Like it or not, online travel agencies (OTAs) play a key role in any property's distribution strategy.According to a 2020 research report by PhocuswrightCovering around 64% of online hotel and accommodation bookings, OTAs have visibility and marketing power that most sole proprietorships cannot achieve alone.
Working with OTA is not just about signing up and hoping for the best. To capitalize on opportunities and avoid pitfalls, you must proactively manage your listings, pricing, and inventory, and take a strategic approach to online sales.
When done right, adopting the right OTAs as part of your sales strategy can actually help drive more direct bookings through the “billboard effect.” By building a comprehensive set of channels covering different types of OTA, you ensure you reach your target audience and secure a steady stream of bookings.
Use Cloudbeds customer data to see which OTAs dominate globally, by region, and across facility types, and how facilities like yours are using OTA as part of their sales strategy.
At Cloudbeds, we know that the world of OTAs and distribution channels can be complex. We created the OTA Big Book to clarify the process and explain how to create a recipe for success when working with third-party distribution channels.
What is an Internet Travel Agency (OTA)?
An Internet Travel Agency (OTA) is a website that acts as a travel search engine.They connect vendors from across the travel industry to help travelers easily plan their trip. OTA websites often give travelers access to package deals that include accommodation, airline tickets, cruises, car rentals, and more.
Over the years, online travel agencies (OTAs) have evolved into sophisticated marketing channels for accommodations of all sizes and types. Never before have consumers been able to easily compare different travel options in terms of price, travel dates and location. ANDbadanie cornellafound that 93% of consumers switch between different OTAs before making a final decision. Therefore, it is important for properties to be active on as many channels as possible to increase brand awareness and increase bookings - even more direct bookings (more on that later). With the growing popularity of OTAs around the world, hoteliers now have access to markets that were previously inaccessible.
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How do OTAs work?
In the 1990s, online travel agencies emerged, taking advantage of the vast reach of the Internet to bring together a global range of travel services in one place, allowing consumers to book their own trips online. These self-service tools transformed the hospitality industry and the way travel was searched and booked, as the general public could now easily plan their trips and book airline tickets, accommodation and tours themselves instead of having to rely on a physical travel agency.
Sites like Expedia.com, Booking.com, Airbnb, Hotels.com and TripAdvisor are often the first stop for consumers when researching and booking their next trip. These websites offer consumers added value at all stages of the purchasing process: problem/need identification, information search, alternative evaluation, purchase decision and post-purchase behavior.
Objects of all shapes and sizes can connect to multiple OTAs through the built-in channel manager. The Channel Manager shares room inventory and room rates from your Property Management System (PMS) with your booking engine and OTA. These features improve hotel operations and increase utilization on all channels.
OTA business models
Hotels basically outsource OTA marketing and then make money with two business models: a commercial model (guest pays upfront) and a commission model (guest pays at check-out). Most OTAs offer a mixed model, where hotels can let guests decide which one they prefer.
With this model, the online travel agent acts as a registered seller and collects payments from guests at the time of booking. After the guest has checked out, the OTA pays the hotel. Agreements exist between hotels and OTAs to provide OTAs with a certain number of rooms at a reasonable price. The OTA then makes money from each room sold, but must meet its contractual thresholds.
Agency model (commission model).
In this model, the customer makes a reservation via OTA, but pays directly to the hotel upon check-out. At check-out, the hotel then pays the OTA commission on the total value of the booking. There are no contracts and prices are set by the hotels.
The third model, advertising, is growing in popularity and is available on metasearch engines such as Google Hotel Ads, Tripadvisor, Trivago, and KAYAK. Metasearch engines operate primarily on a cost-per-click basis, allowing hotels to advertise their rooms through direct links to booking engines and pay based on the number of clicks received. Some of these sites, such as Google, also offer a cost-per-acquisition (aka pay-per-stay) model, in which the property pays a certain percentage of the total cost of the reservation at the end of the stay.
It can be frustrating for hotels when distribution costs skyrocket without getting more in return, but direct bookings come at a cost. Without the implementation of at least one sales or marketing strategy, there is no demand and these marketing campaigns, loyalty offers, special offers and direct booking tools have a cost to the hotel. That's why it's important to use OTAs wisely.
OTA commission rates
What are OTA commissions?
OTA commission rates are a fixed payment or percentage of revenue that OTAs charge for an advertisement on their website. Hoteliers pay OTA commission as their properties can generate more visibility and bookings due to increased traffic on OTA websites. Achieving the same results through direct channels alone would be very difficult and expensive.
OTA commissions cover the huge advertising costs that OTAs like Expedia and Booking.com spend to drive people to their website, as well as support, development, reputation management and more.
How much commission do hotels pay OTA?
Unfortunately for hoteliers, online travel agencies have significantly increased their commission rates in recent years. They used to be around 10%, now the average commission rate is between 15-25%+.
For example, if an OTA charges a 20% commission on a hotel reservation, a hotel that sold its room for $200 per night would have to pay the OTA $40 for that OTA reservation.
Some OTAs like Airbnb charge their commission and fee rates to guests to reduce the cost burden on the facilities. For independent hotels, commission is a key factor in deciding which OTAs to include in their distribution strategy, as monthly commissions from different OTAs can quickly add up.
How do the commissions differ?
While the average commission range for many large online travel agencies is 15-25%, some are smaller and largerNiche OTAsoffer lower interest rates – sometimes as low as 4%. Very often the commission rates for objects in the same OTA vary depending on the region and object type.
Before entering into a partnership, be sure to visit the OTA website to review the commission rate structureDownload our catalogueand compare that to the value they offer. Consider the reach and visibility of each OTA in the hospitality industry and the type of hotel guests it attracts. It is very important that you visit the OTA website before contacting us to review our commission rate structure or download our catalog and compare it to the value they offer. Consider the reach and visibility of each OTA in the hospitality industry and the type of hotel guests it attracts.
- Is it OTA that attracts our target audience?
- In which regions is this OTA most active?
- How does their commission structure work? Do you reimburse any costs?
- What added value does OTA offer for my sales strategy?
- Is it worth paying a higher commission? What benefits or services does this OTA provide?>
Are there any other OTA fees or costs?
In addition to the commission rates charged by OTAs, there can often be hidden fees. Therefore, it is extremely important to review your contract carefully.
Here are the most common OTA costs and fees.
Commission on additional sales.Some OTAs charge a commission for ancillary sales offered to guests as part of a booking, such as B. Breakfast, towels, parking and more. It's a good idea to advertise extras or sales as an incentive on your own website, which can also help you get more direct bookings instead of paying even more OTA fees. If your OTA requires parity with OTAs, adding special offers or upselling with a discount could be another way to get more direct bookings.
VAT/GST.Depending on the local tax laws in your area, you may be required to pay additional taxes on top of your commission. If tax is not included, contact your local tax office and find out about the reporting protocol.
Commissions and Fees for Channel Managers.If you use aChannel-Managerto connect yoursProperty Management System (PMS)to OTA (which is recommended!), make sure you are using a system that does not charge additional fees and commissions. Some channel managers require you to pay per call or OTA transaction - hidden costs that add up significantly over time.
cancellation fees.An indirect cost that can impact your revenue is the higher cancellation rates associated with OTA offers. Many OTAs use “free cancellation” to encourage travelers to book, while establishments face the impact if guests find a better deal. Phocuswire found that OTAs under Booking HoldingsCancellation rate 50 %compared to the averageDirect booking churn rate of 18.2%.This can be a challenge across the hospitality industry when it comes to occupancy forecasting.
Increased visibility.OTAs like Agoda offer hoteliers the opportunity to pay higher commissions in exchange for a higher position in OTA search results. Depending on your hotel's marketing strategy, this expense can prove worthwhile and help you increase online bookings.
How to reduce the OTA commission rate
You may be wondering -Is there a way to lower the OTA commission rates?
This is a difficult question and the answer depends on many factors. Large, established hotel brands have a better chance of successfully negotiating commission rates, while smaller, independent hotels face a greater challenge.
It's worth checking if you can negotiate a lower commission rate. But other approaches are also worth a look, such as:
Be more strategic with your OTA strategy.Take the time to explore other sales channels instead of turning to the "most famous" OTAs, which often offer the highest commission rates. The travel industry has dozens of niches andregional OTAswho have much lower commission rates and can better target your ideal traveler profile. These travelers are less likely to cancel and more likely to return.
Limit available resources in OTA.As part of your revenue management strategy, reduce your reliance on OTAs during peak season and invest in direct channels such as your hotel website, booking engine and Google listing. Use OTAs off-season when you need more demand to fill your hotel rooms.
Gather information about guests and develop a communication strategy.OTAs are a great way to introduce guests to your property, but once they stay with you, it's your responsibility to provide guests with a unique experience that will keep them coming back (and booking direct!). Upon check-in, make sure to capture the guest's contact information such as an email address and mobile phone number so that you can text and email during and after your stay. Consider using aGuest messaging solutionImproving guest communications with automated messaging to encourage new customers to return.
OTA commission costs versus direct booking costs
Attracting guests directly and indirectly can be costly, but both are important aspects of a hotel's marketing strategy. As explained above, the main OTA costs for hotels include:
- Commission rates (average 15-25%) for each channel connection
- Channel management fees (if your provider charges fees and commissions for calls or reservations)
- taxes and surcharges
A successful direct booking strategy typically requires a multi-channel approach that includes:Variety of digital channelsLike for examplesocial media, Website, metasearch engine, search engine optimization (SEO), search engine marketing (SEM),and online listings like Google Business.
While many of these direct channels are free (think SEO, social media, and Google Hotels).free booking links), configuring them and going through the optimization process takes a lot of time (it should be a continuous process).
Paid digital marketing channels like SEM and metasearch are typically based on a cost-per-click (CPC) business model, where accommodation providers pay a set fee each time a traveler visits their website.
To ensure a balanced distribution strategy, both OTAs and direct marketing strategies should be employed for hotels. The best practice is to measure the ROI for each channel and experiment throughout the year to see what works best for your service.
Online travel agencies vs. online travel agencies
Before the creation of the OTA, the role of the travel agent was to book leisure and business trips. This is because travelers back then did not have the same level of access to hotel availability and prices as they do today. While the internet has made it easier for travelers to self-book their trips online, some segments such as luxury, business and group travelers still prefer the help of a person or an online travel agent to plan and travel their trips book.
Travel agents are helpful in planning complex trips, such as a wedding, honeymoon, or business trip. They have the knowledge and contacts to find exceptional accommodation at cheaper prices than most people can find on their own.
travel agencies such asSee youhas a team of destination experts behind the scenes to develop bespoke accommodation, attractions and itineraries. At their brick-and-mortar stores, travelers can enjoy a glass of champagne while meeting a travel expert to plan their dream vacation.
Travel agents typically have a portfolio of accommodations that they recommend to travelers and charge a commission, much like OTAs. Strong relationships with travel agents can help companies increase bookings in alternative segments to the OTA market.
Difference between OTA and Metasearch Engine
With so many online booking channels available these days, it can be difficult to understand the difference between websites.
Metasearch sites like Skyscanner act as aggregators and display hotel information and room rates from various online channels including OTAs like Agoda, Trip.com, Travelocity or Priceline.com and from the hotel website. It allows travelers to compare all hotel booking options online in real-time, booking the best deal.
OTAs only offer room rates and booking options for one channel – their own. Metasearch sites can now return up to twenty or more results.
Real estate can also invest in hotel marketing through metasearch engines. Metasearch sites rank listings and it pays to be at the top. As a result, properties can pay to have their listing appear higher in the rankings, leading to more direct bookings.
Is Google OTA?
Google is often the first port of call for a traveler looking for a hotel room. In recent years, Google has changed the hotel industry with its products. Google offers Google Hotel Search which acts as a hotel meta search platform. When a traveler types a property name into Google, it brings up all the prices and property information from across the web.
Google also offers free booking links, which is crucial for independent hotels as they can display their direct prices and links to their own website in the Google hotel search box. This option encourages potential guests to book directly.
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