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
Mark Fancourt
Co-Founder at TRAVHOTECH

In general it's a sad situation and does nothing to foster good relations between the distribution network that have no tangible product to sell other than a hotel product presented through someone else's effort and expense. 

The sign of a great business relationship is where both parties benefit and consider each other's best interests. The nature of these relationships to date seems to be one sided where what is good for the revenue commission will just have to be satisfactory for the product provider who bears the real expense of producing a product.

The overall distribution network environment has in my view been a catalyst for the creation of mega brands, diluting the overall quality of the hospitality experience if for no other reason that trying to create a block at such scale and breadth that a level of direct competition or negotiating power exists to balance the relationship. The recent Marriott negotiations being an example.

Through the process everyone loses in this model. Brands become a product by name only. Product standards slide based upon whittling down of a fair rate. The idea of hospitality service begins to disappear from the product offering all together. It's a race to the bottom where the new version of hospitality in some sectors will resemble not much more that a dormitory.

On the flip side I sense a change coming. A change that will shift the balance in favour of hoteliers in general on the back of a much broader distribution network where commission on room sales will not be the motivations for being in the market. I'm looking forward to this change and crossing my fingers that the new player will be much more interested in positive commercial relations with the hospitality industry.

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