Hospitality Today Aug-Sep 2016 - Page 4

4 | Hospitality Today | Aug/Sept 2016 The high cost of the ‘Lowcost’ OTA business model The failure last month of the £500 million online travel agent (OTA) Lowcost Travel Group left many thousands of travellers losing money, despite believing they were protected. The crash has prompted some commentators (such as HT publisher David Weston in Travel Weekly) to question whether consumers are aware of the dangers inherent in the business models of online platforms - and whether regulators are doing enough to ensure financial protection and public safety. Lowcost exemplified many new business practices that have been growing inexorably in travel & tourism, and have been eclipsing traditional business models. The new, exponentially growing trends are: online business models; globalized businesses (which can play regulators off against each other, and move HQ to the lowest-cost and lightesttouch jurisdictions); regulation-avoidance embedded in business models; replacing risk and commitment with a transactional approach enabled by new technology; eliminating the costs of inspection and due diligence; and eliminating the costs of a destination presence and infrastructure. These “new virtues” owe much to Silicon Valley “disruptive” thinking – and their success is seen in the exponential rise of the biggest OTAs and of Airbnb – even though they could not in the end protect Lowcost Travel Group form failure (an illustration that even a £500m turnover is far too small to compete with and expedia in buying search results on Google). The “old virtues” – exemplified by the traditional hospitality business like hotels, and by traditional bonded tour operators by comparison look like financial shackles: a risky commitment to owned (or precontracted) accommodation (and hence to host communities and suppliers); acceptance of regulation and consumer protection as a price of doing business responsibly (and inevitably reflected in higher prices which can be undercut by those whose business model avoids those costs); a strong incentive to quality and safety because accommodation owners and tour operators carry 100% liability for package elements – again, at a (high) cost that those avoiding liability can undercut. When the two models are compared, it is no wonder that the low-risk, low-cost new players are trouncing the high-risk, highcost “old guard”. No wonder Airbnb are eclipsing hotels, and OTAs are eclipsing tour operators. Yet consumers booking accommodation with a platform like Airbnb seem to perceive it (encouraged by Airbnb itself) as a global brand like Hilton - and seem