Online Travel Agents (OTAs) are third party booking websites that offer travellers an intuitive search-and-compare database of travel providers. Using an OTA, a customer can research hotels and book directly through the website. OTAs generally invest heavily in advertising (Expedia and Priceline spent more than $8.5 billion globally on sales and marketing in 2016), offering reward incentives and achieving top billing in online searches.
Since their introduction in the mid 90s, OTAs have gained significant influence, currently accounting for 39% of the US online digital booking market and a 65.5% market share in Europe. They work from two models: The ‘merchant model’, where the OTA resells inventory they have already purchased, and the ‘agency model’ where commission is charged to hotels for bookings made through the site, meaning that only converted bookings incur a fee.
Hotels have long seen value from the OTAs’ investment in digital advertising. This investment has provided much greater exposure and reach across channels than the hotel could achieve alone. However, with commissions on the increase, large hotel brands recently made it clear that they want a bigger slice of the pie.
In May 2017 CNN reported that chains including Marriott International Inc., Hilton Worldwide Holdings and Hyatt were planning to lobby against booking companies, complaining that commission levels had become unsustainable. Hilton Worldwide launched its #stopclickingaround campaign and Marriott led with, ‘It pays to book direct’. Many large hotel chains offer perks such as lower nightly rates for members, and both the Hilton and Marriott campaigns focused on this idea of offering incentives to encourage customer loyalty with the aim of increasing the share of direct bookings.
However, despite much activity around the idea of direct bookings, a new study by Infrata found that direct bookings actually have “No measurable impact” on distribution costs. According to PhocusWire, analysis of a hotel “representative of the major chains” found that there was a 0.03% difference in net profit to a hotel between direct and indirect channels, debunking the current opinion that direct distribution is cheaper for hotels than using OTAs.
The report shows that by moving from an OTA to direct channels, a hotel could actually cause a drop in overall occupancy, requiring an increase in investment in direct customer acquisition, customer services and marketing.
The rise of the OTA
When OTAs were new, they offered innovation that left hotel marketing far behind. Hotels were slow to adopt new technology, and it made sense to pay commission to an OTA to keep up in a competitive industry. Meanwhile, the OTAs invested heavily in developing the technology and platform.
Now, as the market share held by online travel agencies continues to expand, the relationship between OTAs and hotels becomes ever more symbiotic. Direct bookings are still dropping, while in 2016 Phocuswright reported the value of hotel bookings through third-party travel agencies in the US as $31.4 billion, surpassing direct hotel online bookings for the first time since 1998 when the data was first tracked.
According to Phocuswright, online travel agencies were responsible for $99 billion worth of worldwide hotel bookings in 2016, and the combined market value of Priceline and Expedia, taking into account the fact that neither own any real estate assets or operate any hotels (yet) is more than $100 billion US. From this position of strength, OTAs will continue to innovate and diversify, and this can only benefit the hotel industry.
Meanwhile customer habits have changed too. Of the millennial generation, which represent 33% of travel customers, 52% prefer to book their hotels through OTAs because the comparison sites offer memorable experiences at good prices.
Benefits of OTAs for consumers:
- OTAs provide more choice, transparency and comparison-shopping between hotels, flights and other amenities
- They empower the customer in researching travel destinations independently of a travel agent
- They offer lower prices. In fact, one study found that: “If there was no such thing as OTAs, [hotel] room rates would be considerably higher.”
- OTAs hold a wealth of customer reviews and other information about destinations and hotels, allowing travellers to quickly and easily make decisions and bookings in one place
4 big benefits of OTAs for hotels:
OTAs provide increased visibility, particularly useful for smaller operators who will be seen by a huge new market, reaching beyond the current customer base to find customers on a far bigger scale.
Published in May 2018, Infrata’s report argues that OTAs do benefit hotels, stating that, "Up to 35% of hotel bookings can be attributed to guests finding out about a particular hotel via an OTA” The report explains that if OTA's did not exist, hotels would need to compensate to regain the lost guests by increasing its SEO spending by between €7 and €10 per booking.
The study also shows that OTAs excel in efficient use marketing investments: The amounts they spend and the processes they employ give them better placements in search engines, leading to increased bookings for hotels.
2. Increased customer value
While the OTA is an incredibly powerful partner when it comes to attracting customers, it also provides the opportunity for the hotel to provide an exceptional customer experience and explore the potential for ancillary spend, generating non-room related revenue.
According to Mintel/Hotstats, food and beverage accounts for between 20% and 34% of total revenue for UK hotels, while ‘other’ spend accounts for up to 22%.
This emphasises the importance of ancillary spend in revenue growth.
Commission paid to OTAs may cut back profitability on room bookings, but with increased bookings and a creative on-site offering the OTA provides exciting opportunities for strong ROI, significantly increasing the profitability of guests coming through these channels.
3. Simple booking channels convert better
Customers turn to OTAs because they offer choice and simplicity. Price is an important component but it’s not the only factor at play. For hotels, the comparison aspect is a challenge, but it’s also an opportunity to stand out and highlight unique characteristics and offerings. Quality, location and value are all important deciding factors. Customers are looking for best value, not just best price, and they want to book through simple, intuitive, trustworthy channels and under the umbrella of a familiar brand such as an airport.
4. Reviews and user generated content
One of the main draws for customers looking to book a hotel is the review, and OTAs are rich with this content. According to Trip Advisor, a massive 96% of their users consider reviews an important resource when booking a hotel, with 83% usually or always checking the reviews before deciding. 76% are influenced by images uploaded by guests.
Hotels can use these reviews to develop customer service, and respond to customers directly and positively about any issues. Once customers have come to the hotel through an integrated booking system, the hotel can build an ongoing relationship with personalised automated emails asking for honest feedback, reviews and photos, or like Hilton, set up a #hashtag to connect with visitors.
In the immediate future, the large hotel chains seem keen to curb the growth of OTAs. They continue to enjoy the reach offered by the OTAs while doing their best to capture, retain and convert direct website visitors. There are costs involved in both direct booking campaigns and priority pricing, but the creation of a loyal customer base who will continue to make direct bookings is well worth it for these giant brands.
However, hotels and travel providers still gain much value from the exposure offered by OTAs, and there’s the opportunity to learn from OTAs too. The development of Cloud-based booking and CRM platforms like Rezcomm Travel means that even an independent business can benefit from integrated booking systems that link hotels with airports via a brand-matched booking platform, freeing up the market for smaller players.
While direct bookings may be commission-free, customer perception is strongly formed: Booking through an online travel agency is cheaper and hotel sites just don’t have as much to offer. Customers are generally even willing to pay a little extra to have the ‘one-stop-shop’ experience that allows them to buy flight, hotel, car hire, parking, lounge and fast track from a single brand (the airport) that they trust.
Rezcomm Travel offers a fully integrated service to sell flights, hotels and holidays online. Combining inspirational design with a fully optimised user experience, it puts holidays, last-minute deals, flight offers, accommodation, car rental, transfers and much more right at the customer’s fingertips.
If you would like to speak to Rezcomm about our integrated flight and hotel booking software, contact the team today.
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