Powerful OTAs limiting the hotel reservation market

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In a study titled OTA – A Hotel’s Friend or Foe ?, HVS said the reservation market was becoming a duopoly in which rate parity deals and commission rates of up to 30 percent squeezed hotel profits.

OTA Priceline now controls 62% of the European market, with brands such as Booking.com, OpenTable, Agoda.com, Kayak, Ctrip and Rentalcars.com

Expedia has about 70 percent of the US market following its acquisition of Travelocity and Orbitz.

“More and more dependent hotels could be forced to work with these two major players with limited negotiating room in terms of commission to pay, while having a reduced number of OTAs to turn to,” the report said.

The study warned that the growing trend for OTAs to offer loyalty programs, such as Booking.com’s Genius discount program, meant hotels risked losing their unique selling points.

“A few years ago, loyalty programs rewarded customers who booked directly with the hotel…[now] some OTAs reward their customers with points for any booking made through their channels, regardless of the brand or type of property booked, ”the report said.

Tariff parity

HVS warned that rate parity agreements set by OTAs would remain an obstacle for hotels generating direct bookings.

“Another limitation imposed by OTAs is their insistence on best price guarantees and price parity across all channels, leaving limited maneuverability for hotels to make their offering more attractive,” commented Jill Barthel, analyst at HVS London.

Expedia recently joined Booking.com in removing deals that prevented hoteliers from offering lower prices or better booking terms through other OTAs.

However, hotels advertising rooms on OTAs cannot offer cheaper rates or services through their own site.

Recommendations for action

HVS encouraged hotels to make sure their websites were up to date, attractive and easy to use in order to maximize direct bookings and attract traffic from OTAs.

“It can be boiled down to the little details that make customers decide which channel to book on,” commented HVS Director Sophie Perret.

“Search engine optimization is worth exploring and, while not free, it is comparatively cheaper than the cost of rooms sold through OTAs.

“While limiting your exposure to OTAs as much as possible could lower your distribution costs, it could come at the expense of overall occupancy and, ultimately, ancillary income generated by restaurants and bars.”


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