OTA's - friendly foes?

In the last twenty years, the travel booking scenario has been completely turned upside down. Up until the mid 1990’s or so, travellers had two options: contact the hotel directly or book thru a travel agent. That all changed with the emergence of OTA’s (Online Travel Agents), such as Expedia, Priceline and several others. Basically, the customer now had a third option through which to book a hotel – even find a flight, rent a car or book a cruise.

At the beginning hotels were drawn to OTAs like bees to honey. Hotels could move unsold room inventory and enjoy free marketing whilst OTAs made profits whilst unlike the hotels, hardly having to spend any overheads. During those early days, OTA listings provided a boost to hotel bookings whilst commissions hovered around a low 5%. As the share of transactions booked through an OTA increased, the strangle-hold on hotels by OTAs strengthened; soon, some OTAs were charging upto 30 % in commissions. Combined with sluggish hotel revenue growth, these rising costs are now punching holes in the hotels’ bottom lines.

As the marriage between hotels and OTAs becomes sour, some hotels – especially the bigger brands are fighting back. To overcome the ‘rate parity agreement’ which prevents hotels from undercutting OTA prices, hotels are going big on loyalty programmes. (Hotels are allowed to offer lower rates to a select band of customers – e.g. loyalty members without violating rate parity).

Marriot was first-off-the- blocks with its “It pays to book direct campaign” offering lower rates to members, Hilton followed by extending discounts to all loyalty members who booked direct with its “ Stop clicking around” programme. Hyatt announced a 10% discount for Hyatt Gold Passport members who book direct. Undoubtedly, many other international brands with loyalty membership programmes will join the ranks.

So how will the direct-booking war play out? Apart from the branded chain hotels, Budget hotels reliant on walk-in bookings could also withstand OTA pressure. But where do of the other hotels stand? Will these hotel operators be at the mercy of OTAs for years to come? It would seem so, unless, hotels realise the huge value of a direct booking channel and consider direct bookings a number one priority. So with that in mind, what specific strategies can you apply to grow your direct booking channel?

There are some steps one can take in that direction, such as:-Prioritising direct bookings:-

• Optimise your hotel website to encourage your guests to book directly with you.
• Focus on increasing repeat bookings – Even you if do not have a structured loyalty programme, you might provide your guests with free rewards (without skimping), if they book a subsequent stay, such as a wine and cheese platter or a gift card to a nearby local restaurant. Remember, retaining a guest cost eight times less than acquiring a new guest.
• Balance your OTA and direct strategy. Consistently review your channel mix to ensure you drive both revenue and profit. The business mix can vary a lot from hotel to hotel. For some hotels, the percentage of OTA business could be 25 percent or higher, for some 5 percent or lower. As you hit the 40% and over, you are in danger of giving OTAs the run of your hotel, thus, driving more guests towards direct booking channels diminishes your reliance on OTAs.

Despite the ongoing commitment of time and resources, a hotel’s effort in promoting the direct booking channel has short-term and long-term returns as more and more guests have a fantastic direct booking experience. Over time, this may reduce the need to invest so heavily in marketing campaigns and promotional activities intended to bring in additional business.

Ilzaf Keefahs - writes on hospitality related matters that he is passionate about, and likes to share his views with hoteliers and customers alike.

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