How OTAs win over hotels on three fronts
Despite the occasionally cordial "partnering" rhetoric between the major hotel brands and OTAs, this is an existential battle on business models, advertising spend and traveler loyalty.
Hotel owners fuel the success of OTAs, with the vast majority of OTA revenues from hotel booking-related compensation that typically ranges upward from 15% of the revenue booked via the OTA, although the major brands may pay slightly less.
For a booking sourced through an OTA, a hotel owner may pay 15% to the OTA, 11% to the hotel brand and 2% to a credit card processor.
If a third-party management company is involved, another 3% of gross revenues must be added.
Every TMC/GDS corporate booking, even for those at a locally negotiated rate for a neighboring headquarters, are credited to the brand, via its Central Reservation System (CRS) channel.
Additionally, many hotel brands forbid member properties from hosting their own websites and/or booking engines, instead, offering a unified brand-centric channel that is also funneled through the brand’s CRS channel.
It is the simplicity of the OTA business model that bolsters an OTA’s margin justification – they efficiently produce bookings with limited associated risk.
OTAs heavily reinvest hotel sourced profits into direct advertising efforts.
In 2016, Priceline and Expedia collectively allocated nearly $6.5 billion, approximately a third of their aggregate gross profit, to advertising.
In 2017, that spend will total more than $9 billion – over double the direct advertising spend of the top five hotel brands combined.
This partly results from the ability of the OTAs to secure $16 billion in commissions, compared with the hotel brands billing $11 billion in royalty fees.
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