Thursday, May 21, 2009

Holy Pegasus! Ratio of Travel Lookers To Bookers Is Off-the-Charts

Do you want to know why online travel agencies are doing everything they can to enter the media/advertising business?

Do you want to understand a key reason why Expedia eliminated consumer fees on airline bookings?

Do you want to comprehend in a concrete way why airline, hotel, car rental and OTA websites don't appreciated metasearch screen-scraping?

Then consider these statistics from hotel-room distributor Pegasus Solutions, with 86,000 hotel properties in its global portfolio:

• As of March 2009, the average number of looks per reservation on each website in the Pegasus network was 1,900 to 1. That's a 26.7 percent increase in the past year.

• A Pegasus spokeswoman explained that "we have some sites whose ratio is in excess of 10,000 to 1 or more. The trend is certainly indicating substantial growth in shopping activity."

• Pegasus stated that the look-to-book ratio was 1,100 to 1 in March 2007 and 1,500 to 1 in March 2008.

What this means is that increasingly few consumer-shopping inquiries lead to actual bookings. One can only speculate on the reasons: Increased bargain-hunting given the current economic woes; increased Internet adoption by travelers; heightened competition; and perhaps the complexity of the travel-planning and travel-booking process.

So, when you see Expedia allocating huge sums of money into TripAdvisor's media business and its global expansion, you can better understand why an OTA would pursue a high-margin media business given the increasingly fruitless quest to close a hotel transaction.

In fact, TripAdvisor's strategic value was apparent in Expedia Inc.'s first quarter results. TripAdvisor's operating income before amortization of $48 million accounted for 36.9 percent of Expedia Inc.'s OIBA. And TripAdvisor's $48 million contribution represented a 37 percent jump over the $35 million it produced a year earlier.

Orbitz Worldwide, too, sees building a media/advertising business as an imperative.

And, after Expedia eliminated -- at least temporarily -- booking fees on flights in March, officials explained that it was losing too many lookers to airline websites so it erased the fees to stem the tide. With pricing parity on flights with airline websites, Expedia hopes to diminish its look-to-book ratio.

And, with look-to-book ratios soaring, it is understandable why supplier and OTA websites would be angered by screen-scraping, even if new metasearch entrants like engage in screen-scraping lite.

There is a cost associated with each one of the 1,900 searches required to bring home a booking.

Holy Pegasus!


Valyn Perini said...

There are losers on all sides of this equation. When a consumer ‘looks’, it’s an availability request to the hotel’s reservation system – are rooms available, at what rate, for which room type, perhaps with a discount code, etc. The hotel reservation system has to respond to each and every one of those requests regardless of booking outcome because one of those requests might turn into a booking. A small hotel with a homegrown or small off-the-shelf reservation system doesn’t have a chance in you-know-what to keep that reservation system operating when it’s got thousands of availability requests coming in every day.

That’s where cacheing comes in. The OTAs want access to hotel inventory; if they knock over the hotel’s reservation system, they can’t make the sale so it’s in everyone’s interest to keep that hotel reservation system up and running. The OTAs take a ‘picture’ of a hotel’s inventory at agreed-upon intervals, actually sending an inventory request to their own cached database, not the hotel’s. The cache database would also include the inventory manually loaded into an extranet provided by the OTA to the hotel. The final availability request is sent at the ‘booker’ stage to ensure the inventory the consumer wants is still available, protecting the hotel’s reservation system from the ‘looker’ onslaught.

This doesn’t apply to all hotels, of course. The big companies with deep IT resources and robust inventory control systems can manage the tens of thousands of ‘looks’ every day to their own systems, and they prefer it that way. Smaller hotels have no choice, and it makes hotels nervous to know there are multiple copies of their inventory, one for each OTA.

In a perfect world, consumers wouldn’t shop quite so much, OTAs wouldn’t have to cache and hotels wouldn’t have to sweat having their inventory duplicated by each OTA. But the internet is perfect for shopping and buying travel – it allows geographically dispersed consumers to shop for a geographically dispersed product - for free - so the consumer has no incentive at all to change their behavior.

Certainly it costs the OTAs money to have enough hardware and software available to cache thousands of hotels’ inventories, and keep them updated, but they want the traffic to their sites so they’ll have to keep cacheing. You’re absolutely right that it is easier for the OTAs to make money on the media side, but without the hotel transactions, the OTAs would just turn into review and advertising sites, and I’m guessing that’s not a particularly sustainable offering over time.

Happy Hotelier said...

Good post...Just thinking about this counter movements: Hotels have access to guest reviews of Tripadvisor and Tripadvisor even teamed up with at least one meta search engine I know of: Hotellicopter (formerly VibeAgent) just to give the meta search engine access to the ugc....aren't they counting apples and pears? Real looker on the one hand and meta lookers on the other hand?

Martin said...

I don't have numbers on hand for GDS growth in transactions per booking in recent years, but I know it has been going up and up, and there is a lot of money being invested now in caching technologies to reduce hits on the host. Traveltainment is a good example of what is happening in caching technology for the travel sector.
But the airlines really have a lot at their disposal in improving their conversion rates in the area of hotel sales. Not sure I personally have the answer for Pegasus et al, but Air Pacific in Fiji tripled their online hotel sales recently (Expedia private label) by making better use of existing PNR data and thus better targeting of passengers with the right offer at the right time.

Happy Hotelier said...

About Apples and Pears: It seems logical the conversions soar downward if they count the visits from direct lookers(apples) and meta search engines (pears) together.

Dennis Schaal said...

Happy Hotelier: Here's the thing about meta-lookers. They turn out to be some of the best conversions. Media buyers love the metas because meta-users (the pears) are very sticky. That user-generated content keeps them engaged as they read review after review. They must be booking after those long looks. Otherwise suppliers and intermediary advertisers wouldn't keep paying for all of those clicks.

Dennis Schaal said...

And, here's an update on cacheing from Pegasus. Senior product director Dee Thomas, writes:

"We implemented a cache solution for availability requests coming from our online channels in February of this year. This does not affect GDS transactions.

"There are a few hotel chains that opted not to use the cache initially but the majority do. Those that opted out either have a cache built already within their own systems or feel their infrastructure is able to support the current transaction volumes without it."

Thomas continues: "Since its implementation, the cache has diverted a small percentage of the availability traffic away from the hotel CRSs. We’re continuing to identify ways to enhance the cache to improve the cache hit rate and increase this percentage."

Alberg said...

Interesting text, you have a nice blog. Keep it up!!!!!!!

Valyn Perini said...

Martin has raised a great point (it could easily be its own blog topic); supplier-to-supplier distribution is an absolutely underused channel and I'm not entirely sure why.

Consumers like being offered targeted suggestions from a trusted supplier (in this case the airline), and the airline likes it because it provides an additional service to their customer, engendering loyalty and a bit of revenue.

It can be done manually, as Martin has done, or it can be done via XML, using a switch (Pegasus or Wizcom for hotels) or an inventory aggregator (CarTrawler, for example, for rental cars), or even via direct connect, as Continental has done for several years to several different rental car companies.

To tie this back to the original post, anything that reduces the look-to-book ratio is a good thing, and what better way to reduce it than to provide targeted offers to willing consumers?

Manu said...

Great post. Would be interesting to see how much meta-search engines traffic have grown in the same period and whether is accounts for the 26% growth in L2B.