Terrie's Take 927 (Tourism Edition) - How JTB Lost Control of Japan's Inbound Hotels Business

Mon Dec 18 08:57:21 JST 2017

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie 
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, Dec 17 2017, Issue No. 927

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+++ How JTB Lost Control of Japan's Inbound Hotels Business

In my last Take of the year, I want to take a short look at why Japanese 
major tourism players like JTB have lost big market share in the Inbound 
travel sector, particularly in the hotels sector, ceding leadership to 
Booking.com, Expedia, Airbnb, and a plethora of other foreign Online 
Travel Agency (OTA) players. Although I focus here on JTB, the fact is 
that with the possible exception of HIS, all of Japan's big travel 
players are in the same boat. And unlike JTB and HIS who at least are 
trying to win consumer mind share and business, the others have already 
accepted defeat and are instead offering their inventories on a 
wholesale basis to foreign OTAs at cut-rate prices.

When I first got into the travel sector in 2012, the leaders in Inbound 
hotel bookings were, as you can imagine, the Japanese majors: JTB, 
Rakuten, and Recruit's Jalan. This wasn't surprising because these 
companies had all the sectoral connections and thus the available 
inventory. Roughly speaking, JTB had about 5,000 hotels that were 
willing to service foreigners and Rakuten and Jalan had about 3,500 a 
piece. At that time Booking.com was just ramping up and starting what 
was to become a massive investment into the Japan Inbound market - a 
market that no one believed in at the time. Now, 5 years and millions of 
dollars later, Booking.com is the clear leader with around 12,000 hotels 
for inbound travelers, while JTB is still stuck at around 6,000 or so, 
and Rakuten and Jalan somewhere below that.

Even more impressive than Booking.com's hotel inventory acquisition 
performance - which you have to remember required them to push hoteliers 
who were reluctant to take non-Japanese guests - is that they also 
demanded a much higher commission (15%~20% compared to JTB's roughly 
5%~10%), AND, required that customers could make "no-money down" 
bookings. This necessitated an important mindset shift for conservative 
Japanese hotels, who historically wanted to lock in payments and 
customers even if the travel agent had to pay for them first. Indeed, 
historically JTB has had leadership domestically because it has had the 
capital surplus to pre-buy hotel rooms and transportation, to ensure 
availability at peak times. However, amazingly, Booking.com was able to 
insist that if a customer had a change of plans they should be able to 
do so without a complicated refund process to get their money back. The 
reward for a hotel accepting this difficult condition was a surge of 
foreign guests to fill the revenue hole created by the drop-off of 
Japanese guests.

[Continued below...]

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If you have a group needing assistance, we invite them to contact us at: 
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-----------------------------------------------------------

Even today, this "no commitment until you stay" policy is Booking.com's 
MOST outstanding consumer sales point versus their Japanese competitors. 
For a foreign customer who doesn't know the JTB name, it's a surprise 
when the Japanese web site suddenly demands a pre-payment and often with 
severe penalties.

And really, this is how Booking.com has won the war - they are thinking 
about the customer. JTB's ossified management and historical hotels 
relationships make it almost impossible for the company to fight back. 
This isn't just a web site UX or functionality problem, instead it's 
about the core values being offered to the customer: prices, 
availability, accessibility, and trust. JTB's senior guys just don't get 
this and instead come up with lame excuses. The latest one, which is in 
their most recent investor report, claims that the reason Japanican.com 
saw its FIT customer volume drop by 9.4% this last year is because, 
"...We fundamentally have problems with power of the site and UI/UX on 
JAPANiCAN.com."

Ummmm, nope, the site isn't great, but it's not that bad. Your problems 
go much deeper than this one web site.

The online hotels booking business is vital to JTB because it's the main 
way for a vertically integrated company like them to acquire and know 
the customer, and to start cross-selling everything else the company can 
provide (one-day bus tours being a big part of this). Airbnb understands 
this cross-selling power very well, and this is why this year here in 
Japan they started their wallet-opener strategy of local experiences. I 
doubt that they make much out of these experiences at present - indeed I 
heard they were having teething problems - but once they get the 
experiences machine up and running properly you can be sure that they 
will drop in other travel options in quick succession - such as 
restaurant and event bookings, personal guides, baggage handling, 
insurance, etc.

Of course JTB also knows this and that is why they invested JPY500m into 
experiences company Asoview last year, and why this year they tied up 
with Yamato to provide an automated luggage handling service. Their 
problem is that it's not much use having these services if you don't 
have an effective customer-generation portal and instead have to sell 
under disconnected marketing campaigns. I predict therefore that if JTB 
is really serious about the Inbound market, and given that they seem 
unable to fix their internal systems, they will start doing what they 
have already been doing overseas (i.e., the March Kuoni deal that 
probably cost JTB at least US$1bn) and start buying more successful 
players in the Inbound sector. DMCs like Destination Asia Japan and 
ExoJapan are two companies that come to mind - although a purchase of 
either would commit JTB to a lot more countries than just Japan.

I don't have information on what kind of hotel booking numbers JTB is 
doing, but what I do know is that Booking.com has double the inventory 
of either Japanican or its data source entity, JTB GMT, and this fact 
coupled with Booking.com's consistently better pricing and business 
conditions let us make a reasonable guess. To start with, the Japanese 
hotel market this year will be roughly 27m people x 5 room nights = 135m 
room nights a year. The FIT market is at least 55% of this, so 74m room 
nights. Online bookings are probably around 50% (maybe more), which is 
37m room nights.

My guess is that Booking.com does about about 40% of all Inbound online 
FIT bookings for Japan so that's 14.8m room nights annually (a bit over 
40,000 a day). The other foreign OTAs (including Airbnb) are probably 
doing about 30% of online, direct online hotel bookings would be about 
10%, foreign travel agencies through GDS distributors about 10%, JTB 
around 5%, and the remaining Japanese online sites the other 5%. This is 
just my guesstimate, but it certainly explains why JTB is not doing so 
well in the Inbound space, even though we are in the middle of the 
largest Inbound tourism boom anywhere in the world in the last 20 years.

So should we count JTB out of the Inbound travel market all together? 
No, not by a long shot. The company enjoys a close relationship with 
government and semi-governmental organizations, and so it will continue 
to be the main beneficiary of anything travel oriented that has 
government links. The Olympics are a good example. We don't know that 
the Olympics will be worth to JTB, but if you consider tickets, athlete 
transport, guides, etc., it has to be in the billion dollars range. And 
although the Olympics are the most high-profile event on the horizon, 
actually JTB deals with major groups of government-related guests all 
the time. Just this year so far the company has hosted the following:
* A government-hosted state event that provided accommodation and 
reception for 1,000 guests
* The Nagoya Women's Marathon, that involved serving 3,000 competitors
* Organization and hosting of the 50th ADB Annual General meeting in 
Yokohama for 3,000 attendees
* Hosting of the XXIII World Congress of Neurology (WCN2017) for an 
incredible 5,000 people!

Yep, one group of 5,000 customers is worth US$12m~US$15m in one hit, 
certainly enough for JTB to maintain its overall leadership in the 
Inbound market for a while longer...

*****************

This is the last Take of 2017. It's been an interesting and exciting 
year, with continued growth of the Inbound travel sector and more to 
come - at least through to the Olympics of 2020. Looking forward to 2018 
where tourist numbers look set to exceed 30m people, unless of course 
there is an escalation between two unpredictable leaders, Mr. Kim and 
Mr. Trump! In the meantime, I wish all readers a very happy holiday 
season, whether it's Christmas, Hanukkah, Pancha Ganapati, or whatever 
event you celebrate. Terrie's Take will be back on Sunday January 21st, 
2018, with our 2018 annual predictions.

...The information janitors/

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END

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