Our recent study uses multi-year, objective data to clearly demonstrate that hotel properties that work with Online Travel Agents (OTAs) perform significantly better financially than those that do not, with commissions being more than compensated for by the increased revenues, resulting in higher bottom-line profits. However, in reality, many hotels still have a (perhaps historic) negative opinion of OTAs. While appreciating the resulting bookings, many still perceive OTAs as competitors rather than partners and fail to commit fully to what should be a win-win relationship.

With travel reigniting following the COVID-19 pandemic, what can/should OTAs consider doing to better seduce hotels and convince them to engage more fully with this valuable distribution channel?

Max Starkov
Max Starkov
Hospitality & Online Travel Tech Consultant

Let's not sugarcoat it: OTA distribution comes at a very steep cost to the hospitality industry. OTA commissions paid by hotels, as percentage of Guest Paid Revenue, have DOUBLED since 2015 (Kalibri Labs). In 2019, the last “normal” year, only in the U.S. hoteliers spent $28 billion in the form of OTA commissions to acquire guests.

The question is not whether to use the OTAs or not - this question has been settled a long time ago. Even in 1995 - prior to the emergence of the OTAs - 25% of hotel room nights were generated by intermediaries: travel agencies, wholesalers, tour operators. The real question is: How much dependency on the OTAs is healthy for your property: 20%? 30%? 50% or more of of booked room nights?

So what should be considered as a healthy distribution ratio direct online vs OTA booked room nights? Is the U.S. independent hotels' negative ratio of 1:3 in favour of the OTAs healthy? Or the negative ratio of 1:4 of European independents? Definitely not!

I believe a healthy distribution ratio is the one of 2.5:1 direct online vs OTA booked room nights, enjoyed by the major hotel chains. Marriott and Hilton are doing even better with 3:1 ratio.

I understand that independent hotels do not have the brand recognition, marketing and technology prowess and loyalty membership of the major hotel brands. But independents are systematically underinvesting in digital marketing and technology and have only themselves to blame for their increasing dependence on the OTAs. In 2019 independents invested less than 5% of room revenue in marketing and IT combined. Compare this to Expedia investing in marketing 42% and Booking 33% of revenue! Add to that the sad fact that independents have slashed their marketing and IT budgets by further 50% since the beginning of the pandemic (STR).

Why the direct channel should continue to be the main focus of a balanced distribution strategy? Distribution cost is the only cost factor hoteliers still have some influence over, unlike the remaining cost factors like labor costs, bank loans, real estate taxes, utilities, etc. It's as simple as that: The cost of direct online bookings can offset the cost of OTA distribution. For 20 years we at NextGuest (now merged with Cendyn) have been tracking the cost of direct online bookings across our portfolio of hotel clients. The average all-inclusive direct cost (website design + development amortized over 36 months, website maintenance, hosting, analytics, digital marketing - SEO, content marketing, SEM, metasearch, online display, retargeting, social media, etc., - CRM, consulting fees, etc.) has varied through ups and downs in the marketplace but has always been in the range of 4.25%-4.5%. If the property and its digital marketing agency do an adequate job, that is.

So what is a smart distribution channel strategy? Blended distribution strategy is the smart thing to do in hospitality! I believe independents should aim to achieve 1.5:1 ratio direct online vs OTA booked room nights. How do you achieve that? Independents should a)invest adequately in digital marketing and technology and b)own their local, drive-from and short haul feeder markets and should delegate the long haul and overseas markets to the OTAs.

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