What do online travel agents (OTAs) mean for hotel bookings?

đź•’ 8 min.

Online travel agents (OTAs) are one of the key distribution channels that hotels have at their disposal in order to market and sell their room nights.

This article investigates the relationship between hotels and OTAs and answers some key questions:

Are OTAs good for the hotel industry?
How much OTA commission do hotels pay?
How important is the OTA channel to hotels?

But before doing that, we are going to put OTAs into context and describe their position along with the other distribution channels that hotels use.

Hotels are advised to diversify their marketing strategy, and also strategically distribute their inventory on several OTAs and online marketplaces.

A healthy mix of OTA listings, metasearch advertising, social media promotions, email campaigns, and partnerships with local businesses, is a good approach for hoteliers.  

The hotel’s own website

In many cases, the primary channel for selling rooms is a hotel’s own website, or that of the parent brand.

It is the only online distribution channel that allows hoteliers to sell directly to travelers. Sites need to load quickly and be optimized for smartphones and tablets.

A high quality booking engine is essential to provide a seamless and smooth booking experience for guests. Hotelminder has a list of the ten best website booking engines of 2020.

Hoteliers need to practice search engine optimization (SEO) in order for their websites to appear in the top results on Google, Bing and other metasearch engines. On average, 53.3% of website traffic is organic, resulting from people asking questions and clicking through to sites providing the top-ranked answers.

Global distribution systems (GDS)

A GDS is a consolidated reservation network, primarily used by travel agents, to reserve real-time flight, hotel and rental car inventory for their clients. Sabre, Amadeus, Travelport are well-known global distribution systems.

As a distribution channel, a GDS provides one connection to multiple travel agency systems and allows hoteliers to keep their listing updated across all networks through one interface. GDS create broad global exposure for hotel inventory and can help fill last-minute vacancies.

Generally, a GDS charges hoteliers a one-off setup cost and then take either a percentage or a fixed fee per booking. These costs differ from one GDS to another.

Wholesalers

Also known as bed banks, wholesalers are third parties who source hotel room nights in bulk at heavily discounted rates and sell them, at a mark-up, to travel agents and OTAs.

They are typically used by large independent hotels and chains to maximize occupancy and guarantee a certain occupancy rate. Wholesalers can help hotels reach international consumers they might not reach otherwise, although they do not interact directly with travelers.

The all-important hotel channel manager

A hotel channel manager is a vital piece of the hotel tech stack. It connects hotels to their online distribution channels – OTAs, GDS, wholesalers, and more – so they can be managed from one location in a fraction of the time.

Using a channel manager automates the exchange of rates, availability and reservations, often at near real-time speeds.

This enables hotels to make updates once and reproduce them across all of the channels they work with – saving time, increasing accuracy and reducing problems with overbooking and rate parity.

It also allows hotels to expand their distribution network by linking with online channels they may have previously not known about.

Chart 1 shows the position of the channel manager in the context of a hotel’s entire property management system. 

The channel manager is positioned between the hotel’s chosen sales and marketing channels and its central reservation system (CSR).

Chart 1 The hotel channel manager within the wider property management system

Source: Altexsoft

Are online travel agents (OTAs) good for the hotel industry?

From the hotelier’s perspective, there are important advantages associated with using OTAs to sell rooms.

Market reach

OTAs offer access to an enormous marketplace of consumers actively shopping for travel. On average, more than 1.5 million room nights are reserved each day on Booking.com.  Annually, more than 16 million room nights are booked via Expedia.

OTAs give hoteliers access to customers who would be difficult for them to reach directly, for instance, international travelers. OTAs translate hotel listings into several languages, something that would be expensive for most independent hoteliers to achieve.

OTAs act as the main point of contact for amending or cancelling bookings, freeing up hoteliers to focus on the guest experience in-house.

The Billboard Effect

For consumers, the attraction of OTAs is clear. If you have no loyalty to a particular hotel brand, but simply need to book accommodation in a specific city on a specific date, an OTA provides a range of hotels to compare instantly without having to open up several different websites. After consulting an OTA, many customers will go directly to their chosen hotel’s website and, if they find it user-friendly, will book direct. This is known as the Billboard Effect because the OTA is acting as an advertisement for the hotel.

Packages

OTAs can provide opportunities to participate in packages, e.g. bookings that include a flight and accommodation, or car hire and accommodation.

Expedia research shows that travelers who purchase packages book earlier and cancel less frequently than consumers who make standalone bookings. This results in higher rates for the hotel and reduces the need for last-minute discounting.

Pay as you go

When hoteliers form successful partnerships with OTAs they reduce their inventories of un-booked rooms and boost revenue, especially during off-peak periods. OTAs are often the best way of selling distressed inventory, such as that last-minute night in the middle of a busy week that is still free.

Hoteliers only pay OTAs when they actually fill rooms. Empty rooms mean no commission for the OTAs too, so both parties have a vested interest in selling as much as possible.

Market intelligence

OTAs gather huge amounts of market information and data. Hoteliers can take a lead from OTA data on customer profiles, booking habits and location trends to inform their own marketing and pricing strategies.

Many OTAs provide tools that allow hoteliers to identify and monitor their key competitors, thus benchmarking their own performance.

How much OTA commission do hotels pay?

OTAs charge a fee per hotel booking which is typically a percentage of room revenue. Booking.com says its average global commission rate is 15%. The rate varies depending on the type of hotel and its location.

Research estimates that independent hotels pay Expedia commissions of 15-30% as opposed to large hotel brands that pay less, in the region of 10-15%.

Not all OTAs charge high commission. Although the OTA marketplace is dominated by Expedia and Booking Holdings, there are estimated to be some 400 OTAs in operation today.

Gomingo, a new London-based OTA, is currently charging zero commission to its partners for a limited time. The company pledges to only ever charge a maximum of 15% commission. Partners include some big hotel brands such as Novotel and Wyndham.

OTAs versus direct bookings: which is best?

OTA commission levels have caused heated debate in the hotel sector for several years.

In fact, as a consequence of the “direct booking wars,” an entirely new wave of digital marketing suppliers has sprung up.

Companies like CloudbedsAvvio and HotelREZ offer services to help hotels receive a greater proportion of direct bookings through their own websites, thus cutting down on their sales expenses.

However, the ”OTA versus direct booking” debate has now moved on. Most hoteliers understand that OTAs are here to stay and that they need a mix of direct and OTA bookings.

In fact, although hoteliers have been critical of high OTA commission rates, the real costs of direct booking need to be considered too.

These costs include website and booking engine maintenance, the time spent on search engine optimization, newsletter and email marketing, advertising, and so on.

So the total costs of direct bookings versus OTA commission need to be accurately compared.

Having done so, many independent hotels and accommodation providers have come to the conclusion that the most cost-effective business model for them is to have a simple website (sometimes even without a booking engine) and use OTAs for the majority of their bookings.

How important is the OTA channel to hotels?

In a Hotel Analyst report, Macy Marvel argues that the attention paid to the OTAs is out of proportion to their actual importance as a distribution channel.

She notes that still roughly half of hotel bookings worldwide arrive via conventional channels e.g. walk-ins, telephone, fax, email and only about 20% of the hotel stock in China and India, for instance, is bookable through online channels.

The major hotel brands, often the loudest critics of online travel agencies, actually rely on OTAs for about a quarter to a third of their online bookings, or just 10 to 15% of total bookings, writes Marvel. 

The situation is radically different for independent hotels, however, especially those outside major cities, who might take as much as 70% of their bookings through OTAs.