HVS: OTAs Remain a Heavy Burden on Hotel Profit Margins

direct booking conversion rate

LONDON—Online travel agents (OTAs) such as Priceline and Expedia have become ever-more powerful as a result of strategic acquisitions of smaller, regional players with Priceline now controlling 62 percent of the European market, while Expedia holds around 70 percent of the U.S. market.

As a result, hotels that have become increasingly reliant on bookings from OTAs might soon be forced to work with just two main companies with limited options for negotiating on commissions.

A new report from global hotel consultancy HVS says that while OTAs offer a number of advantages to hoteliers, including a wide, multi-national reach and big marketing budgets, the commission rates of anything from 15 percent up to 30 percent are a heavy burden on hotel profit margins.

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Furthermore, a growing trend among OTAs is the fact many are launching their own loyalty programs, taking them into a head-to-head battle with hotel group loyalty schemes and threatening one of the unique selling points some hotel brands offer their customers.

“Another limitation imposed by OTAs is their insistence on best price guarantee and rate parity among all channels, leaving limited maneuverability for hotels to make their offer more attractive. However, over the past few weeks there has been some movement toward more lenient regulations as imposed by anti-cartel authorities, mainly in Europe,” commented report author Jill Barthel, analyst, HVS London.

The HVS report concludes that hotels should aim for a healthy balance between OTA bookings and bookings from their own website, making sure they maximize their website bookings by making their site as up-to-date, attractive, and easy-to-use as possible.

“It might come down to the small details that make guests decide which channel to book through,” added report co-author HVS director Sophie Perret. “Search engine optimization 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.”

To download a full copy of the report, click here.