Ever since online travel agents appeared in cyberspace, hoteliers have been shifting uncomfortably in their seats. Bricks-and-mortar travel agents may have earned a small commission for every booking, but most of them were professionals running boutique offices. They weren’t corporations with sophisticated virtual platforms, designed to swallow a growing percentage of bookings worldwide.
Make no mistake, OTAs are a huge business — especially Priceline and Expedia. The Priceline Group was valued at AUD $88.5 billion in May of 2016, making it the 120th most valuable company in the world (this valuation includes Priceline, Agoda, Kayak, booking.com, and rentalcars.com). Meanwhile, Expedia acquired Travelocity and Orbitz in recent years, and is currently valued at more than AUD $21 billion.
And now for the statistics that really hit home for hotel owners and managers.
According to Euromonitor’s 2016 report on global travel, 46% of all travel bookings will be made online by 2020 (as opposed to 36% in 2015). OTAs already take between 15-25% of total guest revenue. That number stands to increase as the number of online bookings climbs.
One factor that may put a check on OTA growth is a trend toward customized travel. Facilitating millions of transactions every day is all fine and good. OTAs can even give personalized recommendations. But the ability to put together a custom itinerary — in essence, to craft a unique travel experience — is still the purview of yesteryear’s travel agent, despite the growth of sites such as travefy.com. In fact, there has recently been an increase in physical agencies. Some are even using VR technology to give clients a taste of different destinations.
The bare bones approach to finding the best deals, and choosing from millions of properties and flights on your own, has reached its peak according to some experts. A living, breathing expert who has been there and helps you find the experience (and the value) you’re looking for may be just what the doctor ordered for today’s busy holiday maker. People are inundated with information, and it’s been shown that travelers are prone to buyer’s remorse before a decision has even been reached. Enlisting a travel agent re-focuses the planning process on delivering the right experience.
Distrust of OTAs
Another aspect of this trend is a growing sense of distrust amongst OTAs. In 2015, Boston Northeastern University published a study in which OTA pricing was found to vary significantly between users, depending on user data and analytics. In some cases, the difference in prices quoted for the same hotels or travel services was in the hundreds of dollars. The study, which received significant media attention, undercuts the idea that OTAs are the fastest and most reliable route to the lowest prices and the best deals. It’s important to remember that The Priceline Group is far more valuable than AirBnb and Hilton combined.
Other studies and data have examined how people actually use the Internet to research and make their bookings. Not surprisingly, people often express distrust in OTAs by using them to search prices and options, after which they proceed to the property’s own web site to compare prices and assess the benefits of booking direct. Most travelers recognize the truth of this, because they’ve actually done it.
Taken as a whole, the current travel booking market leaves hotels in a situation that is obviously vulnerable (up to a quarter of global revenue going into the pockets of OTAs), but also promising. Online bookings are growing incrementally, but they certainly haven’t taken over. Travelers are curious about the benefits of booking direct, or even booking offline through a travel agent. OTAs are giant, impersonal systems that may or may not lead to the best possible experiences or prices.
Why OTAs are useful
Hotels pay OTAs for a good reason. By providing a convenient tool to potential guests worldwide, they play a precious role in customer acquisition and with their massive marketing spend, they can out market all but the biggest hotel groups. If you strip OTAs from the equation, what will happen to occupancy rates? Can hotels really be more profitable without the advertising power of online travel agencies — even if they aren’t getting a commission?
A few of the bigger hotel chains (namely Hilton and Marriott) have answered this question in the most strategically advantageous way: They have re-negotiated their deals with OTAs, resulting in lower commission fees. The average hotelier would be crazy not to recognize the value provided by the 21st century distribution channel known as the OTA. But it looks as though the “tug of war,” which has been moving in favor of OTAs for so long, may finally be moving in the other direction as both guests and hotels question the status quo.
Given all of these market realities, incentivising guests to use direct booking platforms is an important way for hoteliers to improve the bottom line. The question is, what kind of incentives will work? We’ll explore the answer to that question in part two of this post.
What do YOU think hotels can do themselves to encourage direct bookings? It would be great to get your views.
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