The huge financial toll the pandemic has imposed on the travel industry, which the World Travel and Tourism Council said lost $ 5.5 trillion last year, renews complaints from hotels, airlines and tour operators regarding the largely invisible percentages of their revenue they have to pay to online travel agencies, or OTAs, including the behemoths Expedia and Booking.com and their subsidiary brands: Priceline, Kayak, Hotels.com, Hotwire, Orbitz, Travelocity and many more.
“I don’t think most consumers understand how much hotels pay to acquire their business,” said Cindy Estis Green, CEO and co-founder of hotel data company Kalibri Labs.
The crisis has encouraged independent hotels and small hotel groups in particular to speak out publicly about OTA commissions of up to 25%. Big chains can negotiate lower fees, but even they’ve doubled their loyalty programs, offering points and other perks to encourage direct bookings and avoid paying OTA commissions. Some airlines have also retreated.
“The hospitality industry has taken a hard hit because of COVID,” Green said. “So whatever they have to pay will be a matter of interest. “
All of this coincides with greater consumer awareness of the commissions charged by middlemen, especially third-party food delivery companies. Early refund processing issues hurt OTA approval ratings, which, according to the U.S. Customer Satisfaction Index, have fallen to an all-time high. Independent hotels and small hotel groups are coming together to strengthen their influence in networks such as Preferred Hotels and the new Curator Hotels, launched in November. Travel review sites, including Needham-based Tripadvisor, are taking the opportunity to promote subscription programs that they believe will bypass OTAs and save money for both travelers and travelers. travel suppliers.
Still, the formidable role OTAs have come to play in travel should not diminish. In fact, with group and business travel almost non-existent, OTAs have provided an even larger share of the few bookings still made. And $ 250 million in marketing credits and a temporary reduction in commissions granted by Expedia to participating hotels as part of a stimulus package came with terms that lock hotels even further into that relationship.
OTAs hit their stride in the last recession, when hotel companies suffering from a dramatic drop in business travel used them to fill empty rooms. “They’ve relied on these powerful channels to help,” said Brian Hoyt, spokesperson for Tripadvisor, who previously held the same position at Orbitz. “It was a great argument for 2008. Then the commissions started to eat into profit margins more. “
Some of those same hotel executives seem surprised with the decline in the scale of OTAs since. More than two-thirds of online hotel reservations are now made through OTAs, reports market research firm Micrometrics. According to the American Hotel and Lodging Association, commission payments have on average become the second largest expense in the hospitality industry.
“It got out of hand too quickly,” said Johnathan Capps, vice president of revenue at management company Charlestowne Hotels.
But hotels also benefit from a channel that makes it easier for consumers to book with them and dramatically expands their market, and the nearly $ 11 billion a year in marketing spent by Expedia and Booking.com.
“The reach of our customers is broader,” said Zuhairah Washington, senior vice president and general manager of global strategic partnerships at Expedia.
However, the biggest players were irritated to share so much revenue with OTAs. Airlines, which have reportedly cut their commissions to around 2%, have nevertheless started to prevent some OTAs from listing their fares in an attempt to direct more travelers to their own websites; many offer loyalty miles to travelers who book direct.
Delta and JetBlue have pulled out of several smaller OTAs, and Southwest is preventing any third-party sites from selling their flights. United in 2019 threatened to sever ties with Expedia and the two went to court before finally agreeing to a new contract.
The hotels also fought back. Marriott negotiated a new deal with Expedia in 2019 that would have lowered the commission it must pay to 10%.
Tripadvisor, which is not an OTA but gets paid when users click from its site to OTAs to book, in January launched a service called Tripadvisor Plus through which consumers can purchase $ 99 per year subscriptions that offer them discounts at hotels, tours and attractions; and amenities such as welcome gifts and meal credits.
Members book their stays directly, thus avoiding service providers paying a commission; Tripadvisor’s Hoyt said that what they save in discounts should more than make up for the fees.
“It’s the consumer who wins, the supplier who wins and Tripadvisor who wins too,” he said.
Expedia will not disclose its commissions and its contract prohibits its partners from disclosing them; by even mentioning the subject, this receptionist from Maine was violating the hotel’s agreement with Expedia. But travel agencies say there is no doubt that they make less money with customers who go through OTAs than those who book directly with them, even when the customer’s rate is exactly the same.
That’s why, like airlines, hotel companies have focused on getting more of their customers to book direct, encouraging loyalty programs and adding perks. Marriott, for example, launched its Bonvoy program in 2019; That year, Hilton launched a “Stop Clicking Around” advertising campaign. These are slowly making inroads; loyalty-related bookings increased that year to 56% of all bookings, according to Kalibri Labs, outpacing OTA growth.
“We have strong relationships with many online travel agents,” said Hilton spokesperson Meg Ryan. But “we encourage our customers to book directly to benefit from the greatest number of advantages and the lowest prices”.
Independent hotels and small hotel groups are also trying this now.
“What the pandemic has done is force people to engage more,” Capps said. “Customers had to call hotels directly for information. We have a lot of direct access to consumers. We try to engage that customer, get that contact information, tell them that we are sending offers related to the reservation directly with us. It might be a long room, but it’s starting to work.
Washington, at Expedia, said the direct booking and loyalty programs “have no noticeable impact” on its business, although it added a clause to its contract last year prohibiting partners from disparaging company or telling customers that Expedia bookings “are not entitled to the same benefits, amenities and services as bookings through your own channels.
She said the company has ongoing communication with its partners. “The conversation about commissions is not new,” Washington said. “We are really confident about the agreements we have put in place. We believe they reflect the value of the role we play.
Independent hotels are now joining networks such as Preferred, which has its own loyalty program offering points redeemable for stays.
“If small independents can network and have additional leverage, then they can put more pressure on OTAs to reduce the commission,” said Deborah Friedland, head of the practice of hospitality advisory services at the firm. accountancy and consulting EisnerAmper.
So far, OTAs have resisted that, said Michelle Woodley, president of Preferred, who she says has been in discussions with major OTAs about commissions for years.
“We just don’t seem to be moving forward,” said Woodley. “It’s unfortunate that it takes a serious situation like this for the covers to really be removed from this reality.”
Jon Marcus can be contacted at [email protected]