Mr. Menekse

Sales & Marketing

The OTA and Hotel Relationship - Then and Now

By Mustafa Menekse, Area Director of Sales, Sage Hospitality

Though it seems that online travel agencies have been a part of the hotel booking landscape for eons, the reality is that just 25 years ago, brick and mortar travel agencies were the norm. Travelers would visit an agency for trip planning advice, printed brochures, and to speak with actual travel agents to assist in booking airfare, hotel accommodations and rental cars. Travel agencies had the knowledge and information about the destination and, of course, the tools and connections to book hotels and flights to begin with. The support these agencies provided put traveler's minds at ease, especially for international trips. This was the foundation of why OTAs are in existence.

As the internet began to gain traction with mainstream consumers, online travel agencies were a natural progression in the hospitality booking experience. Microsoft launched Expedia in 1996 as the tech giant's entry into this new digital marketplace, while Priceline allowed travelers to "name your price" soon after. Dozens of online travel agencies were launched in the 2000's, followed by mass consolidation in the 2010's. Throughout the years, the relationship between hoteliers and OTAs has been a wildly dynamic dichotomous case study.

The Early Years

In the early days of online booking, hotel brands minimized the potential negative impact of OTAs. In fact, many hoteliers, new to the tech landscape, saw online booking agencies as an incremental revenue stream. Early adopters found that by paying higher margins to OTAs than to traditional agencies, the mass exposure of the internet increased the booking funnel and consumer reach of their hotel or brand. The relationship between the OTA and hotel during this time was bifurcated between adopters and skeptics.

Hotels that saw value in this new booking channel were extremely flexible and accommodating to the online agencies, bending over backward to create a competitive advantage in their respective marketplace. The OTAs were also accommodating, providing featured placement and page rank among other perks to these hotel partners.

Hotels that did not see value in third party booking agencies were skeptical and dismissive of the online agencies. E-commerce was still in its infancy and both consumers and hoteliers saw online selling as a niche market at the time. Hotels' own websites were clunky, static and slow. Direct bookings on the hotels' vanity sites were slow to gain traction and sophisticated digital analytics were nearly non-existent at the time.

Regardless of whether the hotel bought into the online agency model or not, most would agree that the early years were relatively peaceful, with OTAs positioned as complementary as opposed to being viewed as a competitive business model.

Fear and Loathing

However, as OTA bookings grew, so too did the fears of hotel executives who saw more and more of their market share erode. OTAs were slowly being viewed by consumers as an optimal shopping tool, creating a one-stop shop to compare dates, availability and pricing of multiple hotels in an area without needing to navigate to each individual hotels' vanity or brand site.

OTA share skyrocketed, along with the commission checks being paid out by the hotels to these third party agencies. Hotels began to realize that guests who booked via the OTAs were significantly less loyal than guests who booked directly with the hotel and were much more expensive than a traditional consumer. But OTA bookings continued to grow. And grow. And grow. Concurrently, hotelier disdain for the OTAs grew. But by this time, OTA share had grown to between 5%-10% of overall booking share for hotels and the OTA leverage was at an all-time high.

Brands began to implement tactics to drive consumers back to their own direct booking sites, often offering lower rates on their own sites and limiting inventory provided to third party sites. The OTAs countered by penalizing hotels who were "out of parity" and by launching massive and aggressive advertising campaigns.

No longer did the big hotel brands see OTAs as an insignificant nuisance. It became apparent that both OTAs and brands were competing for the same customer, and therefore competing directly with each other.

The New Normal

It is now understood that the relationship between the OTAs and hotels is established based on a "we need each other" basis. Most hotels place restrictions for OTA bookings and they turn them on in last minute to get "heads in beds". At the same time, some hotels rely on OTAs on a regular basis and choose to pay commission checks to OTAs rather than investing in digital marketing. OTAs have the advantage of elimination of typical operating and overhead expenses which the hotels must incur and therefore, they have been investing heavily in digital marketing and consequently have dominated online bookings. Do a quick google search of your favorite hotel brand and favorite city and it is a near certainty that the OTAs are receiving top of page placement on paid search.

Brands are not the only ones targeted. Independent hotels are also often targeted by OTAs for relatively inexpensive exposure for "brand" terms. Couple this digital marketing spend with traditional advertising spend which dwarfs that of the hospitality brands and you can see how the OTAs have gained consistent market share.

Of course, consumer behavior also plays a big role in this relationship, as online shopping became more popular, OTAs saw the opportunity to enhance their online presence, which resulted in more consumers booking hotels, flights and packages through OTA websites. Because of this change in consumer behavior, traditional "walk-in" business has nearly completely eroded in favor of online tools used at the curb. Hotel Tonight saw this opportunity and developed a smartphone app which allows guests to book their last-minute hotel reservations on the day of arrival. The consumer enjoys the convenience of last-minute online bookings and they will continue to book and shop online. Hoteliers are scrambling to develop a counter to this new concept and are again fighting directly against the third party agency.

One of the biggest advantages that OTAs have over hotels is in the packaging realm. Consumers can book hotels, flights and rental car all in the same place - true one-stop-shopping. Can hotel brands match this booking experience? Brands have recently created similar products allowing travelers to book car, air and hotel bundled together on the brand.com site. It remains to be seen how effective these vacation offerings will be for the brands as they are still brand-specific, not offering the flexibility of the third party package offerings. When traveling internationally, I too am one of those travelers who chooses to book package deals on OTA websites rather than booking directly with hotels and flights. Not only is it more economical but it is also a convenience for me since it helps me build my own itinerary, including flights, hotels and rental cars.

In today's online travel agency booking environment, a question remains; who owns the customer? Since the consumer books through OTA channels, the OTA technically owns the customer data. The single biggest advantage hotels have over OTAs is that once the OTA transaction has been completed, the hotel now has complete access to the guest. Hotels have instituted aggressive efforts to capture guest data on-site to enable the hotels to directly market to the consumer. To counter this, of course, OTAs came up with their own guest loyalty programs which offer points for each booking/stay. In addition to guest loyalty programs, some OTAs also process the full payment of the reservation and pay hotels directly. An important factor which consumers should consider when booking through OTAs is related to customer relations. Who will the consumer work with to resolve changes or issues which arise.

Who is incentivized to assist? This is where things can get tricky for consumers as they might find themselves in a "pointing fingers" game between the OTAs and hotels. Of course, hotels want consumers to book directly on their own websites but are they doing enough to make this happen or have they simply given up? The question is what will disrupt this relationship? Will hotels pay consumers a cash rebate for each stay instead of paying OTAs the commission? Many believe that this is the next logical move by the brands to minimize OTA margin costs.

Most of the major hotel brands see the OTAs as a last resort, but hotels do need OTAs to fill need dates. New hotels also rely on OTA heavily during their ramp up time to gain more exposure online. And the OTAs need branded hotels, because without them, they don't have a major segment of the travel industry to sell. OTAs will continue to find innovative ways to make the travel booking process better to differentiate their product. Hotels will continue to react to OTA innovation and to attempt to shift the consumer's bookings preferences. Overall, the competition between OTAs and hotel brands is positive for guests as it has created a much more sophisticated travel shopping experience and ensures that both sides continue to drive innovation to the benefit of travelers.

Mustafa Menekse serves as Sage Hospitality’s Area Director of Sales overseeing three independent downtown Denver hotels located in the booming Lower Downtown district. Mr. Menekse previously served as the Area Director of Sales & Marketing overseeing four other Sage Hospitality hotels in Denver. Originally from Turkey, Mr. Menekse worked in Information Technology. After graduating from college he moved to the United States and began his hospitality career at the Little America Hotel & Resort in Cheyenne, Wyoming, becoming the Director of Sales & Catering in 2010. Mr. Menekse joined Sage Hospitality in 2014 as the Director of Sales & Marketing at the Holiday Inn Denver East – Stapleton. Mr. Menekse can be contacted at 303-628-5446 or mustafa.menekse@sagehospitality.com Please visit http://www.sagehospitality.com for more information. Extended Bio...

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