Hotel distribution and the pandemic: the travel chessboard

Globally speaking, the reservation volume in 2021** is still 40% lower than 2019 figures — but 159% above the March to May months of 2020. That being said, the EMEA market shows promising signs of improvement, while APAC, after an initial recovery, saw a steady decline, mainly due to the new lockdowns.
The recovery is happening and we can see that once restrictions are lifted there is evidence of pent-up demand in the markets. However, the recovery is fragile with high levels of uncertainty which is affecting prediction beyond one or a maximum of two months ahead. This is affecting cancellation rates as we discuss below.

In the 2020 report on hotel distribution we had observed that Website Direct bookings were one of the fastest-growing channels, however take into account that gross reservation volumes are much lower. We cover some of the reasons for increased Website Direct in section IV below.

In 2021, we saw a continued increase in revenue generated by the direct channel. In Europe, almost one third of the total reservations are produced by Website Direct and, in APAC*, direct became the leading channel, both in 2020 (37%) and in 2021** (41%). This surge was mainly at the expense of Expedia, which showed equivalent negative numbers in both regions: 7% market share in 2021** for Europe versus 10% in 2020 and 6% in 2021** versus 8% in 2020 in APAC*.
Pushing the analysis to June 2021, we even observe that for this later month, in Europe, Website Direct is the first and, so far, the only channel in which booking levels are back, to the pre-pandemic levels.

In Asia*, direct became the main source of revenue already in 2019, and it increased its market share even more solidly in 2020, reaching the all-time best result of 41% in 2021**. We believe the higher number of local travellers since the beginning of the pandemic may explain this peak of direct reservations in the last 15 months, as proximity tourists made the majority of traveling in ’20-’21, and they are, usually, less likely to book via an OTA, preferring direct channels.

In our previous hotel distribution study, we had already pointed out how OTAs were experiencing a loss in market share in both Europe and Asia-Pacific. Even though they remain, in both markets, the dominant source of online revenue, this negative trend persisted in 2021. Especially in Asia*, OTAs’ market share decreased by four points, going from 60% in 2020 to 56% in 2021**. If we look at the last five years, OTAs market share in Asia* dropped by 14 points (from 70% to 56%). Continuing the trends we had observed in 2020, the pattern is even more visible in the first few months of 2021**. Last year, we speculated that this drop might have been caused by the reduction in advertising by OTAs, resulting in higher rankings in search engines for website direct. Most Online Travel Agencies resumed some SEA actions in 2021, even though not at the same levels of 2019, so the causes should be searched somewhere else. At D-EDGE, we believe this may be due to a combination of reasons:

• More relevant information on hotel websites when compared to OTAs, especially regarding anti-COVID measures,
• More flexible policies on website direct,
• Rate disparity favoring direct channels, especially on metasearch engines,
• More domestic/local travellers, with no need for air transportation,
• The lower overall volume of bookings giving preference to frequent travellers who are more informed about the advantages of booking direct.

However, this negative dynamic is not applicable to all OTAs, and some players stood out:

Average booking value decreased dramatically in 2020, for both Europe and Asia*. However, in Europe, over the first part of 2021** it came back to 2018 levels (with the exception of reservations coming from Expedia) for European properties. It’s worth mentioning that average booking value in Europe surpassed both 2018 and 2019 levels, contributing to the higher value of bookings. APAC* shows different numbers, with a drop of booking value that is steady, except for website direct, even though it is still far from pre-pandemic figures. In this region, Booking Group’s booking value is around half of what it used to be in 2018. Again, this may be explained by the majority of travel being local in ’20-’21, and consequently, to a shrinking length of stay that is addressed in the next section.

The average length of stay decreased dramatically in Asia while returning to pre-pandemic levels in Europe. This is probably because most of APAC travel in ’20 and ’21 was domestic, in a region that usually has a higher length of stay and is more accustomed to longer travel time than Europe. Because of the fast-changing travel restrictions inside the region, the risk for cancellation remains, unfortunately, very high.

Even when it comes to lead-time, Europe and Asia show very different numbers. While the booking window in Europe reached – and in some cases, even surpassed – pre-pandemic figures, this is not the case for APAC*, where the lead-time remained virtually identical to last year, probably due to the fact that travel restrictions remain very heavy in this region. With the reopening of almost all countries in Europe, in the spring of 2021, travellers have regained confidence with a vital need to prepare for their holidays in advance. Hence this very strong increase in lead time in Europe.

However, as we cover in the next section, these lead times need to be seen through the lens of Cancellations which are, understandably, at an all-time high with the fast-changing travel restrictions and lockdowns.

During the pandemic, we witnessed the decline of not refundable rates in hotels. The vast majority of reservations made in 2020 and 2021** are, in fact, flexible. This is not surprising, due to the instability created by the pandemic: new variants of the virus, ever-changing restrictions on travel, etc.

With virtually 100% of reservations being refundable, it’s not unexpected that the cancellation rate rose as well. In 2021**, particularly, almost six out of ten bookings have been canceled on Booking Group. The situation is even more alarming for Expedia, surpassing the 71% cancellation rate. Direct channel, again, shows better results, with “only” 1/3 of reservations being canceled before arrival.

Compared to our first Hotel Distribution Analysis these cancellation rates have more than doubled for almost every channel except Website Direct, which has remained the channel with the lowest rate of cancellations.

While the years prior to the pandemic had seen a gradual improvement in cancellation rates we believe that high cancellations will be standard in the foreseeable future. We recommend hotels adapt and learn to work with cancellations, for example by communicating with guests as much as possible in advance of any changes, sharing information related to their stay, re-confirming their booking, or encouraging an early cancellation for dates where demand is rising. Using a connected CRM tool where such communications can be automated and friendly will help hotels avoid last-minute cancellations for days where hotels would otherwise be full.