Booking.com had always scaled its business on the ‘pay at the hotel’ model. Some would say that this is great for the guest, but not so great for the hotelier.
Why? Because it has two big operational impacts on a hotel:
1. They only get money on checkout so they can often have cash flow issues;
2. The “free cancellations” policy has encouraged a culture of “book 10 and cancel 9” which leaves many hotels with distressed stock.
Many of our customers tell me that their cancellation rates from OTAs are much higher than through direct bookings. Which is why I was surprised when I read about the ‘back-to-the-future’ approach to paying for a room on Booking.com. The prepaid model which was used for most of Booking.com’s history should provide better cash flow to hotels as consumers pay when they book, but the OTA giant can still charge these at high commission rates and there’s always a catch.
So is this change good news? Maybe…Does that mean hotels will benefit from better cash flow? No. Booking.com plan to hold onto that money until guests have checked out.
And we’ve also noticed that Booking’s sizable marketing budget is helping the shift away from traditional hotel room stock to ‘alternative accommodations’. As Skift reports in a recent article about Booking’s latest financial results:
The increased spend on brand marketing to drive direct traffic appears to be benefiting Booking.com’s alternative accommodations business, which now counts 5.7 million listings, a 21 percent increase year-over year…Some consumers visiting Booking.com for the first time are doing so to search for stays in homes rather than hotels. [Source: Skift, 5 November 2018] tweet
So what does all this mean for hoteliers? Well, I suppose that every little helps…And maybe it will reduce the sky-high cancellation rates that hotels have to deal with every day. But more importantly, this could fundamentally change guest behaviour, and the days of booking 2 or 3 hotels and deciding the week before could be gone.