Goodbye Compression, Hello Competition: How to be Competitive in a Post-Compression Hotel World

January 23, 2017 navisadmin

The basic principle of supply and demand has given all hoteliers, flagged and independent alike, some great opportunities to take advantage of compression in the past year, particularly since group business soared in 2016. Loosely defined, compression refers to periods of time when a hotel is near full occupancy. As a result of high occupancy rates, some hotels have had the opportunity to drive up ADR due to sold-out hotels on every corner.

But like playing Monopoly with your annoying brother, the flagged hotel brands—the Hiltons and Best Westerns of the world—have been dropping big red hotels on every corner, creating more inventory and making compression a thing of the past.

Let’s have a closer look at the current state of affairs.

  1. Hotel rooms and private accommodations in the urban markets runneth over—and more are on the way! Smith Travel Research’s October 2016 hotel pipeline report showed 554,226 rooms in 4,561 projects under contract (which includes in construction, final planning, and planning stages) in the United States. This represents a 21.8% increase over October 2015.[1] When you consider that hotels only accounted for 34% of inventory growth last year, it’s clear we are on the verge of a glut in supply.Private accommodations account for much of the rest of last year’s inventory growth. North American hotels added 139,000 rooms last year, while Airbnb added 229,000 listings, making it the most valuable accommodations company in the world, valued at 25 percent more than Hilton.[2] As a result of this enormous inventory growth, it won’t be as easy to leverage rates against your competitors as it was this past year.
  2. OTAs are increasingly dominant. They have a lot of advertising money—ahem, your money—which means their heftily funded marketing initiatives are eating up every viable Google keyword search and making it impossible for hotels to compete directly for their own
  3. RevPAR growth is shrinking. Nine major hotel companies adjusted their RevPAR growth downward from the beginning of the year. Hilton started the year with 3-5% growth projected and ended Q3 2016 projecting5-2.0%. Hyatt began at 3-5% and ended the third quarter at 2-3%.[3]
  4. US travelers are on the road again, BUT they are thrifty and savvy about getting deals, which means a lot of bouncing around between OTAs and hotels, on mobile, desktop, and by phone.
  5. The leisure market is more competitive than ever. This trend will continue, as the group segment is expected to be flat, and possibly down, in 2017.[4]
  6. Call volume is on the rise due to the proliferation of mobile devices. Rather than becoming a text-driven society, as it seemed we might a few years ago, the pendulum is swinging back toward phone calls. A June 2015 BIA/Kelsey report predicts that calls to businesses from smartphones will reach 162 billion by 2019.[5] For more on this topic, download our free Lift and Shift Whitepaper.
  7. This shift in call volume means that the offline channel has crazy, untapped potential given that many properties haven’t thought much about their call centers in recent years.
  8. Direct bookings are still king. A study by Kalibri Labs shows that direct bookings are 9% more profitable, but when you factor in ancillary spend, that can go up to 18%.[6]

The bottom line is that between the increased supply of rooms and the changes in the way travelers are searching and booking, independent hotels are going to need fresh strategies to handle these changes and stay competitive.

So, what’s the plan?  Where’s the opportunity to steal market share?  One potential answer is already on your payroll. This untapped resource is your reservations team, your call center.

Let me expand on why this is a viable solution. Mobile phones have saturated the market. They are bigger and better than ever, which is changing the consumer path to purchase. Google knows this. That’s why they changed the search algorithm in 2015, giving preference to websites that are mobile-friendly. Moreover, when travelers are on-the-go in the planning phase, they call to inquire about many things. In a study of our clients, we found that 65% of online sales have placed a call to the property during the research phase—but only if the mobile site has an active and easy-to-see clickable phone number. Further, Phocuswright’s most recent US Consumer Travel Report, Eighth Edition, shows that the percentages of travelers who “typically” call to book reservations is higher than most hoteliers believe, ranging from 14-25% depending on the age of the traveler.

Phocuswright Graph

Source: Phocuswright, U.S. Consumer Travel Report, Eighth Edition

As the Phocuswright data also illustrates, OTAs continue to be wildly successful at capturing market share. OTAs and flags alike are working hard to reduce “booking friction” for seamless online sales, adding features like auto-fill payment options and membership/loyalty rewards. And they are succeeding.

My message to independent properties is this: leads have never been more valuable.  If a potential guest visits your website but then calls your property, this is your new “Golden Opportunity” to drive direct business. However, you must have a closer look at your call center. When was the last time the GM toured the call center or reviewed agent booking conversion trends? (Consider it a red flag if conversion rates are below 40%.) Has your property invested in training agents on basic sales tactics, such as asking for the reservation? Are agents monitored and coached regularly?

Consider a few voice strategies that will make your property more competitive:

  • Create unpublished pocket rates that are inaccessible to OTAs. This is particularly effective for the calls that come in while a traveler is on an OTA site, which Google suggested at the Hotel Data Conference happens 60% of the time.
  • “Likable” reservations agents convert more business. Invest in sales training 101.
  • Make sure your agents have access to all objective information but sell the property subjectively. Invest in sales training 201.
  • No call left behind. Calls are coming more frequently with less prospective guest due diligence. Your team needs to deliver on service and sales optimization. Measure the speed of answer as well as abandon rates to get a sense for your call center’s effectiveness.
  • One of our clients uses the P.U.F.F. principle, which means “pick up the freaking phone.” Ensure you have 24/7 coverage.

Here is one of the most powerful things you can do when it comes to becoming more competitive in this post-compression era: think of your agents as sales people and view every inquiry as a sales lead. Nurture both in the same way you would your group sales (remember that your power in the coming year is in leisure business). Are your agents incentivized? Are they following up on sales leads? Ask questions, invest in the measurement and review of your call center, and watch conversion rates increase. Shifting market share away from OTAs and flagged properties is where your revenue edge will be in the coming year, and where independents have the upper hand is in personalized service, starting from the first phone call. We know the calls will come. Handle them well and the direct business will, too.

[1] STR: U.S. Hotel Pipeline for October 2016. November 2016.

[2] Airbnb’s Revenue Soars 89 Percent. San Francisco Business Times. Sept 2016.

Airbnb Overtakes Hotel Industry with Red-Hot Growth. San Francisco Business Times. May 2016.

[3] Infographic: RevPAR Expectations Declined in 2016. November 2016.

[4] Global Business Travel Forecast 2017: What Travelers Will Pay In The Americas. American Express Global Business Travel.

[5] Calls to Businesses from Smartphones Will Reach 162 Billion by 2019.  BIA/Kelsey. June 2015.

[6] Just the Facts, Ma’am: Direct Bookings Are 9% More Profitable for Hotels. May 2016.


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