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The ongoing battle between hoteliers and third party intermediaries over control of inventory and the customer is set to become more complex as a massive influx of supply and changes in consumer behaviour converge to transform the hotel landscape in Asia Pacific.

In other words, expect to see power shifts between OTAs, in particular, and hotels as the former moves in to ride on the boom and consolidate their hold while global hotel brands crank up their inventory in the region.

Published this month, PhoCusWright's Asia Pacific Online Travel Overview Fifth Edition: Hotels shows the region's maturing hotel market is growing rapidly and online bookings are soaring despite mounting concerns over an economic slowdown in key Asian markets such as China and India.

One key underlying change, according to PhoCusWright's Douglas Quinby (left) and Chetan Kapoor, is the rapid transition from standalone hotel supply to branded ones in a span of just one year.

According to STR Global, unaffiliated hotel properties accounted for 63% of the APAC hotel supply in 2010, and it's down to 58% in 2011. IHG, Starwood, Accor and Marriott as well as local chains are doubling down their efforts in the Asia Pacific region, especially China and India.

As such, the report notes that APAC's Long Tail of independent hotels is getting shorter as a robust pipeline among global, regional and local chains greatly expands branded and upscale hotel options in the region.

PhoCusWright projects continued growth for the overall APAC hotel market and strong double-digit gains for the region's online leisure/unmanaged business travel market through 2013, when online hotel penetration will reach 22%.

Said Quinby, “The APAC hotel market – and the online hotel segment – continue to grow at an impressive pace, despite natural calamities from Japan to New Zealand, and mounting concern of significant slowdowns in Asia’s big economies – China and India.”

Asked how he sees these trends impacting on direct vs indirect distribution for hotels, “OTAs have taken advantage of the fragmented hotel supply in APAC, and their importance as a countercyclical channel rose during the global financial crisis.

“While OTAs have grown as a popular medium to shop hotels online – complete with traveler reviews, photographs, and other location details – supplier websites, particularly chain hotels have increased online bookings through loyalty programmes.

“OTA hotel gross bookings were $13.5 billion in 2011 versus $5.6 billion for supplier direct, the latter will outpace OTAs in 2012 and 2013 as increase in branded supply will allow chains to push online direct sales.”

He added, “Brands are increasing their spend on online marketing, including ad placements on metasearch where referrals may come directly to suppliers. Also, they are luring customers through loyalty programme benefits, and best rate guarantees (failing which they will reimburse the rate difference).

“But with a highly fragmented hotel landscape and offline booking, OTAs and – yes – traditional travel agencies and wholesalers – will continue to play a meaningful role.”

To criticisms from certain quarters that OTAs have merely transplanted the old commission scheme onto the online world, and really isn’t innovating or adding value to the industry, Quinby said, “Some OTAs are showing some flexibility and trying to get along with hotels. Expedia’s moves toward the agency vs. merchant model is a reflection of that.

“But ultimately an OTA’s raison d'être is not about making nice with hotels – it’s about serving travelers. And there is a lot of innovation and experimentation coming from OTAs around social media (AirAsiaExpedia's Backick), loyalty (Hotels.com, Agoda), flash sales (eLong’s success with hotel couponing), merchandizing, and even multi-modal payment options (ClearTrip) that are really about the consumer, not the supplier. OTAs – as with all intermediaries – add value to the industry by delivering demand.”

According to Quinby and Kapoor, the three key takeaway points from the report are:

All Eyes on China: As the fastest growing travel market in APAC, China will witness a slew of investment in the hospitality space by local and global hotel chains. China's online hotel market will also nearly treble between 2008 and 2013, as online travel giants like Ctrip and eLong, along with metasearch Qunar boost their domestic online hotel content.
Rising Online Hotel Penetration: Despite high concentration of independent hotels and limited credit card penetration, online hotel sales in APAC are rising rapidly. Some online intermediaries such as Qunar and eLong in China are even enabling hoteliers to come online by distributing technology for free, helping the online hotel ecosystem.
Asia is by no means a uniform online travel market for hotels: “You have relatively mature and highly penetrated markets such as Australia and Japan, with faster growing but far less penetrated markets stretching across South and Southeast Asia. And some surprising markets, such as in relatively more developed and connected markets in Northeast Asia, which still exhibit strong consumer tendencies to book offline.”

Reprinted with permission, Yeoh Siew Hoon, Editor Web in Travel