The relationships between hotels and third-party intermediaries or online-travel agencies (OTAs) has been the subject of many discussions over the years. Yet the consensus seems to be that each has its place, although the dynamics between them will change with shifts in the market.
“The relationship status of hoteliers and OTAs is complicated,” says Robert Cole, senior research analyst, Lodging and Leisure Travel, with Phocuswright and founder of RockChita hotel marketing strategy and travel technology consultancy in Dallas. “They are businesses with conflicting business models and do very different things for different groups.”
As complicated as the online-booking space may be, there is no question that OTAs are here to stay. A report published by Allied Market Research, titled, Online Travel Market by Service types, Platforms, Mode of booking and Age Group: Global Opportunity Analysis and Industry Forecast, 2022-2031, shows the global online travel market was valued at $354.2 billion in 2020, and is estimated to reach $1,835.6 billion by 2031. That translates into a compound annual growth rate of 14.8 per cent from 2022 to 2031. The direct travel suppliers’ segment of that (which includes OTAs) was valued at $197.3 billion.
A noteworthy pattern since Travelocity first appeared in 1996, is that OTAs tend to get stronger in downturns when more people prefer to shop across brands. It first happened after 9/11, says Cole. “That was the big catalyst. The attack was incredibly detrimental to the hotel industry. All of a sudden, travellers were looking for deals, and hotels were looking for traffic to fill the holes.”
The pandemic has had a similar impact on the market as business travel ground to a halt throughout 2020 and 2021. “Less business travel weakens the value proposition. Fewer business travellers are racking up points and people are not as dedicated to the brand. That’s creating a bit of a headwind for hoteliers right now,” says Cole.
While direct programs make all the sense in the world for guests that are loyal to a brand, there is a significant portion of the population that is brand agnostic, especially on the leisure side. “Brand-agnostic customers don’t want to go to multiple sites. They would rather go to a central source such as OTAs,” says Cole.
Phocuswright research shows that in 2019, direct bookings (online and offline) with hotels represented 24 per cent of basic share. In 2021 that rose to 27 per cent and in 2023 is projected to be 28 per cent. However, the numbers refer only to the hotel direct bookings online component, so the growth is not as dramatic as it seems.
The offline share (call centres, reservation desks, et cetera) dropped from 41 per cent in 2019, to 39 per cent in 2021 and is projected to be 38 per cent in 2023. “Do the math and you will see that while hotels gain four points in online, they lose three with offline, so the combined share of direct business only went up one per cent over this five-year span,” explains Cole.
By way of comparison, in 2019 OTAs generated 25 per cent of share which was one-per-cent more than hotel sites. By 2021 they went up to 30 per cent. In 2023 it is expected to go back to 27 per cent, which adds up to a slightly higher overall gain of two per cent
“When the economy tanks, people are not travelling on their employers’ dime, and are looking for deals,” says Cole. “That is why it is critically important for hoteliers to effectively manage both these distribution channels to maximize their productivity and profitability.”
While some have observed power imbalances between hotels and OTAs over the years, Cole believes that major chains now have more power in negotiating deals. “And OTAs are not quite as Draconian and beating suppliers over the head.”
Rebecca Cregan, director, Canada, Market Management, Lodging for Expedia Group says she sees a stronger alignment in their shared ambition to deliver great experiences across the entire traveler journey.
“What started as the democratization of travel and choice led to a race for transactions where travellers were driven to the cheapest option, rather than the right product at a fair price. We have simplified and accelerated our core technology, removing duplicative efforts, and unifying our data. Breaking down our core technology in building blocks will bring more players into the travel ecosystem, expanding reach and demand for everyone.”
Working with OTAs can provide tremendous value, but like any tool, there is a proper way and an improper way to use them, says Cole. “Hoteliers should evaluate the overall cost of acquiring the business they drive through their channel, versus what you would have to spend, and the risks involved in doing it another way. They have to work with OTAs strategically. It’s not always an ‘I win/you lose situation.’ Maybe it can be a kind of win/win where neither gets 100 per cent of what they want but can learn to live with it.”
BY DENISE DEVEAU