A website used to be the perfect welcome mat for a hotel. Travellers could check out the accommodations, amenities and activities and then book directly. One photo-filled, information-packed site did the work of a fully functioning sales, marketing and reservations team. Then along came online travel agents, or OTAs, such as Priceline, Expedia, TripAdvisor and Booking.com, all of which promised more and better — for a price.
It was designed to be a win-win relationship. The OTA would buy up rooms in bulk and drive reservations — a lifeline during off-season when rooms would otherwise sit empty. In addition, hotels would benefit from the OTAs’ wide distribution reach and massive marketing budgets. The hotels filled their rooms, the OTAs made a tidy profit from commissions and everybody’s happy.
Or are they?
“There’s an understanding between these two different entities that they need each other,” says Deanna Ting, senior hospitality editor for travel-research company Skift. “The OTAs can’t exist without the hotels having a supply and the hotels know [some] people are going to book through an OTA.”
But, as OTA commissions climbed to 30 per cent and direct bookings (and profits) slipped, some hotels started to question the partnership. Larger brands, such as Hilton and Marriott, launched campaigns to encourage travellers to book directly, with the promise of special prices and perks. Hilton says its “Stop-Clicking-Around” campaign boosted its Hilton Honors loyalty program to 82-million members.
But not every property can fund such campaigns, so OTAs have become a necessary resource for smaller independents.
“OTAs traditionally make higher commissions off independent hoteliers compared to the bigger brands, which can negotiate better commission rates,” says Ting. “With the independents, it’s likely that more of their business is coming from OTAs.”
Francesca Lepori, Revenue Manager, Eastern Canada, for Realstar Hospitality, whose portfolio includes Days Inn and Motel 6, says, “OTAs are an excellent virtual ‘shelf,’ which enables any property — branded or unbranded — to be featured when users search the destination. Given hotel companies can’t possibly spend the amount of marketing funds that the OTA partners have available, this is a great first way of displaying your property when someone searches your market. [They’re also able to] bundle hotel rooms with airline tickets, rental cars, transfers and events, into one transaction, [which] hotel companies cannot do themselves.”
Even Hilton, despite its campaign success, has no plans to abandon its OTA partnerships. “Our online partners are an important part of the booking landscape and we are committed to selling where consumers want to shop,” says a company spokesperson. “Hilton has strong relationships with many online travel agents who continue to be an important and valued part of our business.”
Abhijit Pal, head of Research for Expedia Group, says the biggest benefit to any hotel is his company’s vast distribution capabilities. “We have 895,000 properties, 1.8 million alternative accommodations, 550 airlines, 150-plus car-rental partners, dozens of cruise lines, 200 travel-booking sites in 75 countries and we support 40 different languages,” he says. “We have 150 mobile websites in 70 countries with 35 different languages. We invest heavily in marketing, so [hotels] get bookings not [only] from travellers in their backyard but high-quality, cross-border, oceanic travellers who stay longer and spend more.”
He does, however, acknowledge that smaller hotels have the most to gain. “If you’re an independent hotel, it’s very challenging to compete with a brand. [Historically], it was difficult to advertise. You could try to get into a AAA booklet or a reference in a travel guide, but it was extremely difficult. With the Internet and the Expedia platforms, an independent hotel can compete head-to-head.”
New Contenders on the Block
New players, such as Google and, increasingly, Amazon, are making inroads into the travel landscape. In addition to Google Flights, which aggregates flights from major airlines, the tech giant has rolled out new mobile tools for hotels that feature price filtering, amenity and attraction info, as well as the option to book directly from Google.
“Google is a very interesting player to watch,” says Ting. “[It’s] forming relationships with the brands and acting more like an OTA. New players and distribution channels are generally a good thing, because that means more competition; it picks away at the duopoly that Booking.com and Expedia have.”
Perhaps surprisingly, Pal agrees. “If it weren’t for Booking.com, Google and Airbnb, we probably wouldn’t still be around,” he says. “They gave us the benchmark to continue to innovate. They show us that this is a competitive landscape and we can’t afford to build a product that would become stale. Competition makes us better and we have a lot of respect for players like Airbnb — they’ve created a fantastic community and marketplace.”
But Ting warns that these tech titans may want to watch their step. “Google has made a ton of money from basically everyone, but, if they start to become more like an OTA, they risk alienating the OTAs that have made them so rich. Google has to be very careful about what line it treads in terms of how far they go [with] the products they develop and how much they maintain their core advertising business.”
A Matter of Loyalty
The optimal end game for hoteliers is to capture and convert OTA guests into direct bookings. Studies show 52 per cent of OTA visitors click on the hotel’s website for more information. Once there, it’s up to the hotel to impress the guest. Since price-parity agreements prevent hotels from offering a lower price on their sites (with the exception of member rates and group bookings), they must rely on other incentives — usually in the form of loyalty programs.
“We cannot over-emphasize the need to convert OTA-booked guests to direct customers,” says Realstar’s Elisa Sturino, Revenue Manager, Western Canada. “Let the OTAs spend billions in marketing, we’ll never match that. But, once those customers walk into our lobby, our ability to ensure that they will always book with us directly in the future is paramount to our success.
“OTAs remain valuable partners who assist hoteliers in filling up their rooms. [But] we must not be complacent in allowing them to be too influential,” she adds. “We must recognize the opportunity [to turn] an OTA guest into a direct booker [through] not only a superior experience at the property, but through incentivized rates.”
But even some OTAs offer loyalty programs. “We have 69 million [loyalty members] across our network of sites,” says Pal. “When they’re [spending] these points, we don’t charge the hotelier additional redemption costs and we don’t charge them for the earned component of those loyalty fees. [They’re] paying an all-in fee. [They get] marketing support, a loyalty program, all our tools, including a revenue-management system, for free. [They’re] also getting customer service and credit-card processing on the merchant program. So, they get value simply by leveraging our network effect, our scale, our ability to deploy marketing investments cost-efficiently and convert them at a higher pace than they can.”
But big brands have their own leverage, thanks to year-to-year increases in RevPAR since 2010. Marriott in particular, with its 2016 acquisition of Starwood Hotels, has enough bargaining power to negotiate lower commissions with OTAs. Expedia is expected to up the ante following a recent report by travel-research firm Phocuswright predicting OTA bookings will grow to a 25-per-cent share by 2022, while direct bookings will likely decline.
In the end, it’s that front-desk, face-to-face, on-property experience that best inspires loyalty and direct bookings.
“I had a conversation with an hotelier who said, ‘I don’t care if someone books my hotel through an OTA; I have control over the experience that person has. And if I can’t convince that person to book direct with me next time, then shame on me,’” says Ting. “It’s good to get that business through the OTAs, but if an hotelier isn’t able to make that customer come back or remember that brand, they’ve failed.”
Written by Robin Roberts