Ixaris’ Nick Calver looks at why online travel agents need to put the problems of the past behind them in order to make the most out of a surge in hotel bookings.
With 2015 now just a rapidly fading memory, many online travel agents (OTAs) will be looking to the future and what it might bring. For those who do business with some of the hundreds of thousands of hotels scattered around Europe, that outlook should appear fairly bright.
There’s every reason for optimism, too. Europe welcomed 22 million more visitors in 2014 than it did the previous year and, according to PwC’s Room for Growth report, the trajectory remains upwards well into 2016. The firm predicts RevPAR growth across Europe during the year ahead, with only Geneva and Zurich seeing small declines. These figures are borne out by actual EU occupancy rates during 2015, with statistics showing a 1.9% on the 12 months previous.
Better still, commentators at research house Phocuswright note that OTAs are slowly but surely gaining the edge over direct bookings; by this time next year, more than a quarter of all European hotel reservations will be made via an OTA.
Naturally, this presents opportunity and threat in equal measure. Around two thirds of European hotels aren’t part of large chains, meaning that OTAs have ample opportunity to demonstrate real value to these independent hoteliers. At the same time, Europe’s continued growth is only likely to draw the attention of some of the industry’s bigger players, putting already tight profit margins under even greater pressure as OTAs fend off stiff new competition.
It’s surprising then, that in this silver-lined but highly competitive environment, an issue as simple as payments still remains a problem for so many agents. The act of paying a hotel for a booking shouldn’t be a contentious one for an OTA. Yet, for many, what should be a relatively painless procedure often comes loaded with unnecessary costs.
Statistics – again from Phocuswright – suggest that around 47% of OTAs continue to rely on corporate credit cards to complete their hotel payments. By doing so, they leave themselves exposed to a range of issues that gnaw needlessly but continually at the bottom line. Not only do corporate card payments carry the added financial burden of FOREX fees, they can also heighten an OTAs’ exposure to fraud, and create additional work in the form of the manual reconciliation of payments to orders.
With those figures in mind, it’s possible that more than half of OTAs spend more and work harder than they need to when paying their hotel partners. While that would be cause for concern in any line of business, for OTAs – who deal in high volumes and low margins – it should be particularly hard to swallow.
Part of the problem is that other payment methods – like virtual cards – create their own set of hurdles for OTAs to overcome.
On the face of it, virtual cards counter many of the issues associated with “traditional” forms of payment. They offer automatic reconciliation for a start, putting paid to hours of manual matching. They can be created in a wide range of currencies, helping OTAs steer clear of FOREX fees. And, perhaps best of all, they even present an opportunity to generate additional revenues, with interchange fees shared by virtual card scheme operators.
But, despite all of that, virtual cards are still a reluctant choice for OTAs when paying hoteliers: only around 5% use them for that purpose on a regular basis. Somewhere, there’s a disconnection.
The major issue is almost certainly one of complexity. OTA payments to hotels are, by their nature, a tangled affair. Unlike airline bookings, which necessitate full payment up front, hotel bookings can fall into multiple categories – part, pre or post – and each of these scenarios has its own set of requirements. That makes it difficult to adopt a uniform approach to payment, meaning that many of the benefits associated with virtual cards are lost along the way.
In the case of prepaid bookings for instance, a hotelier will often pre-authorize a virtual card in order to ensure its legitimacy. That’s fine in principle, but since most virtual cards are created as single use only, this can spell trouble when the hotel goes to take the actual payment at a later date. Extrapolate that to a hundred, or even a thousand hotel bookings, and you can quickly see how large the problem could become.
With postpaid bookings, the issue has more to do with cashflow. It makes sense for an OTA to load a virtual card near to a customer’s checkout date in order to protect their bank balance. But delaying that process means that someone at the OTA has to manually load the card at a later stage, creating work when virtual cards should be reducing it. Part payments can be more complex still, flavoured as they are with elements from both of the issues above.
If this might make it seem like virtual cards just aren’t up to the job of managing hotel payments, then that’s not the case. While all of the issues outlined above can be tackled with the right thinking, that’s not necessarily true of traditional payments, where many of the identified problems are inherent and subsequently much more difficult to avoid.
But what we have seen with absolute certainty is that OTAs can’t just switch from traditional payment methods to virtual cards and hope for the best. Like any technology, careful planning and forethought is required for OTAs to get the most out of a platform that could help them plug an otherwise persistent leak in their finances.
With the hotel segment on an increasingly sharp upwards trajectory, the time is undoubtedly right for OTAs to attend to a little housekeeping of their own when it comes to payments.
For more information please visit Ixaris at Travel Technology Europe at Olympia Exhibition Centre in London on 24 & 25 February 2016 at Stand T106.