A common topic at travel conferences and in travel publication is that of consolidation, on both the supply and demand side of the equation. While the benefits for the parties of the consolidation seem clear on the surface, are they truly taking advantage of the economies of scale while fending off new entrants into the industry?
Hotels are not Airlines
For those that have followed the travel industry for some time, you might draw the conclusion that the hotel industry is following a very similar trajectory to that of the airline industry. The airline industry went through considerable consolidation over the past few decades to now be dominated by a few global players. The hospitality industry has seen a similar consolidation this decade and you might draw the conclusion that we’re not far off with broad domination by global hospitality chains such as IHG, Marriott, Hilton and Wyndham for the upcoming few decades. While there is certainty some validity to that argument, the hospitality industry has internal and external factors that are not prevalent in the airline industry until technology drastically shifts the way we travel. The ways you can differentiate yourself in the airline industry are just not as numerous as they are in the hospitality industry. Just take the rise of Airbnb as an example. The success of Airbnb was spurred by changes in consumer preferences, met by an expansion in consumer choice. I would argue that such a change is impossible in the airline industry. If the Uber of airlines comes to the market, I can safely say I’d stick with the globally dominant players. The risk would surely be greater than a night on sub-par linens!
Consolidation with Innovation
The opportunity for disruption in the hospitality industry will always be there, and I would argue that’s a good thing. Several of the large hospitality chains have created or acquired boutique brands in response to changing consumer preferences. Disruption has kept the industry from innovating at the same pace as other industries, which is not easy in an industry so dependent on long-term capital investment. So, while large mergers have consolidated some power with a few multinationals, the mergers tend to focus on innovation and improving guest offerings. And that’s a good thing! There’s still room for “incubator” innovation to be successful by capitalizing on changes in travel trends. Just look at the rapidly growing hotel chain, Selina, which is now moving into Europe after tremendous success in South America.
Goliath vs. Goliath
On the demand side, we’ve seen a similar consolidation and dominance by a few players over the last decade. But the dynamics couldn’t be more different than on the supply side. Rather than disruption from small innovative concepts, disruptive threats are coming from adjacent technology giants, namely Facebook, Google and Amazon. They are simply leveraging their huge customer base to make inroads into the highly lucrative and ever-growing travel industry. As of now, there’s no signs that they will fail. Where we are seeing some start-up-like innovation is in traditionally under-served types of travel such as business travel, group travel, or emerging niche travel. But comparing these to the giants in travel sales makes them seem insignificant in terms of impact on individual hoteliers or travel product providers.
In Change there’s Always Opportunity
As any investor or entrepreneur will tell you, where there is change there’s opportunity. While many of us find the complexities of the financial markets hard to decipher as individual investors, I would argue that the travel industry as a whole is far more complex. So, it can be hard to spot where the opportunities are in an industry that is seeing consolidation on all fronts causing constant change. While I don’t have the insider tip that will get you rich overnight, there are ways to create a strong position for yourself in the midst of this change. This in itself presents an opportunity to differentiate yourself and stay competitive. Surprisingly these tips bare some similarities to that you might hear from your financial advisor.
Always Diversify
Whether you’re on the supply or demand-side of hospitality, diversification is key. If you’re a travel seller, it may be obvious that diversifying your supply will meet a more diverse set of consumer needs. But just like in financial markets it also insulates you from risk, in this case brought on from changes in consumer preferences. You will want to be geographically diverse, while spanning a wide range of accommodation options and price-points. Make sure you can offer that boutique hotel in Bali as well as the budget chain property in Denton, Ohio.
If you’re on the supply side of hospitality don’t be afraid to leverage travel sellers as a part of your direct booking strategy. But in addition to the big players, make sure you branch out and consider smaller travel sellers as part of your overall strategy. Consider up and coming business travel sellers, rising regional OTA’s from across the world, as well as wholesalers and tour operators. While they may be slow to produce at first, playing the long game in untapped markets can help create a name for yourself and drive those profitable repeat stays that book direct.
Find the Right Partner
Building on the point of diversification, it’s time for you to consolidate. Whether you’re a travel seller or accommodation provider, your opportunity is in diving right into the markets, not in the various ways of getting there. Experimenting with and in various source markets can be tough enough and the last thing you need is distraction. Find a technology partner that can reach a broad range of markets without the constraints of integrations or technology standards. Is your technology partner overly dominant in one market or another? Are they confined to certain integrations or models of distribution (push vs. pull etc)? These scenarios often lead accommodation providers as well as travel sellers to maintain a multitude of partners in a patch-work attempt to gain broad coverage. While it may save some pennies or give you an extra connection in the short term, in the long-term it’s sure to distract from true innovation. Rather chose a technology partner that connect you to a broad set of markets, as well as meet a broader set of your technology needs.
So while there’s nothing you can do about the range of change in the industry, I’ll give you the same advice my parents gave me. Keep good friends and keep your options open!
About the Author
Dave Kolankarai
Senior Vice President
DHISCO
