A hotel revenue management strategy is usually a comprehensive strategy encompassing various analytics and demand forecasting tasks to custom tailor pricing and distribution strategies. While there are many independent hotels, most hotels list their accommodations through OTAs.
But where does that leave OTAs? The OTA market is quite dynamic and has some serious competitors. Is there a way for an OTA to capture more revenue and maximize profits? It brings us to OTA in revenue management. But what is OTA in revenue management? Let’s find out what it is, go through some of the use cases of OTA revenue management, and discover how OTA can increase revenue.
What is OTA in revenue management?
Every hotel out there wants to maximize its revenue and profits. To do it, hotels need to have the right room for the right person at the right time and place. That’s what revenue management is all about.
OTA stands for an online travel agency. It most often refers to a website travelers visit to browse and shop for travel-related products and services. Hotels use a global distribution system (GDS) in combination with OTAs to list their accommodations and streamline hotel booking.
OTAs keep becoming more popular among travelers year after year. In 2019, 51% of all hotel bookings came through OTAs, while 49% were direct bookings.
So what is OTA in revenue management, then? OTA is a distribution channel for hotels and airliners. OTA in revenue management means deploying strategies to maximize revenue and profits in a given market. In other words, OTA revenue management is having the right travel package for the right person and at the right time, or the possibility to create your own package by selecting flights, hotels, and experiences you’d like to do during your trip.
OTAs are essential for the success of many hoteliers. In fact, they play an important role in the travel and hospitality industry, facilitating the online booking of travel packages, flight tickets, activities, and car rentals.
To paint the picture, Booking Holdings, one of the biggest brands in the global OTA market, generated 590 million room nights booked in 2021 across its network of over 28 million listed hotels.
There are many ways OTA can increase revenue. We will return to it in the “How can OTA increase revenue” section.
Wrapping your head around OTA in revenue management can be challenging if you’ve never done it before. There is no better way to understand it than to observe and learn from some use cases of OTA revenue management.
Use cases of OTA revenue management
Maximizing profits as an OTA doesn’t have to be challenging when you know what to do. Unlike hotels, you won’t have to deal with KPIs such as ADR, Occupancy Rate, or RevPAR. Here are a few notable use cases of OTA revenue management strategies done right.
Booking.com social media content strategy
With almost 400 million users and over half of its website traffic being organic, Booking.com is one of the most popular OTAs in the global market. There are many reasons behind Booking.com’s success. One is a continuous OTA revenue management strategy based on social media.
The company realized it wasn’t enough to have a substantial online community following the brand. To generate more revenue, you must also engage the community and offer it relevant content. The company leveraged storytelling to appeal to the online audience on an emotional level and build brand loyalty.
Booking.com regularly updates its blog section with travel articles sharing useful tips, tricks, and insights customized for travelers. They also share those articles on the company’s official Facebook profile. They also create high-quality videos and publish them on YouTube. Here is a summary of their success:
- Instagram – more than 320,000 new followers in a year, totaling 1.6 million followers and a 0.155% average engagement rate per post;
- Facebook – 15 million followers and an engagement of 768,000;
- Twitter – 173,800 followers and an average engagement rate of 5.092%;
- YouTube – 493,000 subscribers and a channel engagement rate of 6.17%;
- Revenue – 136.2% increase year-over-year.
Expedia acquisition, advertising, and media
Expedia is also one of the top OTAs in the world. However, seeing how this OTA excels in revenue management is pretty interesting. For instance, a whopping 12% of the company’s overall revenue comes from advertising and marketing.
Expedia has worked hard to create a global advertising platform with marketing experts to offer advertising and media services to hotels and airliners. Working with thousands of advertisers worldwide has enabled the company to generate a new revenue stream.
It doesn’t end with advertising and media when it comes to Expedia’s revenue management strategies. The company acquired a small DIY lodging company. It enabled Expedia to improve its service lodging offer. As a result, the revenue increased by 31%, and bookings increased by 45%.
Ixigo’s clever use of AI
Ixigo started as a tech company focused on bringing tech solutions closer to the travel sector. However, ixigo also launched an OTA platform. Given how late the company was at the global OTA party, it decided to use technologies to get a competitive advantage and improve revenue management.
More precisely, ixigo started using Artificial Intelligence to empower chatbots and personalization on its OTA platform.
The company uses millions of data points to accurately predict train delays, flight fares, seat availability, seat confirmation, hotel curation and ranking, and more. Its chatbot travel assistant is unique because it is voice-based and AI-powered. The travel assistant called TARA can tap into the user’s past visits and travel preferences to offer personalized offers.
The results of these strategies were outstanding. The company now has 21 million monthly active mobile users. After introducing AI-based solutions, ixigo has seen a 600% growth in transactions, and its monthly passenger bookings increased to 1 million.
The company has also improved customer satisfaction rates and significantly shortened ticket resolution times thanks to TARA. Additionally, ixigo successfully automated several customer support services. Its customer support is at the moment automated to 80%.
Big Data, AI, and ML for more booking profits
OTAs can significantly improve their revenue management strategies with all the data that’s available in the market. Hotelmize is another example of how technology is helping OTAs improve their revenue. It’s developed to make sense of booking price volatility and enable OTAs to maximize profits.
Hotelmize features sophisticated algorithms and has price tracking capabilities. Through booking rate arbitrage, OTAs can generate extra profits in the post-booking stage. The solution also features prediction algorithms, such as those used in financial trading markets. Hotelmize also features room-level mapping. It can help you facilitate room inventory mapping across your entire listings and help you improve current rates.
eDreams ODIGEO makes substantial progress with a subscription model
eDreams ODIGEO is a Spain-based travel agency and one of Europe’s largest online travel companies. In its efforts to find a way to attract more travelers and boost revenue, the company came up with a unique solution. In fact, eDreams ODIGEO implemented the first subscription program in the travel industry called Prime.
Prime was developed to revolutionize the way travelers interact with OTAs. It helped the company reinvent the travel experience as eDreams ODIGEO made it available to travelers worldwide. Currently, it is available through three leading eDreams brands, including eDreams Prime, Opodo Prime, and GO Prime.
The Prime program gives travelers exclusive access to flight, car hire, and accommodation discounts. Additionally, eDreams ODIGEO provides Prime subscribers a 24/7 fee-exclusive customer service hotline. The subscription program turned into a huge success.
Over the past 5 years, the program attracted over 3 million members across 9 different markets. eDreams ODIGEO’s cash revenue margin increased by 248%, which amounted to €423 million, €301 million more than the revenue in 2021. Given that the current number of Prime members is just a fraction of eDreams 24 million large customer base, the company expects to have over 7.5 million Prime subscribers by 2025, which will enable it to capture even more revenue.
Despegar turns to a diverse revenue management strategy
Despegar is the leading OTA in Latin America. It’s present in more than 20 Latin American countries and operates in the sector against harsh competition such as CVC. Despegar’s team decided to think outside the box to become more competitive and increase revenue. The company turned to a diverse revenue management strategy.
One of the strategies in their revenue management mix includes strategic acquisitions. However, instead of focusing on large acquisitions, Despegar narrowed its focus to include online and offline agencies in Brazil and Mexico that can be made more profitable and efficient.
The OTA has also rolled out a loyalty program called Pasaporte. Despegar’s loyalty program works with local banks’ co-branded cards, enabling travelers to merge earned points into one account. It also optimized the mobile app to make it more useful during trips. Travelers can use it to find relevant local services. Additionally, travelers can discover exclusive deals only on the app.
Finally, Despegar decided to become less dependent on Google. The company only generates 12% of its website traffic through Google. It increased brand advertising to boost alternative forms of unpaid traffic and attract travelers to book directly.
The diverse revenue management strategy shows promising results. Despegar generated $61 million in revenue in the second quarter of 2021, which is 22% more than for the same period in 2020. The number of overall bookings between the first and second quarters of 2022 has increased by 32%.
Trip.com mobile app and loyalty program
Trip.com is another OTA that excelled at revenue management increasing revenue and profits. Since 1.5 billion people book all kinds of trips worldwide, and 65% of them do it over a mobile phone, having a mobile app is paramount. Trip.com decided to launch its mobile app and capitalize on this new trend in the market.
The app was a huge success considering the harsh competition on both Google Play Store and Apple’s App Store.
To achieve success of this magnitude and leverage the app to generate an additional revenue stream, The company used the app to deliver some benefits to its users. Users are rewarded with Trip Coins that they can cache in and receive exclusive app-only deals to save extra cash on their next vacation.
Trip.com’s app climbed the ranking fast and reached the top 10 most downloaded OTA apps global rankings.
How can OTA increase revenue?
As you can see, OTAs can adopt plenty of strategies to improve revenue management. The OTAs in the case studies we’ve listed above have used the following tactics to increase revenue:
- Content marketing with consistent social media presence across platforms;
- Advertising and media platform built in the OTA platform;
- Using AI to automate customer support and personalize offers;
- Using Big Data, AI, and ML to unlock the hidden booking potential;
- Aligning with big GDS providers and shifting to merchandising;
- Offering mobile apps and incentives to travelers.
However, these are not the only options you can explore for OTA in revenue management. Here are a couple of more strategies you can implement.
Specialization can help you become a leader in a niche market
The top OTAs, such as Booking and Expedia, have almost limitless budgets. Going directly against them to get a market position for your OTA can prove borderline impossible. Instead, small and medium-sized OTAs can focus on a specific niche.
Niche OTAs cater to the smaller markets, enabling them to offer personalized packages and attract all people in the segment that share the exact needs, wants, and expectations.
Follow the best website design practices
The official website for your OTA is where all the action happens. To keep prospects staying for longer and increase the chances of transforming them into leads, you have to offer a great online experience.
Ensure that your website features excellent navigation to let travelers easily find what they are looking for. You should also do everything you can to speed up the loading speed. Adding perks such as comparing listings in your offer can also help you increase revenue.
Properly address checkout page abandonment
People who visit your website, book a package and just leave straight after have exhibited a clear intent to buy from your brand. The booking abandonment for online travel agents is as high as 86.4%.
Targeting these people with your ads is much more fruitful than working from the ground up trying to attract new website visitors and convert them. You can easily retarget these travelers with a paid ad campaign and capture more profits.
Cross-sell to your hotel- and flight-only customers
Not all travelers book complete packages through OTAs – some book only hotels while others book flights, which is an excellent cross-sell opportunity for your brand. You can offer them a relevant hotel and flight arrangement before they finally check out.
Make sure not to come too strong. Inform them about the possibility, and offer cross-sell services or products at reasonable prices.
As you can see, OTA in revenue management is a straightforward concept. OTAs are operating in a competitive landscape that compels them to remain innovative regarding revenue management strategies. Fortunately, thanks to new technologies, OTAs can discover new business opportunities and develop strategies to increase revenue and profits.
Marc, who graduated from Balearic Is. University of Tourism, is an experienced Business Development Manager with a demonstrated history of working in the leisure, travel & tourism industry. His skills in Negotiation, Hospitality Management, Customer Service, Sales, and Hotel Management, make him a strong business development professional in the Travel Industry.