Phocuswright’s U.S. Consumer Travel Report, Eighth Edition, 2016
However, there are also real risks and challenges to becoming overly reliant on OTA bookings for accommodation properties. These can be boiled down to four areas: yield, ownership, pricing control and tax:
1. Yield
OTA commissions have settled close to a 20% average for the two dominant OTAs, Expedia and Booking.com, with the former lowering their commissions from 25% in some instances and Booking.com increasing their standard commission range to 15-18% with higher rates for properties willing to pay for better placement. A commission of around one-fifth of gross revenue on any significant level of business has major implications for yield. This is especially true in competitive or price-sensitive markets, in off seasons on discounted rates and for more “generic” hotels without a unique value proposition. The result of an over reliance on OTA bookings can have a major impact on profitability and therefore the ability to reinvest in the property and marketing.
2. Ownership of the Guest
Arguably this factor is far more significant than the cost of OTA commissions but is often poorly understood by the industry. Visitors who book through OTAs may be a guest of the property but are customers of the OTA. No contact information is provided to the property to understand their needs, build a customer database or to remarket to them. OTAs control, re-market and, in fact, re-sell this customer information to marketing and Big Data partners for significant ancillary revenue. Information is power, and in managing the guest relationship and the opportunity to sell them other destinations, properties and travel products, OTAs have huge market strength.
3. Pricing Control
OTAs have fostered an environment of price-led marketing where brands, service and value is often subsidiary to deals or to properties willing to pay a higher commission to be featured first. OTAs can also undercut a property’s lowest published rate using some of their commissions; the latest in OTAs' assertive promotion of a “Best Price Guarantee.” In an OTA-dominated market, hotels are increasingly price takers not price setters.
4. Tax
Like other multinationals such as Apple, Facebook and Google, OTAs have been extremely aggressive in minimizing their tax obligations in many states, cities and countries around the world. In many jurisdictions they have been slow to pay bed, sales, VAT or GST taxes on their commissions – impacting the revenue of CVBs and government entities committed to supporting tourism and communities. Most independent properties and hotels by comparison need to meet their full tax obligations – creating an uneven playing field on the cost of doing business.
Miles sponsored the largest-ever study of independent hotels and what drives their marketing success (see source below).
It is the full recognition of these issues that has prompted most major multinational hotel groups to assertively seek to rebuild their level of direct bookings
In summary, OTAs are important marketing partners to the accommodation sector, creating valuable business especially in hard-to-reach markets or periods of soft demand. However, properties that become overly reliant on OTA bookings, especially from their core markets or regular guests, face significant risks and challenges.
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