Hidden costs most hotels miss
The hotel industry has built sophisticated tools for measuring top-line performance. The gap is connecting that revenue to profit: knowing not just what came in, but what it cost to get it.
Here is something virtually all hotel technology doesn’t reveal: A loyal guest who books a US$ 300 room directly with the hotel and a guest, who reserves a similar room type also at US$ 300, via an online travel agent (OTA), may both end up paying a nightly room rate that is identical. That’s a story that is hugely misleading – because revenue measured after customer acquisition costs, paints a very different picture. How’s that? The mistake most hoteliers make is to benchmark the displayed ADR instead of applying the actual Contribution to Operating Profit and Expense (COPE) ADR.
For example, consider the actual breakdown on the $300/- booking made through the OTA, say. MakeMyTrip, where the actual breakdown is as follows:
That’s a 20 -22 % gap between what the guest pays and what the property keeps. And this is before you’ve paid for housekeeping, F&B, electricity, staff, or maintenance. Although the guest paid $300, the hotel never had $300 to work with. That gap is the difference between an asset that performs and one that quietly underperforms. RevPAR will not show it. Occupancy will not show it. Most technology in use today would not either.
What it tells us is that a direct room booking keeps around 95 cents of the guest’s dollar, whereas an indirect one, such as a booking made through an OTA facilitates the hotel to retain closer to 80 cents to the guest’s dollar – and that’s a gap that is too great to ignore. And yet, it is disregarded. Run that gap across a full year of occupied nights and that’s a hefty difference which no one discusses during any monthly P & L review.
When a guest books through an OTA, the hotel receives a masked email address and limited profile data. This means no direct remarketing capability, no pre-arrival upselling based on past preferences, and no post-stay re-engagement sequence.
The lifetime value of a direct booker is 2.5-3.2x higher than an OTA-acquired guest, primarily because direct bookers enter your CRM where you can nurture repeat visits.
Consider a 150-room hotel with 40,000 room nights annually, where 65% of its occupied room nights come through OTAs. That’s a total 26,000 room nights, where the hotel has no meaningful guest relationship data. Assuming even a conservative 8% direct re-booking rate for guests in your CRM versus a 2% rate for OTA guests, the lost repeat revenue opportunity is substantial.
In summary: Whilst OTAs improve visibility, drive occupancy rates, and lower customer acquisition costs, they concurrently create challenges related to pricing parity, commission reliance, and brand value. Operationally, dependence on OTAs correlates with decreased direct booking and increased investment in digital integration. Financially, top revenues may improve due to a broader reach; however, net profitability usually declines due to commission arrangements. The challenge is not whether to use OTAs, but how to strategically control OTAs within a revenue and brand management framework.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Motivational Speaker, Mystery Guest Auditor, Ex-Hotelier
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