OTAs the Pros and Cons

11th of April, 2019 | Posted in Editor's Picks Email Article | Print Article

by Jason Caddy

It’s complicated. We love to hate them.” Just two of the views expressed by hoteliers I spoke to when describing their relationship with OTAs (online travel agencies) – the companies that exist to sell your rooms by offering a bigger shop window.

There are of course downsides one being the fact that two companies effectively own most of the big players in the OTA market. Bookingholdings owns Booking.com, Kayak, Priceline, Agoda, Rentalcars.com, and OpenTable, while the Expedia Group owns Expedia, Hotels.com, HomeAway, Trivago, Orbitz, Travelocity, Hotwire, Wotif, ebookers, CheapTickets and Traveldoo which means commission prices are hard to negotiate and of course hoteliers have to abide by OTAs insistence on charging the same rate as the hotel they’ve partnered with and taking funds on the hotelier’s behalf and not releasing them for a stated time, that works in their favour rather than the hotelier’s, is obviously another drawback.

Marc Crothall, Chief Executive of the Scottish Tourism Alliance, told Hotel Scotland, “The battle between OTAs and many hotels and B&B accommodation providers for bookings has been well documented over the past couple of years. The mutually beneficial relationship of 20 years ago is no more, with OTAs now dominating the reservations market and taking between 15-25% the price of a reservation. Hotels, in particular, are undoubtedly stepping up their game to increase direct bookings but are often in a situation where legally, they are unable to offer potential guests the best deal as a result of rate parity clauses which the OTAs put into their contracts, and the consumer selling tactics they have used on their online booking sites such as pressure selling, discount claims, hidden charges and ‘brandjacking’. 

“This particular tactic has hit the headlines over the past few days since the launch of the petition by the UK Bed & Breakfast Association which the STA is fully supporting and promoting.  The practice of diverting traffic from the accommodation provider’s website directly to the OTA site is ethically wrong and has a hugely detrimental impact on these businesses, particularly the smaller providers who don’t have the budget to compete with an OTA.”

The cost of partnering with OTAs can also be prohibitive to hoteliers. Explained Apex Hotels’ Commercial Director, Clinton Campbell, “The average cost of acquiring that business is close to 20%, while the cost of using our own website is half that. There are of course new OTAs trying to enter the market all the time, like Culture Trip, whereas we would prefer to reduce the volume of OTAs. These new OTAs aren’t likely to take shares from other OTAs – they are likely to take share directly from direct sources.”
Nicola Taylor is Chief Executive of Chardon Trading, which counts The Holiday Inn Glasgow Theatreland and the city’s Holiday Inn Express in its portfolio. She takes the view that the OTA market is rather a closed shop, as well as being anti-competitive. She said, “The fact we’re effectively dealing with two companies makes it more difficult to negotiate better rates. So we as hoteliers are kind of stuck with what we’ve got and it’s been harder for the hotel owners to negotiate their commission rates as the market is largely controlled by two global companies.”

She continued, “OTAs’ high levels of commission have taken a large percentage of owners’ profit which would usually have been reinvested in the facilities and staff.  As an industry, we often carry sizable debts due to the levels of investment in buildings and on-going maintenance. This, along with the ever-increasing costs from legislation, minimum wage, pensions, property rates, waste management, food and the like could see the hotel offering become very different in the future. Airbnb could be a disrupter to OTAs and I’m sure hotels are hoping this additional channel will drive down their commissions as a result.”

And while we’re talking about Airbnb, it’s worth mentioning that it is just finalising a deal to purchase OTA, Hotel Tonight. The acquisition follows a deliberate shift in emphasis by Airbnb over the course of the last 12 months to expand beyond private accommodation to include hotels. Interesting times ahead.

So, if you’re a hotelier that’s considering entering into a pact with OTA’s, is it the equivalent of being in league with the devil? Not quite.
Nicola Taylor, for example, still recognises that OTA’s do have a value. She said, “On the plus side, OTA’s have done an excellent job of making it very easy for the leisure customer to book accommodation, compare prices and reviews in an unknown destination – usually opened up to guests by budget airlines.

Apex Hotels’ Clinton Campbell also concedes that OTAs have a part to play in today’s global market. “The pros are that they open us up to a massive audience – depending on which one it is of course. The biggest ones for Apex are booking.com and Expedia and together they produce over 90 per cent of OTA volume across the year. Expedia’s more of an international audience whereas booking.com is more focussed on the domestic and European markets. OTAs account for 38% of our total online bookings, with direct to the website being around the 12% mark. Then there are the other channels of course, like GDS, the traditional group booking for corporates, which is about 3%. The rest comes from call centre and group department bookings.

“Other benefits include access to the amount of data and related market information. I’m talking about customer profiles, booking habits, trends on where people are booking. We can take the lead from what they’re doing on their website to get the best conversion rates that we
can/understand what customers are engaging with.”

Stephen Carter, former GM of The Old Course at St Andrews, also thinks that OTAs are beneficial, just as long as they aren’t ‘over demanding’ of hoteliers. He said, “From the point of view of a large hotel, OTAs most certainly have a part to play. We have a large inventory to sell, as well as distressed inventory, like the downtime in a season or a busy week with one day in the middle yet to sell for example, and OTAs are often the best way of topping up your inventory. On the downside, OTAs can be 15% and upwards more expensive.”

Susan Spence, Group Procurement Manager, Manorview Hotels & Leisure Group said, “There are many pros and cons for using online travel agents. We can see benefits in that it gives access to new business and to a market where your property might not be known. The booking process is also easily managed. The downside of this is when customers are searching on Google, the online travel sites appear higher up the ranking system because they invest in google ad words bidding on your property name. Online travel sites can look as if they are your official website. The commission can also be high for each booking. As a group we can recognise their value but realise it also comes with a cost.”

Hoteliers can of course always make sure that, once they have the customer’s business that may have come via an OTA, they are savvy enough to offer the customer some type of incentive to book directly with the hotel next time around. Equally, a fast and efficient website with the focus on the user experience will also help, of course, likewise a slicker social media presence that can be one of the most effective marketing tools there is for smaller, independent hotels that don’t want to get into bed with an OTA.
Research by Social Tables says that Millennials hold the largest travel market share, 33% and are drawn to OTAs for their ability to book memorable experiences at a great value. In fact, 52% of Millennials prefer to book their hotels via an OTA.

It also says that large hotel brands, such as Hilton and Marriott, have begun investing in campaigns geared at recapturing some of the market share. These campaigns aim to make travellers realise that they will receive benefits for their loyalty. And with 52% of OTA visitors clicking on the hotel website in order to receive more information on the hotel and what it offers, hotels can take advantage of this opportunity by converting some of this traffic into direct bookings.

And just as went to press a London-based online travel agent is offering an initial zero per cent commission for hoteliers, property owners and host who list on its platform until the end of 2019 and then is promising that commission for hosts will never be higher than 15%. The company is called Gomingo.

On its website it says that it will ‘hand control and return value back to hoteliers and hosts from the larger OTAs’ who ‘tie you down with cumbersome contracts, meaning you can’t escape their high prices’.
“We will only charge up to 15% and do not believe in these industry contracts. We charge you less so you can earn more from your bookings through us and in return the guest benefits from a lower and exclusive price. Through this key feature, we hope to shake up the OTA industry.,” says its website. Now that would be worth writing about.

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Hotel Magazine Scotland News Team

Hotel Magazine Scotland News Team

Hotel Scotland is a new publication (2017) from the publishers of DRAM - Scotland's leading on-trade magazine. Hotel Scotland is a newsy magazine which covers all aspects of the industry in Scotland. From who's who, to industry issues and refurbishments.
Hotel Magazine Scotland News Team

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