The rise and rise of monolitic online travel agents (OTAs) are squeezing hotel margins – but is this necessarily bad for the industry? A report by global hotel consultancy HVS, published earlier this month, described how Priceline and Expedia have become “ever-more powerful” following strategic acquisitions of smaller players, resulting in Priceline controlling 62% of the European market and Expedia dominating 70% of the US market.
The impact of this, according to the report, is that hotels have become increasingly reliant on bookings from OTAs and “might soon be forced to work with just two main companies, with limited options for negotiating on commissions.”
The relationship between hotels and OTAs can best be described as co-dependent, or love/hate. On the one hand, OTAs offer hoteliers the ability to reach an international audience; on the other, they charge commission rates that vary from 15 to 30%, placing a heavy burden on profits. Despite this, most hoteliers recognise the role OTAs play in helping them expand their client base and would not think of disengaging from an online partnership, no matter the cost.
The HVS report suggests instead that hotels should aim for a “healthy balance” between OTA bookings and bookings through their own website. Crucially, the report’s authors suggest hotels should ensure their site is up-to-date, attractive and user-friendly.
Sophie Perret, the report co-author, suggests that “It might come down to the small details that make guests decide which channel to book through. Search engine optimisation is worth exploring and while not cost-free, is comparatively cheaper than the cost of rooms sold via OTAs.”
“While limiting your exposure to OTAs as much as possible might reduce your distribution cost, this could be at the expense of overall occupancy and ultimately ancillary revenues generated through restaurants and bars,” she further advised.
So what makes OTAs so attractive to the traveller? In one word: deals. Something in our psyche responds to the act of snapping up a bargain. It is at once satisfying and thrilling to know you have beaten others to it, particularly when a deal is offered in limited quantities.
Speaking (or writing) as an Asian consumer, there is no cultural barrier or shame in acknowledging a love of discounts – even the wealthiest in our society learn how to drive down prices for the cheapest of consumer goods. Their approach can be summed up thus: it’s not how much you have, but how much you save.
How long, when and with whom I travel determines largely my approach to bookings. A longer trip to an unfamiliar destination usually means booking a mid-range hotel online. I am entirely brand agnostic when it comes to OTAs and will compare prices across the board, after I have determined which hotels and flights I wish to shortlist. However, my husband and I have also embarked on short breaks, triggered by offer emails from hotel loyalty programmes.
The HVS report describes a growing trend amongst OTAs who are launching their own loyalty programmes, directly competing with hotel group loyalty schemes and “threatening one of the unique selling points some hotel brands offer their customers”.
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Loyalty programmes don’t always offer real rewards. Photo credit: iStock
While the proliferation of points sounds tempting on paper, I remain sceptical for several reasons:
- Loyalty programmes don’t always offer real rewards. Consumers fear being encumbered with pages of terms of conditions that make it nigh impossible to gain any tangible reward.
- Too many reward programmes, not enough gratification. If I spread my loyalty points around too thinly, I may never accumulate enough points anywhere to cash in my benefits.
- Brand loyalty is a lot to ask for, particularly when you’re dealing with millennial travellers. It’s probably safe to say that loyalty schemes will always lose out to lower prices.
From my perspective at least, OTAs and direct bookings can and should continue to co-exist. Hotel loyalty programmes have the ability to tempt me to travel and stay in familiar surroundings; OTA discounts allow me to explore lesser known destinations and stay at independent hotels. Having both options suits me just fine.
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