Should Hotels Collaborate with OTAs or Move Away from Them?
Photo by Keemala
The hospitality industry has undergone significant changes in recent years, largely driven by the growth of Online Travel Agencies (OTAs). As digital intermediaries, OTAs have revolutionized how travelers book accommodations and other travel services, providing convenience and a wide range of choices.
The global market size for OTAs in 2023 was substantial, with various sources providing slightly different figures. However, the overall trend shows significant growth and a strong market presence.
According to Statista, the revenue of leading OTAs worldwide increased significantly in 2023 compared to the previous year, with Booking Holdings generating the highest revenue of about $21.4 billion. Statista estimated that online sales channels in travel and tourism accounted for about 70% of total revenue that year. The global revenue for this market surpassed 850 billion U.S. dollars, covering hotels, package holidays, vacation rentals, and cruises.
According to IMARC Group, the global online travel market size reached $512.5 billion in 2023 and is expected to reach $1,267.1 billion by 2032.
The report from GlobalData indicated that the OTA market value was $764.69 million in 2023.
This growth is mirrored in Asia. Skift reported that platforms like HappyEasyGo are expanding rapidly, leveraging advanced payment systems to enhance user experience and market reach.
The proliferation of OTAs has undeniably increased bookings and exposure for hotels, yet it has also introduced challenges such as high commission fees and limited pricing control. As the industry continues to evolve, hospitality businesses must navigate the complexities of these partnerships while considering the rising demand for sustainable travel options.
Understanding OTAs and Their Role in the Hospitality Industry
What are OTAs
OTAs are digital platforms that facilitate booking travel-related services, including accommodations, flights, car rentals, and vacation packages. They act as intermediaries between travelers and suppliers, earning a commission from each booking made through their platform. These commissions can range from 15% to 30%.
Benefits of Partnering with OTAs
Collaborating with OTAs offers numerous advantages for hospitality businesses. Chris Legaspi, Chief Commercial Officer of Archipelago International, outlines the key benefits as follows:
Increased visibility and market reach: Partnering with OTAs significantly enhances a hotel's visibility by leveraging the OTA's extensive customer base and established online presence. This is especially beneficial for reaching international travelers and markets that may not be familiar with the hotel's brand.
Cost-effective marketing and technology: OTAs invest heavily in marketing and technology, allowing hotels to take advantage of advanced data analytics, AI-driven personalized customer experiences, and extensive advertising campaigns without incurring the same costs. The analytical reports help hotels identify opportunities and better understand market trends, enabling them to make informed decisions and strategically attract international travelers.
Enhanced consumer trust and transparency: The review and rating systems on OTA platforms enhance consumer trust and transparency.
"The impact of OTAs on our hotel's pricing strategy is largely positive," says Legaspi. "OTAs enhance our visibility, and through the billboard effect, they help boost occupancy across our various market segments, ultimately driving revenue for the hotels. By leveraging the strengths of OTAs, we can optimize our pricing strategy while ensuring profitability across all our distribution channels."
Working with OTAs is a partnership for Legaspi, emphasizing the importance of transparency regarding capabilities and limitations on both ends.
"Before entering into any partnership, it's essential for both parties to have a clear understanding of their mutual direction and goals. We focus on collaborating with OTAs that align with our objectives and strategies. It's not that there are bad OTAs; rather, there can be differences in perspective."
L: Royal Kamuela Ubud; R: The Alana Malang. Photos by Archipelago International
Challenges of Working with OTAs
While there are benefits to partnering with OTAs, there are some common challenges that hospitality businesses navigate. These include:
High commission fees: As mentioned earlier, OTAs charge commission fees per booking, which can significantly impact a hotel's profit margins. There may be other costs, too: commission on upsells, cancellation rates, and higher commission fees in exchange for higher placement in OTA search results, such as in Agoda.
Limited customer data access: Customer data collected by OTAs is not always shared with the hotels they partner with, making it challenging to build and maintain direct relationships with customers.
Brand dilution: The hotel's unique brand message might get lost among numerous other listings on OTA platforms, reducing the impact of branding efforts.
Risk of negative reviews: Since travelers book through OTAs instead of directly with the hotel, hotels are at higher risk of receiving negative reviews for issues outside their control.
Environmental impact: The rise in mass tourism facilitated by OTAs has contributed to overtourism and its associated negative environmental impacts.
How Can Hotels Address These Issues?
To mitigate these challenges, hotels can implement several strategies:
Boost direct booking.
Many hotels prioritize enhancing direct bookings through their websites, offering loyalty programs and incentives to motivate customers to book directly.
Strategies to attract more guests to book directly:
Optimize the hotel's website for search engines. Use Search Engine Optimization (SEO) to improve your hotel's visibility and increase organic traffic. This includes using relevant keywords, creating high-quality content, and ensuring the website is mobile-friendly.
Leverage social media marketing and content marketing. Use social media platforms to expand your reach and interact with potential guests. Develop valuable content that caters to the requirements and preferences of your target audience.
Use email marketing. Develop targeted email campaigns to nurture relationships with past guests and potential customers. Personalized emails with special offers, updates, and tailored recommendations can drive direct bookings. We suggest beehiiv. It’s what we use.
Develop loyalty programs. Create attractive loyalty programs to encourage repeat business and additional revenue. These programs also offer valuable insights into customer preferences and behaviors, which can then be utilized to customize marketing strategies and enhance the overall guest experience.
Create personalized offers. Implement personalized marketing campaigns based on guest preferences and past behaviors to significantly boost direct bookings. Tailor special offers and promotions using guest data to make booking more appealing.
Utilize metasearch engines. Metasearch engines like Google Hotel Ads, TripAdvisor, and Trivago can help hotels increase their visibility across multiple platforms, a.k.a. hotel metasearch marketing, while maintaining control over their pricing. These engines aggregate data from various OTAs and direct booking channels, allowing potential guests to compare prices and book directly with the hotel if it offers a competitive rate.
Implement advanced technology solutions. Investing in advanced property management systems (PMS) and channel management tools can streamline operations and improve efficiency by integrating all booking channels. These technologies facilitate better data management, enabling hotels to offer personalized services and targeted marketing.
Promote sustainable practices. Incorporating sustainable practices not only appeals to eco-conscious travelers but also differentiates hotels from competitors. Highlighting sustainability initiatives can attract guests who prefer to support environmentally responsible businesses, potentially driving more direct bookings.
"Future-proofing the Hospitality Industry with Sustainability as a Revenue Strategy" was the topic in our recent AST Forum in Subic Bay, Philippines, and you can read the key takeaways here.
SiteMinder has several tips on how to increase direct bookings for your hotel.
Thinking about launching a newsletter to elevate your email marketing? Enjoy a 30-day trial + 20% off for 3 months on beehiiv. It’s the software we use to design and publish the weekly AST Briefing.
2. Collaborate with sustainability-led OTAs.
Some OTA platforms are emerging with a focus on sustainability, providing an alternative for both hotels and eco-conscious travelers who are committed to minimizing their environmental impact.
Examples of sustainability-led OTAs
Green Pearls curates a selection of environmentally responsible accommodations and travel experiences. It emphasizes transparency in sustainability practices, providing detailed information about each property's eco-friendly initiatives.
Jason Villarino, General Manager of Keemala in Phuket, notes that Green Pearls has significantly helped spread the Keemala concept and sustainable initiatives to a wider audience.
"It has placed us on the map in European markets and redefined 'luxury' for us in terms of sustainability, providing a platform to showcase our version of sustainable luxury. Nowadays, disconnecting from your phone and digital distractions has become the new luxury. Our features in their monthly newsletters highlight our commitment and efforts as one of the leaders in sustainable resorts, allowing us to manage guest expectations at a much higher level."
He adds that Green Pearls has connected Keemala with Green Sign, where they currently hold a level 4 membership, with a maximum of 5 levels available. Green Sign is recognized by the GSTC and conducts annual audits, providing them with measurable and evaluative benchmarks for future initiatives.
"From recycling to preservation and animal protection, Green Pearls adopts a more educational approach that complements our efforts since our inception nine years ago," shares Villarino.
Keemala on Green Pearls (screenshot from Green Pearls)
Ecobnb connects travelers with eco-friendly accommodations that adhere to strict environmental criteria, such as renewable energy use and organic food offerings.
In addition, Traveloka has taken steps to promote sustainable travel. In May 2024, it reinforced its commitment to sustainability by becoming the world's first platinum sponsor of GSTC, aiming to raise awareness and encourage more sustainable travel choices among its users.
Benefits of Collaborating with sustainability-led OTAs
Enhances brand reputation: Aligning with environmentally responsible practices attracts eco-conscious travelers willing to pay a premium for sustainable options. According to Booking.com's Sustainable Travel Report 2023, 74% of travelers say they want travel companies to offer more sustainable travel choices, and 80% confirm that traveling more sustainably is important to them.
Screenshot from Booking.com's Sustainable Travel Report 2023
2. Targets a niche market: Sustainability-led OTAs often focus on a niche market of environmentally aware consumers, increasing the likelihood of reaching guests who prioritize eco-friendly choices.
3. Long-term profitability: As sustainability becomes an important factor in a consumer’s decision-making process hotels that adopt green practices and partner with sustainability-led OTAs are more likely to secure repeat business and positive reviews, nurturing customer loyalty and driving future bookings.
Is achieving the right balance between direct booking initiatives and OTA collaborations the key?
"We balance every route to market, not just direct bookings and OTA collaborations," shares Legaspi.
He says thinking of the hotel business as a pie chart and focusing on just two components would be limiting. Each channel—direct bookings, OTAs, and others—represents a unique slice with its unique customer journey.
"We adapt our strategies to effectively manage and optimize each of these channels, ensuring a comprehensive approach that maximizes our reach and revenue. This allows us to cater to our guests' diverse preferences and maintain a balanced and successful marketing strategy.”
Legaspi highlighted that both direct bookings and OTA bookings are important, and in marketing, both are viewed as routes to market.
He explained that while cost is a factor since direct bookings, unlike OTAs, involve no commissions, there are still expenses tied to direct bookings, such as Google ads, social media boosting, tool fees, administrative costs, and agency fees for online visibility. These costs are part of a broader marketing strategy and investment.
"Focusing on only one channel can lead to opportunity losses, so marketing principles suggest being available on every channel where guests might want to book. Therefore, it's not about choosing whether direct bookings are better than OTA bookings; it's about exploring all possible routes to market to maximize reach and revenue," he concludes.
This newsletter contains affiliate links. If you click on one and make a purchase, we may earn a commission at no additional cost to you. Our recommendations are based on thorough research and personal experience, and we only promote products and services we genuinely believe in. Thank you for supporting our work.
