World Panel
Viewpoint20 May 2019

Is Rate Leakage a problem for hotels?

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Wholesalers who have negotiated discounted rates with the hotel under the pretext of needing wholesale rates to bundle with air or local activities, etc. into packages, and then leak the discounted rates "naked" online-primarily via the OTAs or their initiatives like Booking.basic. This is a huge problem in Europe and APAC, not so much in the U.S. See this article by HotelBeds, trying to present itself as anti-rate leaker, while a lot of hotels accuse this wholesaler to be one of the rate leakage offenders. What's your take?

This viewpoint was created by
Max Starkov, Adjunct Professor NYU Tisch Center for Hospitality, Founder & Director at NextGuest Digital
Ross McAlpine
Director, Client Services at Vizergy
Supplier View

As someone who works with hotels on their direct booking strategy, I know the serious impact rate parity issues have to website conversion. The OTAs also understand parity is crucial to their own website conversion and revenue. Simply put, if a hotel doesn't provide the best rate to an OTA they'll source it from someone who can regardless of who that seller is. Just like a consumer, an OTA is now rate shopping! This is rate parity 2.0 and I wouldn't be at all surprised to see it become more commonplace in the US as it has become in Europe and Asia.

So how do you plug holes in a leaky bucket blindfolded?! That's the problem with rate leakage, there's little visibility over where the leak is in order to fix it. Dynamic rates would solve most (not all) of the rate leakage problems but the issue we have as an industry is that guest shopping online is moving faster than our distribution technology, meaning many wholesalers aren't capable of dynamic rates. Hotels have to take back control by consolidating wholesale distribution to just a few providers and then test additional smaller wholesalers from there. Audit religiously and attempt to troubleshoot rate parity issues with that partner, be ready to disconnect that partner if issues persist. And always sell with a best rate guarantee on the hotel's own website because that should always be the hotel's best guest experience and most profitable distribution channel.

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