatlybyhotel/chain.GuestGoogleYahooInventoryManagementRevenueChannelManagementBookingPlatformCRSSearchBrand.comHiltonStarwoodCROFrontOfficeBackOfficeNon-LoyalBusinessLeisureNonLoyalTMCLeisureAgentsCorporateGDSWholesalersTouroperatorsRepresentationcompanyLoyalLocalcorporateMetaSocialAffiliateReviewHotelRichMediaContentAggSwitchConnectivityExtranetOTA**ExpediaBookingSource:InfrataOurmodelassumesthatanaveragehotelreceivesthemajorityofitsbookingsfrom11primarychannels*.Eachchannelwillhavedifferentcombinationsof‘connections’todelivereachhotels'finalproducttotheguest.Guestshaveawiderangeofchoiceandultimatelydecidewhichchanneltheywilluse‘Offline’Hoteldistributionisfragmented,withmultipleconnectivityoptionsandvariedcompetingcommercialmodels.Totalcostsperbookingrangefrombetween10%and30%ofroomrevenue.Page5MajorchannelMinorchannelDistributionCostStudy-Hotels©Infrata2018ChannelsmayserveadifferentmixofendconsumersandasaresultcandeliverdifferentaveragerevenuesAcrossEurope,hotelroomrevenuesvarygreatlybygeograp