It has always been questioned whether do you really need to have OTA (or even more than one) for a hotel (small or large size), or just rely on direct bookings on your hotel website.
Much is being said about the challenge Online Travel Agents present to hotels due to significant commissions and competition for online promotion and customer loyalty. While the cost of using Online Travel Agents is often quoted as a negative, the cost of not using them gets little airtime as they represent a significant revenue opportunity, especially for independent and smaller sized properties.
Despite plenty of evidence to the contrary, there appears to be a certain resistance to the simple fact that hotel booking engines are secondary to OTA’s (by far).
The hotel industry always used 3rd party sellers in its Sales & Marketing approach, in particular Travel Agents, individually or as a group (TUI, Neckermann, Kuoni, to name a few of the “long established” Travel Agents), and in an ever more interconnected world, “internet presence” evolved into an essential addition, if not even replacement, to marketing efforts.
Web visibility to customers has gained tremendous importance due to the “ease of use” and a 24/7 booking availability.
1 in 3 leisure travellers and 1 in 2 business travellers use an OTA due ease of booking and available options
|Leisure Travelers||Business Travelers|
|94%||Booked with an OTA||98%|
|76%||Lower prices/better deals||70%|
|56%||Past positive experience or recommendations for site||64%|
|32%||Better tools and options||53%|
|17%||top of search engine search||29%|
More than 300-million consumers visit “Online Travel Agencies” every month. OTAs produce more than half of all hotel bookings each year and consequently, a hotel should embrace net presence by using OTA’s which offer visibility across the world wide web stage.
Distribution channels spend a significant amount on marketing and have a much better reach compared to a single hotel website. OTAs control approximately 60-70% of all online bookings; obviously, it would be difficult, if not impossible, to gain equal or more bookings by other less expensive means.
Many hoteliers are reluctant to work with such online distribution channels out of the fear that they are going to pay a very high commission and consequently will not be gaining enough profit margin.
One of the largest OTA’s earned a staggering revenue of USD 8.77Bn in 2016.
After costs and expenses, it kept $461.7MM, or about 5.3% of revenue.
The majority of revenues are actually reinvested into generating higher sales of room-nights, with direct positive results for a participating individual property
How is “your” commission being spent
As can be seen from this company’s income statement, the bulk of its revenues feed the marketing expenses that ultimately end up driving demand to its hotel partners.
With spending USD 4.4Bn per year on sales and marketing alone, that calculates to USD 17.75 per room night sold or USD 35.50 per booking assuming an average length of stay of 2 nights.
Replicating this effort, even on a smaller scale, would quickly erode a hotel’s profits, especially as marketing activities have costs associated with them irrespective of whether or not they result in an actual booking.
On new technology and technology development, this particular company spent more than a billion dollars alone (in 2016), to obtain the most efficient and “easy to use” web management. This enormous scale allows an OTA, with millions of shoppers and customers, to collect valuable data from every single click which results in optimizing traffic generation and conversion into actual bookings for every single participating property.
Spending on this type of innovation is what provides individual properties with clients from far away countries who would never have heard of that property as a individual hotel’s Sales and Marketing budget would hardly ever allow it to cover, and penetrate, such a vast area. In addition, and often overlooked, OTA allow payments methods unknown, and inaccessible, for an individual property.
- Not using Online Travel Agents is more costly than being part of them.
- The increased reach and high level of market penetration offered by OTAs
- can simply not be matched by an individual hotel.
- Consequently, not making use of the incredible wide-ranging opportunities offered
- by abstaining from participation is a tremendous opportunity lost.