Can hoteliers take back the initiative from OTAs?
Since 2008, OTAs have
increased their market share in hotel distribution by nearly 45%. This is a
serious setback for the hospitality industry and a return to the bad practices
of the post 9/11 era. In the midst of improving economic climate and rising
travel demand, can hoteliers reverse this negative trend and take back control
of the online distribution channel?
There is no doubt that hotel
distribution has changed dramatically over the past 16 years since the advent
of the ?commercial? Internet. Online distribution, social media and the mobile
Web have all changed how we connect with, engage and ultimately convert
customers. But the fundamental principles of hotel distribution have not
changed that much. Hoteliers need to focus on distribution channels that ?pass
the litmus test? i.e.:
Generate the most
Protect rate parity and
Reach the targeted
In other words, the main focus and priority for any hotelier should be
to sell as much inventory via the most cost-effective distribution channels
that can potentially generate the most bookings, while preserving rate parity
and price erosion.
Based on the above fundamental
principles, which of the following main distribution channels should be the
main focus for hoteliers in 2011?
Cost per Booking –
Major Hotel Brands
Cost per Booking –
Independent Hotels & Resorts
$40 – $120
$24.50 – $66
$42.85 – $74.50
$2 – $5
$8.50 – $12.50
Note: Major Hotel Brands: Based on LOS of two
nights and ADRs ranging from $100 – $300/night. Independent Hotels &
Resorts: $75 – $150 per booking. Based on LOS of 2 nights and ADRs ranging from
$150 – $300/night.
It?s obvious, isn?t it? Channel C is by far the most
cost-effective distribution channel: it is 10-15 times cheaper than Channel A and 4-10
times cheaper than Channel B.
Channel C is obviously the
only main distribution channel in the above table that deserves to be the main
focus in 2011, especially in this new and optimistic economic environment of
growth in travel demand, occupancy rates, ADRs and RevPARs.
Are you curious which channel
represents what in the above professional quiz? Here are the correct answers:
Channel A: Indirect
Channel B: GDS Travel
Channel C: Direct Online
Channel (Hotel Brand Website)
Having completed the above
cost analysis, you would think that the direct online channel would be the main
focus for hoteliers and they would be investing heavily in this channel and
trying to shift market share from the OTAs and GDS Travel Agent channels.
In just three short years
since 2008, hoteliers? direct online channel lost significant market share to
the Online Travel Agencies (OTAs), who increased their booking contributions by
a staggering 45%!
OTAs Enjoyed a Market
Share Increase of 45% in 2010
are some disturbing stats from the Top 30 Hotel Brands:
- In 2010, only 67.3% of the
online bookings for the top 30 hotel brands came from the direct online
channel (i.e. the major hotel brands own websites: Marriott.com,
Hilton.com, etc.), while 32.7% came from the indirect online channel (the
Online Travel Agencies?OTAs) (eTRAK Report).
In comparison, in 2008,
75.2% of all CRS online bookings came from the brand website, while 24.8% came
from the OTAs (eTRAK).
In other words, OTA
contribution increased from 11.80% of total CRS bookings in 2008 to 17.10% in
2010 i.e. OTAs saw an increase of nearly 45% (HeBS Digital Research).
This constitutes a
significant increase of OTA contribution, compared to 2007, when 75.9%
of all CRS online bookings came from the brand website and only 24.1% of the
online bookings came from the indirect online channel (OTAs).
Here are the reservation sources
for Major Hotel Brands in 2010 vs. 2008 (eTRAK Report)
Direct: Brand Website
Overall for the industry, in
2010 the indirect online channel (OTA) contribution to hotel online bookings
was 40% (PhoCusWright).
result of this market share gain by the OTAs, revenue leaked from hotels to the
OTAs in the form of abnormally high merchant commissions reached $5.4 billion
in 2010 alone (HeBS Research).
Why Aren?t Hoteliers
Investing More in the Direct Online Channel?
In addition to the obvious
reason that selling your hotel via the OTAs is the ?lazy man?s approach? to
distribution, there are a few more reasons for that, including the assumption
that selling through the OTAs is ?free.?
Many hotel companies
(including a number of major hotel brands) exhibited a typical ?knee-jerk?
reaction to the deteriorating economic environment in 2008-2010, and ?succumbed
to the devil? by embracing the indirect online channel (OTAs) to compensate for
Many hotels had been
accommodating the OTAs with bigger discounts, unique promotions (e.g. 24-hour
sales) etc., thus jeopardizing their direct online channel and destroying years
worth of achievements such as rate parity, best rate guarantees, and travel
consumer perceptions that it is better to deal with the supplier directly.
Independent hotels are
overwhelmed by this rapid shift from offline to online distribution and often
fail to compete for their fair share of the market. The main reason is the lack
of understanding that Internet marketing is not an expense, but an investment
with immediate returns at very high ROIs.
Another reason is the perception that cutting-edge Internet marketing
services and technologies are out of reach and accessible only to large hotel
believe that the major hotel brands ?take care of the Internet? for them, thus
they miss serious local revenue-generating opportunities.
Naturally, we do not envision
a scenario where 100% of Internet bookings are made via the direct online
channel. The OTAs and other intermediaries in the indirect online channel do
play a needed role in certain areas of the travel planning and purchasing
process e.g. dynamic packaging (air+hotel, air+hotel+car, etc.) for leisure
destinations. Even in pre-Internet years, approximately 25% of all hotel
bookings in the U.S. came via the indirect channel (travel agents, tour
operators, and wholesalers).
So what should the OTA fair
share be? Now, 16 years after the advent of the Internet distribution channel,
the most cost-efficient distribution and marketing channel ever, the OTA
contribution should not be higher than 25% from all Internet bookings. What we
should not be seeing is the current industry average of 40% OTA contribution.
On the contrary, due to
dramatic changes in travel consumer behavior, and the inherent demand to deal
with the ?manufacturer? of hotel and travel products (i.e. travel suppliers
like hotels, airlines, car rental companies, etc.), we should be witnessing a
decline in the indirect channel contribution.
Just imagine the cost savings
if 5%, 10%, 15%, 20% or more bookings are shifted from the indirect to the
direct online channel!
Here are some additional
findings by HeBS Digital, based on the latest eTRAK benchmark report, surveys
and industry data from PhoCusWright, ARC and HeBS Digital?s own research.
The Shift from
Offline/Traditional Channel to Online Channel is Permanent:
52.3% of overall CRS
bookings for the top 30 hotel brands come from the online channel, which is an
increase of nearly 10% compared to 2008 when online channel contribution was 47.6%.
As a reminder, in 2006 the
online channel share was 37.6% (eTRAK Report).
For the industry as a
whole, over 45% of all hotel bookings in 2011 (leisure, unmanaged and managed
corporate travel) will be via the Internet (direct + indirect online channels)
(HeBS Digital Research).
Channel Share is in Steady Decline:
GDS Travel Agent
contribution to the total CRS bookings of the top 30 hotel brands declined to 22.1%
in 2010 from 27.3% in 2008 (eTRAK).
In retrospect, back in
2006, GDS CRS reservations constituted 31.3% of total CRS bookings for the top
30 brands (eTRAK, industry data).
Travel Agency Share from
Total Travel Market in the U.S. dropped from 41% in 2006 to less than 33% in 2010
U.S. Travel Agency
Locations have been decreasing at an average rate of 4% every year and their
number has declined from over 35,000 in 1995 to less than 14,603 in March
2011 (ARC, HeBS Digital).
The Voice Channel
Contribution is Flat at Best:
In 2010, voice channel
contribution to the total CRS reservations of the top 30 hotel brands amounted
to 25.6% of total brand CRS bookings (eTRAK).
A significant portion of
the voice channel bookings are actually bookings directly referred to from the
direct online channel and the mobile channel.
Despite this boost from
the direct online and mobile channels, the Voice Channel has been in relative decline
for 7th consecutive year (HeBS). Back in 2006, the voice
reservations constituted 31.3% of total CRS bookings for the top 30 brands
The Mobile Channel is a
Over the past two years, the mobile channel has become an
important travel planning and transaction channel in the U.S. and worldwide.
Hotel guests and travel consumers in general are already mobile-ready, and
hoteliers and travel suppliers have to respond adequately to this growing
demand for mobile travel services.
HeBS? own research and other industry sources show that in 2010
between 1.5% – 2.5% of visitors to hotel websites came from consumers accessing
the hotel site via mobile devices. Last year travel suppliers and OTAs reported a 3-5 times increase in
mobile bookings and Google reported 3,000% increase in hotel mobile searches
compared to 2009.
By 2014, mobile Internet
users will surpass the number of desktop Internet users. The most important
statistic though is the number of smartphone users. Smartphones are changing
how we do business in hospitality, how we market, how we service customers.
There are nearly 75 million smartphone users in the U.S. alone; their number
will exceed 100 million by 2014.
In 2011, independent or franchised hotels
and resorts, as well as small and mid-size hotel chains and multi-property
hotel companies, should focus on building and enhancing their mobile websites.
The main focus should be:
- Creating mobile-friendly textual and visual
content that presents the hotel product well.
- Enhancing the mobile user-experience via
well-developed mobile site navigation, a mobile booking engine widget,
mobile calendar of events, etc.
- Increasing website ?discoverability? via mobile
SEO and mobile SEM (e.g. Google mobile AdWords) and online media
- Making the mobile website more interactive via
mobile-social media initiatives, interactive sweepstakes and contests.
- Soliciting sign-ups to the mobile opt-in list via
the traditional hotel website and the mobile website, via hotel email
marketing campaigns and various sweepstakes and contests, such as
interactive scavenger hunts, QR Code promotions, etc.
- Tracking conversions and user behavior via mobile
analytics (e.g. Omniture) and special tracking phone functionality.
The Bottom Line for
Hoteliers: Focus on the Direct
Hoteliers do not have many
options when considering other non-OTA distribution channels. As mentioned
above, the GDS Travel Agent and Voice Channels are in steady decline over the
past years. In our view, the only viable option to drastically reduce reliance
on the OTA channel is for the industry to embrace the Direct Online Channel.
There is no doubt that
hoteliers need to invest in the direct online channel. Hoteliers need a robust
direct online channel strategy accompanied by adequate marketing funds to be
able to take advantage of the steady growth in the Internet channel and the
shift from offline to online bookings in hospitality due to declining GDS and
voice channels. Hoteliers must carefully employ ROI-centric initiatives including
website redesign, website optimization and SEO, SEM, email marketing, online
media and sponsorships, mobile marketing and proven social media initiatives.
Furthermore, due to the fact
that today?s travel consumers live in a perpetual ?digital information cloud,?
hoteliers need to employ
multi-channel marketing and distribution strategies. Multi-channel marketing
has already become the norm and is the foundation for a smart direct online
channel strategy. In this environment, the hotel website, SEM campaigns, email
marketing, social media presence, mobile, etc. have a symbiotic relationship.
Unleashing a marketing promotional campaign simultaneously across all available
marketing channels produces a compounded effect and far greater returns than each
individual marketing format.