Consumer Innovation Forum Explores Deceptive Practices of OTAs

direct booking conversion rate

With a bevy of new distribution tools entering the marketplace—and overall costs continuing to rise—hotel owners and operators can feel at a loss when it comes to signing a contract with any one provider.

“Distribution is becoming increasingly complex and expensive. Ultimately, the questions facing that owner or manager is, ‘What will the cost be to acquire the booking and is that cost reasonable?” explained Cindy Estis Green, CEO and co-founder of Kalibri Labs and moderator of the Consumer Innovation Forum session at the American Hotel & Lodging Association’s Annual Fall Meeting in New York earlier this month.

A year and a half ago, AH&LA established the forum with the express purpose of educating owners and operators on the changes that were quickly transforming distribution and the digital marketplace. The forum is made up of hotel brands, ownership groups, and management companies with the brands having the largest representation. Its work is ongoing.

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“Our research suggests that the rate of commissions being paid by hotels in return for bookings is rising at twice the rate of revenue growth. When you factor in related sales and marketing costs, hotels can be paying upward of 30 percent of room revenues for the acquisition,” Estis Green said.

Estis Green is well versed in the subject of electronic distribution, having co-authored the widely read 2012 “Distribution Channel Analysis: A Guide for Hotels,” which she’s now in the process of updating.

New distribution tools are coming into the market at such a fast pace, owners and managers need to decide if they want to entrust their inventory to these relatively untested entities, noted Thomas Botts, EVP and chief customer officer for the Denihan Hospitality Group.

“Owners and managers typically don’t have the background to be able to ask the right questions before being asked to sign on the bottom line,” Botts told the audience. Much depends on the particular market. “In a robust market like New York, where demand is very strong, you’re really talking about a revenue management game,” he said. “Considering the costs of distribution today, you really have to look past the top-line number and keep an eye on the bottom line as well.”

Unlike the environment 10 years ago, when hotel owners still regarded online travel agencies (OTAs) as interlopers that were “eating their breakfast,” the prevailing attitude today is much more benevolent. “We view the OTAs as our partners and are an important part of most hotels’ distribution strategy,” said Mark Morrison, VP of corporate strategy at Hilton Worldwide.

At the same time, Morrison noted that serious questions have been raised regarding some OTAs’ operating practices. “It’s not always sufficiently clear to consumers that they may not be getting the best available room, that the reservation is non-refundable, and that they’re not going to receive frequency points for their stay—to cite three such practices,” he said.

Maryam Khan-Cope, AH&LA’s VP of government affairs, confirmed that these deceptive practices exist and frequently mislead consumers.

Estis Green noted that the hotel industry pays a much larger percentage of revenue in distribution fees than other travel-related businesses. “Where U.S. hotels typically pay 15 percent to 25 percent, airlines by comparison pay 3 percent to 6 percent and car rental companies 4 percent to 6 percent,” she said. “The costs are high, but the hotels have agreed to pay them.”

While the number of independent distribution providers in the marketplace has been increasing, a counter trend has seen the major OTAs aggressively acquiring many of the more promising new entrants. Priceline, for example, this spring spent $98 million to acquire Buuteeq (a digital marketing system for hotels) and Hotel Ninjas (a cloud-based hotel property management system). “There’s been some consolidation on the technology side with the major OTAs seemingly intent on expanding the range of services they offer to hotels,” Estis Green explained.

With owners facing escalating distribution costs, Hilton Worldwide’s Morrison and Denihan’s Botts feel it’s more important than ever that the industry present a united front in opposition. “Support an activist AH&LA. We all have a stake in guiding our future,” Morrison advised.

“Owners, managers, franchisees, brands. We’re not on opposite sides of the table on an issue like this,” Botts said.