Record online direct bookings are driving innovation in hospitality, survey finds

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Record online direct bookings are driving hotel innovation by making guest data more accessible, a trend that could boost business — but only if hotels continue to push forward on increasing digitalization.

Those are some of the key findings in H2c’s 2023 Digital Hotel Operations Study. The report released last month by the hospitality professional services provider was based on feedback from 84 hotel chains representing 17,406 properties with more than 2 million rooms.

The results spell out how far the industry has come in a matter of years. For example, the share of direct bookings soared nearly 50% in 2023 compared to 2022, with respondents reporting nearly one-third of bookings coming direct in the last year.

And hoteliers are getting smarter about capturing and using guest data to drive loyalty and repeat business. The study found three-quarters of respondents now report using customer relationship management (CRM) systems, a 40% increase from the previous year. 

Despite such gains, when hotels were asked to rate their level of digitalization, the average came in at six on a scale of 10. It was even less for the level of personalization, which hotels rated at 4.6. That, at least, represented an increase from a 3.6 rating in 2021. (The digitalization level was not assessed in the 2021 report.)

The self-evaluation of digitalization was taken as a positive by Michaela Papenhoff, founder and managing director at H2c.

“This is quite good,” she said, adding, “when we talk about personalization, and this is the flip side of it, it’s only a 4.6. So there is still lots of room for improvement for personalizing the trip or the hotel experience.”

New technology, including a greater embrace of artificial intelligence and machine learning, may expand opportunities in property operations, the study showed.

Yet obstacles such as costs may be limiting further integration — which the report sees as a missed opportunity for boosting ancillary revenues and personalization.

How digitalization can boost business

Overall, the 16-page report highlighted some encouraging trends.

For starters, nearly two-thirds of total hotel chain revenue is now booked online. Online travel agencies still account for most of that, but direct bookings are catching up.

Bookings through OTAs were down from 39% in 2022 to 34% last year, while direct bookings increased from 20% to 29% over the same period. The biggest decrease came in offline bookings, which accounted for barely one-fourth of overall bookings in 2023, down from one-third the prior year.

The report credited “this amazing result” in part to “quality content on brand websites, loyalty offers and an increasing customer focus using smart and agile systems.”

Elsewhere, the study found opportunities for revenue growth through automated ancillary sales promotions. This was underscored by respondents’ belief that ancillary revenue could nearly double from 15% today to 29%.

Pitches for upselling most often occur during booking (78%) or in pre-arrival mail (67%) or at check-in (65%). The best opportunity for boosting ancillary revenue may come during the stay, as barely 1 in 4 hoteliers reported making pitches via their app, mobile website or digital ordering while guests are on property.

The report also highlighted new opportunities for hotels to use AI. Because the 2022 survey was conducted prior to the introduction of ChatGPT, the new study showed “an eye-popping 53 percentage point increase” in potential AI applications, reaching 86%.

How hotels expected to use the technology also changed, with greater emphasis on predictive modeling. For example, its use for environmental protection increased by 30 percentage points, from 47% in 2021 to 77% in 2023. And its use for maintenance cost reduction reached 76%, an increase of 22 percentage points.

Another area of focus was automated room assignment (72%), allowing properties to avoid premature renovations by reducing excess wear and tear on inventory.

While it’s clear AI is a topic of the moment for hoteliers, it’s not clear how quickly the technology can be implemented across the industry.

“I think the rate is difficult to project and which exact areas will be the most [impacted is] interesting,” said Ralph Merten, executive vice president at H2c.

Obstacles and missed opportunities

The report also addressed obstacles to achieving higher rates of digitalization. Chief among them were costs of acquiring new technology solutions, which 83% of respondents said were too high, an increase of 14 percentage points from the 2022 survey.

“As inflation and higher supplier wages have taken their toll on hotel chains’ purchasing power, total system cost is a major concern when acquiring new technology,” the report said.

And that may be limiting hoteliers ability to integration their various systems for bookings, customer data, channel management and revenue management with their property management system (PMS). Nearly three-quarters of respondents cited limited systems integration possibilities as the biggest challenge in optimizing operations. Other factors included costs (60%), staff training (59%), limited software functionality (46%) and staff shortages (43%).

More established hotels equipped with older technology may face more roadblocks than “new kids on the block” who are in a better position to make swift changes, Papenhoff said.

“[Incumbents] really have to spend much more money because they have their own old technology,” she said. “They have to train the staff, they have to implement interfaces that may not work properly.”

Overall, the level of system integration – defined as fully and largely integrated – has been on a sharp rise since 2017. A comparison of the levels provides insights into hotels’ priorities over that period.

For example, internet booking engines are now integrated with the PMS at 91% of properties, up from 55% in 2017. Central reservation system integration is also up, standing at 90% in 2023 compared with 47% in 2017, and revenue management systems are up to 79%, an increase of 32 percentage points.

At the bottom of the list were spa, golf and other services, with fewer than 1 in 5 hotels reporting they have that software integrated with their PMS, which is largely unchanged from 2017. H2c identified that lack of integration as a missed opportunity.

Also near the bottom for system integration was online reputation management, which was fully or largely integrated at 42% of hotels. While that was double the figure from 2017, the report called it “a missed opportunity as guest feedback could be immediately actionable.” 

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