Tuesday, August 18, 2009

Webjet to relaunch hotels with a GDS backed retail model. Three reasons why I don' think this is the best plan available

Webjet are having a great time selling domestic air in Australia. As we have discussed before their tech leadership in developing the Travel Services Aggregator back in 2004 enabled them to sell multi-carrier domestic air including low cost carriers before anyone else. Even though other sites now have similar functionality, Webjet continues to enjoy customer loyalty and growth (despite charging dramatically higher fees per booking).

The company has made a number of attempts at diversifying their
revenue with land product. In mid 2003 they launched Bookabed as a standalone hotel brand. In 2006 they revamped the product under the new name Lotsofhotels. Then in June 2008 they announced plans to take Lotsofhotels onto the eBay platform. Unfortunately none of these efforts have developed traction in a very competitive market.

In their recent results they announced the launch of new hotel product called "Stay and Pay" (Travel Weekly story here). This new product moves them away from merchant sales to the retail model (consumer pay at the hotel, Webjet collects commission from hotel). They are launching two twists on the retail models you see from big players like Booking.com and Venere. Firstly there is no negotiated inventory. The inventory is drawn from the publicly available rates distributed through a GDS feed from Travelport. Secondly there is a service fee of $10 per booking charged up front by Webjet.

I like the fact that Webjet are trying hotels again. Fees on air make up 97% of their operating revenue (just down from 98% last year). They need to have other revenue streams to compete with packaging experts Expedia and Zuji (Travelocity) and the Wotif group owned air intermediaries Travel.com.au and Lastminute.com.au (not to forget the Orbitz owned hotel only players HotelClub and RatesToGo) [disclosure]. That said there are three reasons why I don' think this is the best way to go about hotels for Webjet:

  1. Webjet will struggle for Rate Parity: The GDS companies (Travelport included) have done an admirable job working with the Chains and some independent properties to secure rate parity through GDS distribution. By that I mean working with hotels to have the rates that are loaded in the GDS be on par with the negotiated rates provided to the OTAs. However the rates in the GDS are never cheaper and by charging a $10 booking fee, Webjet will end up with pricing that is almost always more expensive than any other channel. There will be a convenience factor for consumers but this will be at the margins compared to the consumers who will be turned away by the higher price on Webjet;
  2. Webjet will not have access to important Inventory Types: Again the GDS companies have worked hard to expand the range of hotels and properties available. However there is still a bias towards chains and a bias towards geographies with a history of GDS distribution. This means Webjet will be missing important independent properties and have less coverage in the Asia Pacific, Latin American and Middle East regions than the negotiated hotel agencies and OTA competitors; and
  3. Webjet will miss out of the the best Specials and Promos: In this "year of the deal", hoteliers are providing deals and promos the likes of which have not been seen since 9/11. Most of these come with conditions, specifically a range of cancellation options ranging up to non-refundable. The GDS is not able to support this functionality as well as the negotiated inventory providers. Means that many of the great deals (especially last minute ones) will not be in the feed accessed by Webjet.
I can understand why Webjet went down this route. It would be very expensive for them to build a hotel contracting team from scratch. Impossible in fact if they wanted to gain coverage outside of Australia. Therefore they need to work with partners to access inventory. However my recommendation would be to work with an inventory provider with negotiated rates rather than the GDS. [disclosure - I work for a company that provides negotiated hotel rates]. It will provide them with a fix to each of the issues above.

The new Stay and Pay product is due for beta-launch today (18 Aug 2009). Will put in a functionality review post later.

Update - make sure you check out the comments where Richard Noon (Webjet CEO) puts his side of the story

Update 2 - I thought of one more reason why this product won't give consumers as good an experience as a negotiated provider will. The room type description and hotel content on the GDS is not as clear or attractive as those from a negotiated provider. Here is an example of a room type for a Sydney hotel in a GDS " PREMIER ROOM CITY VIEW 1 QUEEN OR 2 SGLSNON SMOKING LCD TV HI SPEED INTERNET FOR A FEE".

PS - last year at TRAVELtech Webjet CEO Richard Noon gave his estimates of the turnover of the various Austrlaia online air intemediaries.

11 comments:

RobertKCole said...

Webjet should take a look at how Allegiant airlines is handling its hotel line of business. They are leveraging negotiated rates under a relatively traditional wholesale travel model. Allegiant is now one of the top wholesalers to Las Vegas and in some of the smaller markets it serves, one of the largest online travel sites.

Tim Hughes said...

@Robert - thanks for the tip and congrats on the relaunch of Views from the corner suite

Steve Sherlock said...

As you’ve pointed out Tim, Webjet have tried various things, and I’ve got to give them credit for continuing to try and evolve the hotel business models into their business.

I guess eventually something will stick that is outside their core brand? but if so on any meaningful level, i think they’ll need to stick to the branding principles that led to Webjet succeeding in the first place.

i.e. first in a new category with a product that people wanted & build a brand name that becomes synonymous with that category. I’m quoting Al Reis of course, with wotif also a very good example. (with the benefit of a quirky and memorable name)

So is the new model actually new, is branded well enough to get cut through and will it be funded for long haul of brand building? (sounds very similar to roamfree who seem to have failed to build a brand despite mega bucks being thrown at it).

I agree rate parity is big issue. Meta search (generally) allows for rate parity and comparison though without direct connect API’s, deep linking to various booking interfaces is still required. Which i personally don’t like and therefore stick with wotif.

Steve Sherlock said...

oh thought i should add: if i were webjet i'd develop xml/api connection 'only' to hotels who have loyalty programs.

that way i could store my dozen hotel loyalty programs in one spot, compare my loyalty rate and seamlessly book without needing to whip out my loyalty cards each time.

smaller market but one lacking a product that does what ive described, and webject could dominate it if first with cool branding.

i got that idea from a good car rental site that does this :-)

richardnoon said...

Tim,

Thanks for your interest in what we're up to. I'd reply with a couple of comments, not for the purpose of getting into an endless debate or for even defending our position. More so you can see that we felt the consumer solutions in the market had gaps particularly on the need for prepayment to hotel aggregators of what can be large sums of money.

1. Rate Parity - all of the work we have done using rate comparison engines tells us that this is not as big an issue as one may think. The issue is more about giving the consumer the choice and convenience of avoiding having to prepay the hotel aggregator now. We think its right for the current economic environment where people want to protect and hold onto their funds. They are also more likely to transact for $10 within the booking path than make a decision to part with $1000.

2. Coverage - most of our passengers travel to Australian and NZ destinations and all travel by air. We have ensured that we have good coverage in the flight arrival markets especially the capital cities. We are not after the weekend or drive markets, nor the B + B or apartment markets. We will have in excess of 60,000 hotels globally.

3. Specials + Promos – maybe but we think there is a greater issue looming. We’ve always been amazed that hotels ‘give out’ their inventory and don’t operate a last room model like airlines operate a ‘last seat’ pricing and availability model. This is a business that the GDS already do and understand, and as you point out they already have a substantial number of hotel chains already in place. As we understand it chains like Accor and IHG have already made it clear that they want to control pricing from their systems on a direct connection basis.

PS The delivery date for the soft launch is towards the end of August so you may have to wait a week or so to test run things.

Richard Noon
CEO Webjet

Tim Hughes said...

@Steve - thanks (as always) for your contribution

@Richard - thanks to you too for adding the Webjet side of the story

Matti said...

For the author and for commentors also. You all should get to know Hotelzon International's offerings. Some of you Hotelzon could be a possible partner or a solutions in comaporiosn to wotif, GDS, etc. Solutions to the same problems but from a novelty point of view.

Anonymous said...

I still can't understand why anyone in their right mind would use Webjet to book domestic - is it the booking fee that they wouldn't pay on the airline's site that attracts them? Consumers - gotta love them

Steve Sherlock said...

@Anonymous
"I still can't understand why anyone in their right mind would" ...post Anonymously :-)

this is good story on unmasking anonymous bloggers. (the canadian model) http://tiny.cc/oGaLK

Paco said...

In Asia Pacific especially, rates parity is what most hotels wanted, but in reality, hotels are competing among themselves and in the end of the day, they will love whoever (OTA) who can produce volume for them, with or without rates parity.

Some hotels even offer cheaper rates in their own official site than the BAR rates they offer OTA., but they forgot the fact is that they still needs OTA to market and reach out to markets beyond their reach.

I do agreed with your 3 reasons why webjet model wont work, and i just want to add in the 4th reason :

4. Consumer doesnt care about rates parity. They will buy from OTA that can give them cheaper rate with instant confirmation. Therefore, only OTA with negotiated rates or buy up rooms will strive in this competitive environment.

Max said...

I have used webjet search number of times to find cheapest tikcet and always it comes up a bit expensive.