Are hoteliers being bitten by the OTA creature they helped create?

Twenty-five years ago, Vittorio Di Re was part of a group that had to swallow a bitter pill every month. Twelve times a year, he, like many other hoteliers, drafted cheques to travel agents — a 10-per- cent cut from their bottom line in commission payouts for guests the agents had sent their way. “There was always such a fuss about issuing those things,” remembers Di Re, now GM of Montreal’s Le Saint Sulpice hotel. “It was always, ‘ugh, awful … 10 per cent!’ But looking back, I can’t believe we thought we had anything to complain about.”

Since then the industry has evolved, and the evolution is summed up with a three-letter acronym: OTA. Online travel agents, now well known on the modern hospitality landscape, are casting longer shadows than ever before. And the hotels that benefit from the rooms they peddle are shivering in the shade.

So, what’s the issue? For one, the whopping commissions the massive web-based entities take, routinely in the 20- to 30-per-cent range. Consider also the slew of limitations OTAs impose on their partner hotels regarding details such as the cutoff point at which unsold inventory is restored to the property for its own sales efforts. And their very presence irks a lot of hoteliers, who grumble that they’ve lost control of their own assets, a reality made even more bitter because they invited the snakes into their own meadow. “In my humble opinion,” sighs Jeff Froehlich, director of Sales and Marketing at Vancouver’s Shangri-La Hotel, “Hotels created the monsters that are OTAs.”


Hotel rooms used to be purchased over the phone — with the guest contacting the hotel directly — or through a travel agent. Cindy Estis Green, co-founder and CEO of Dallas-based Kalibri Labs, says back in the day, consumers’ travel-research options were very limited. “There really wasn’t anywhere for you to go besides the weekend section of a newspaper.”

Enter the OTAs. Their arrival was met with muted enthusiasm. Suddenly, there was a fantastic resource that would sell hotel rooms on behalf of hoteliers. Properties happily dumped inventory onto the online marvels. And, why wouldn’t they, asks Jennifer Drew, director of Market Management for Expedia’s lodging partner services division. In addition to its global footprint, Drew points out, Expedia offers a virtual marketplace for customers and a selling opportunity for hotels. Additionally, the OTA relieves its ‘partner’ of all manner of responsibilities. “The hotel doesn’t have to take on the individual complexities of doing business around the world,” says Drew.

Not everyone agrees with Drew. “The industry’s come to a bit of a boiling point, and the commissions are too high,” says Mark Lomanno, an executive board member with NewBrandAnalytics, a social media/ data-harvesting firm based in Washington, D.C., and a speaker at the upcoming CHIC conference in Toronto. Eventually, says Froehlich, the online players began waving a sword so powerful that “hotels needed to bow down to whatever they were asking.” That included the imperative of heavy allotments with zero or minimal cutoff days. For bigger hotels, that wasn’t such a problem, but for boutique properties, the development was more troubling.


Rate parity is the order of the day on this front. The new transparency OTAs delivered to the scene is significant, Estis Green says, for the privacy of which it deprives hoteliers. It’s more difficult now to create rates for select groups of guests. Even the so-called opaque providers such as Hotwire and Priceline, have been exposed. Clever consumers, increasingly comfortable with the way things operate, can narrow their search parameters and predict which hotel room they’re buying with some accuracy.

The net result, says Estis Green, whose company conducts hotel data analytics, is that hotels can’t really compete on price alone anymore. It’s why, in today’s new reality, competition is a game played with other factors, including value-added services, rates based on multiple nights’ occupancy or other inspired — even desperate — offers devised by hoteliers. “You have to be more creative than ever,” says Estis Green, who recently co-authored a comprehensive report on hotel distribution channels. The ultimate trick to navigating the new landscape is for hoteliers to gain a better understanding of their customers, and to apply that knowledge in a way that’s mindful of the distribution channels that deliver them.


There are five main channels consumers can choose to purchase a hotel room: OTAs; (a hotel brand’s website); the global distribution system (GDS) and voice — the 1-800 phone numbers many hoteliers use. There’s also spillover from walk-in business, call-in business, groups and meetings booked through sales managers and others. There are new channels hungry for a bite of the US$2.7-billion travel commission pie, whose emergence will further complicate the scene. Some, like Room Key, the new hotel search engine created and powered by hoteliers, will actually drive business to hotel websites. There’s also Google’s Hotel Finder; Facebook’s soon-to-launch travel-booking tab; the consumer advocate cum travel agent called Tingo and iTravel, the application Apple Inc. is developing that could become the travel industry’s equivalent to the iTunes Store. It may provide more competition for OTAs than hotels.

In any case, says Lommano, the new travel tributaries will change the entire playing field. Hotels won’t give them any parameters at all, he points out, and a different pricing model will have to emerge. “They won’t necessarily take commission or such, but they might charge you just to drive people to your site. It’s a scary idea.”

The costs associated with the various distribution channels through which hotels gain their business fluctuate wildly. Certainly OTAs are a high-cost channel, but every channel has fees, and the potential in any market is different based on those channels. An independent hotel on the beach is probably using an OTA more than a branded five-star urban hotel that has its own loyalty program.


The optimal channel is one that leads directly to the hotel itself. The dollars spent by guests who book through a hotel’s website are pocketed by the hotel. To that end, operators might improve the look of their websites, include better content, post quality photos and generally ensure the site is superior to the competition. Additionally, they might spend some time contemplating value-adds: including free breakfasts, complimentary room upgrades and late check-ins. Loyalty programs also serve as powerful anchors for an increasing number of hotels. When someone buys a room through an OTA, he doesn’t enjoy the benefit of added points to his standings with the property.

Going forward, say industry pundits, a hotel group’s revised modus operandi should include building an optimal channel mix that smartly divides resources among all the options. “That’ll be challenging for the hoteliers,” says Estis Green. However, maximizing cheaper channels and minimizing expensive ones is vital.

Online travel agents are evil, Froehlich says, but necessary. “There’s no point trying to put the monster back in the box.” And no one is disputing OTAs’ right to real estate in the hotel universe. The notion that OTAs have grown too big for their britches notwithstanding, says Le Saint Sulpice’s Di Re, doesn’t mean hoteliers are talking divorce. “We have no choice,” he shrugs, conceding the fact the online agents have massive marketing power. “You’re damned if you do, damned if you don’t.”

Keep Reading

Latest Hotel News

Ripe for Investment

Looking Sharp: A Conversation With Four Seasons’ Isadore Sharp

Playing the Trump Card

Sounding Off: Investment Roundtable


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.