OTAs become ever-more powerful remaining a heavy burden on hotel profit margins; 

Online travel agents (OTAs) such as Priceline and Expedia have become ever-more powerful as a result of strategic acquisitions of smaller, regional players with Priceline now controlling 62% of the European market, while Expedia holds around 70% of the US market.

As a result hotels that have become increasingly reliant on bookings from OTAs might soon be forced to work with just two main companies with limited options for negotiating on commissions.

A new report from global hotel consultancy HVS says that while OTAs offer a number of advantages to hoteliers including a wide, multi-national reach and big marketing budgets, the commission rates of anything from 15% up to 30% are a heavy burden on hotel profit margins.

Furthermore, a growing trend amongst OTAs is the fact many are launching their own loyalty programmes taking them into a head-to-head battle with hotel group loyalty schemes and threatening one of the unique selling points some hotel brands offer their customers.

“Another limitation imposed by OTAs is their insistence on best price guarantee and rate parity amongst all channels, leaving limited manoeuvrability for hotels to make their offer more attractive. However, over the past few weeks there has been some movement towards more lenient regulations as imposed by anti-cartel authorities, mainly in Europe,” commented report author Jill Barthel, analyst, HVS London.

The HVS report concludes that hotels should aim for a healthy balance between OTA bookings and bookings from their own website, making sure they maximize their website bookings by making their site as up-to-date, attractive and easy-to-use as possible.

“It might come down to the small details that make guests decide which channel to book through,” added report co-author HVS director Sophie Perret. “Search engine optimization is worth exploring and while not cost-free, is comparatively cheaper than the cost of rooms sold via OTAs.

“While limiting your exposure to OTAs as much as possible might reduce your distribution cost, this could be at the expense of overall occupancy and ultimately ancillary revenues generated through restaurants and bars.”

To download a full copy of the report OTAs �" A hotel’s friend or foe? by Jill Barthel and Sophie Perret click here.

About Jill Barthel

Jill Barthel is an Analyst with HVS London, specializing in hotel valuation, feasibility studies and consultancy. A Luxembourgian, Jill holds a BA (Hons) from the Glion Institute of Higher Education in Hospitality Finance & Revenue Management and an ECertificate in Hotel Real Estate Investments and Asset Management from Cornell.

She joined HVS in 2014 after having gained experience in both accounting and revenue management in key positions with Kempinski in Munich, Beijing and Seychelles. Since joining HVS, she has been involved in several valuation and feasibility studies in London, Amsterdam, Luxembourg, Zurich, Canary Islands, Malta, Ghana and Kenya. Tel: +44 (0) 20 7878 7710 jbarthel@hvs.com

About Sophie Perret

Sophie Perret is a Director at the HVS London office. She joined HVS in 2003, following ten years’ operational experience in the hospitality industry in South America and Europe. Originally from Buenos Aires, Argentina, Sophie holds a degree in Hotel Management from Ateneo de Estudios Terciarios, and an MBA from IMHI (Essec Business School, France and Cornell University, USA).

Since joining HVS, she has advised on hotel investment projects and related assignments throughout the EMEA region, and is responsible for the development of HVS’s business in France and the French-speaking countries, as well as Africa. Sophie is currently pursuing an MSc in Real Estate Investment and Finance at Reading University. sperret@hvs.com