In a recent interview with SKIFT, American Airlines CEO defended the airline’s direct selling efforts in face of travel agent complaints.

Interesting interview!

Here is my take:

Travel agents have been complaining against airlines’ direct booking efforts since 1994-96 when the airlines introduced their own brand websites with booking engines. You know what? There were 35,000 brick-and-mortar travel agencies in the U.S. back in 1995 vs less than 7,000 today.

The reason for the disappearance of over 28,000 travel agencies? The airlines’ direct booking efforts. The hotels’ direct booking efforts. The same with cruise lines, car rental companies, etc. And, of course, the rise of the OTAs!

In 1996 over 85% of airline bookings came from travel agencies. 85%! Today this percentage is less than 15% I.e. the exact opposite. The airlines removed travel agency commissions, invested in technology, marketing and loyalty programs, and reversed the ratio.

Hotels? In 1996 over 75% of hotel room nights were booked direct with the hotel, only 25% were booked via travel agencies, tour operators and wholesalers. What happened? Today 70% - 80% of room nights for independent hotels come from the OTAs. Independent hoteliers have simply forgotten to sell directly. Period.

One caveat: 30% of transactions today on Expedia are airline bookings that generate only 3% of this OTA’s revenue. 70% of transactions on Expedia are accommodation-related, but these generate 76% of Expedia’s revenues. In other words, hotels are fueling the growth of Expedia and other OTAs.

Why the OTAs are taking advantage of hospitality? In my view, it is a self-inflicted wound: systemic underinvestments in technology and digital marketing (less than 4.5% of room revenue combined, vs 15% of revenue for the OTAs), screwed up accounting of cost of distribution (OTA commissions are COGS, which are loosely monitored vs direct booking cost are accounted as SG&A expenses, which are strictly scrutinized), lack of education and professional development of the employees, no incentives for direct vs OTA bookings, lack of ownership of the property’s website and direct booking efforts, etc.

Hotels have a long way to go in their direct booking efforts to reach the airlines, indeed!

Max Starkov
Hospitality & Online Travel Tech Consultant & Strategist

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