Author: Goran Mrvos, CEO and founder of Infosit
Over the last 25 years, hotel chains have relied on online travel agencies (OTAs) in both dynamic and nuanced ways. OTAs have become valuable distribution partners, but the arrangement was not always idyllic. It is not uniform either, as not all tourism markets and countries are using online channels in the same way (Statista, April 2024). In larger hotel companies, higher dependency on OTAs can give rise to profitability concerns that are increasingly difficult to ignore. This is especially the case in well-established hotel brands.
Thinner profit margins for hospitality companies
With commissions ranging between 15 and 25%, hospitality leaders know too well what a large chunk of revenue goes to OTAs for every unit sold on their platforms. For a hotel chain with USD 100 million in annual sales via Booking.com or Expedia, this easily translates to USD 20 million per year. While OTAs have costs of marketing and technology (Expedia Group spent USD 3,8 billion on advertising alone in 2023, according to Statista), it is also true that their hefty commissions are eating into the hospitality companies’ profits.
Lost opportunities for brand and loyalty building
Whenever a traveller books a room or experience on an OTA, that partner captures sets of valuable data on the purchase, as well as the traveller’s interests. This leaves hotel companies missing out on those insights, which could be used to benefit their own brand and loyalty initiatives. And help increase repeat sales. One could say that, instead of letting OTAs take the ownership of traveller data and loyalty, hotel companies have an opportunity to do more. After all, they operate facilities providing accommodation and experience. And they play a big role in making travellers happy.
Shifting trends: Hospitality powering its own direct online sales
Even with these downsides, online travel agencies remain a significant distribution channel for hotels. More recently, however, the trends have been shifting. Some of the leading hospitality companies have developed strategies to strengthen their own direct online sales. They are doing it in a series of planned steps, with the goal to increase the share of bookings through their brand websites and mobile apps. While their sales strategies are still capitalizing on the advantages of OTA placements, they are looking (and finding) ways to be less dependent on them. Over the longer run, these strategies yield substantial margin improvements for hotel chains. When looked closely, the math can be striking. One percent increase in direct sales can have a major impact, and some European tourist companies have achieved much more, with over 60 percent of annual revenues coming in from their direct online sales touch points.
Upping the digital game: Building top performing brand websites
How are they doing it? They have been making strategic investments in their brand websites, software solutions and smart data integrations. This is making direct online bookings smoother and more attractive. Furthermore, they have been adding extra incentives via loyalty programs. Think direct offers and packages, cashbacks, and discounts tailored to returning customers. Promotion is orchestrated across direct marketing channels and customer touch points.
In the past, some hotel companies have struggled with subpar experiences on their websites. Even if travellers had a great time at a hotel, it was easy to imagine they would book their repeat stay via an OTA. However, that has been changing in recent years. Some hotel companies have upped their digital game and seen profitability gains. Now better equipped with data and advanced digital solutions, they are no longer poised to lose the online booking game.
Integration of customer data kept in disconnected systems
An important element in the strategy is the unification and orchestration of customer data existing in applications and solutions used by hotel companies. Think property management systems (PMS), CRMs, internet booking engines (IBE), profiling solutions and others. When they are poorly connected, it can lead to sales and marketing opportunities getting lost at various customer touch points. Gathering and mapping this data is one of the key steps in transitioning towards better direct sales results.
Responsibility of technology partners
This kind of transformation does not happen overnight. It requires commitment and planning. Also, it places responsibility on technology partners. It is imperative that tech solution providers have a superb understanding of hospitality operations and profitability goals. If you want to enable a shift in direct sales and marketing, you first need to understand that it is about more than developing a new website. Secondly, you should have experience in the digitalization of large hospitality systems. Finally, you should be ready to measure the success of solution implementations by their business outcomes.
Road to be travelled in 2025 and onwards
PhocusWire reports that in 2023 online travel agencies accounted for around 34% of hotel bookings, a decrease from 39% in 2022. This possibly indicates that a shift is underway, and that the balance of power in online sales could be changing. In our work with European hospitality companies, spanning two decades, we participated in the creation of these movements. In recent years, the most agile amog European hotel companies have achieved double-digit percentage gains in their direct online sales, mostly from returning customers. The opportunity is clearly there – it is a promising road to be travelled in 2025 and onwards.
