Summary List Placement
Hotels may resent the sites for charging commissions that put a dent in their profit margins, but they also benefit from the increased business that comes from working with an online travel agency, known in the industry as OTAs.
But as the pandemic has decimated business travel, the lifeblood for many of the large hotel chains, the dynamic between the two may have shifted in favor of booking sites.
The reason, analysts said, is that hotel conglomerates such as Marriott, Hyatt, and Hilton need OTAs to help them capture the little travel demand that is out there amid the pandemic. And, they said, it could take the full return of business travel for that to change.
The traditionally tense relationship between hotels and booking sites boils down to money and data. While hotels get increased exposure on booking sites, the platforms often charge fees of between 15% and 30% of the reservation cost. Booking sites also typically didn’t pass along information about the types of travelers booking trips through their platforms, leaving hotels in the dark when it comes to marketing efforts.
Because of this dynamic, before the pandemic hit, hotel companies tended to encourage travelers to book directly on their own websites, emphasizing the benefits included in their loyalty programs.
All of this changed as the pandemic halted nearly all travel beginning in the spring of 2020. Business travel has fared especially poorly during the pandemic as many corporations have embraced remote work.
Before the pandemic, business transient travelers accounted for as much as 60% of business for major hotel chains such as Hilton. They provided reliable occupancy year-round and during the workweek, and hotel executives said these travelers also tended to be among their most loyal.
“The major hotel chains are the masters of business travel,” Max Starkov, a hospitality and online travel tech consultant and adjunct professor at NYU, said in an interview with Insider. “Hospitality — the branded hotels and independent hotels — will be relying more on the OTAs who are the masters of leisure travel.”
Starkov added that OTAs are adept at marketing to leisure travelers because of all of the data they have about consumers using their sites to plan vacations. Hotels can benefit from this prowess and find new customers without having to add more marketing costs to their budgets.
Last year was the worst year on record for the hotel industry. According to hospitality data firm STR, occupancy hit record lows of 44% in 2020 — a 33% decline from 2019 — and revenue per available room declined 47.5% year-over-year.
Business travel demand has yet to come back, but the industry is starting to see signs of leisure travel’s return as vaccination efforts accelerate. That’s where online travel agencies can help hotels get a leg up. Gordon Haskett analyst Robert Mollins noted that nearly all of Expedia’s business is from leisure travelers looking to book a vacation.
“Everyone wants heads in beds right now, and how do you do that? You use an OTA,” Mollins told Insider. Even if hotels are paying a commission, he said, “it’s still better than not getting anyone at all.”
Hilton CEO Chris Nassetta spoke about the changing nature of the company’s relationship with OTAs during its third-quarter earnings call in November.
“Our attitude with the OTAs is they’ve been good partners for certain types of business. We love working with them. Through the crisis, there have been plenty of pockets of demand that have been helpful to us and our ownership community work with them on,” he said.
But at the same time, he said, the company would prefer to be building out its direct booking business in the long term. “In the interim,” Nassetta said, “we’re going to obviously do a bit more business with the OTAs because it’s the right thing to do.”
While hotel chains wait for business travel to return, they’ll likely need discount rooms or sell more of their rooms in a bundle to an OTA, Mollins said, meaning they may be facing down even slimmer margins for the time being.
“No one’s giving out their playbook,” Mollins said. “But my guess is, based on where demand is, you’re going to definitely see a mix of those two things.”