Although the hatred for the OTAs seems to have lessened slightly over the past few years, there are still many hoteliers who are adamantly against listing their rooms on OTAs, but no matter your opinion on the OTAs, they are here to stay because consumers love their convenience and savings.
They are beneficial to hotels as well â€" even with the sky-high commission rates. While it is possible to operate a hotel without listing your property on any OTAs (after all, it is possible - though not optimal - to live without sunlight), it definitely would hurt the property’s bottom line.
So my lesson today is simple… ALL hotels should be listing their rooms on the OTAs, no matter their opinion on the sites’ business practices or revenue model.
To outline why it’s an operational imperative for hotels to list their rooms on the OTAs, let’s look at a comparison of two similar properties in Miami Beach, Florida. Both are three-star boutique properties (less than 50 rooms) close to the ocean with comparable rooms and amenities.
The revenue manager at Hotel A hates the OTAs, so he refuses to list the hotel’s rooms online. Although his occupancy numbers are very low (typically between 55 to 65%), he is able to keep 100% of the revenues from every booking.
Now, Hotel B…
The revenue manager at Hotel B isn’t the biggest fan of the OTAs either, but he does recognize how important they are in marketing and selling his rooms, so he consistently lists his property with the top 5 to 6 OTAs. Unfortunately, the hotel has to pay a huge commission rate, losing him money on each booking. But on the upside, Hotel B’s occupancy is consistently high (close to 90%).
In your opinion, which revenue manager is using the correct strategy to increase the property’s revenues?
If you answered Hotel B, then you can stop reading right now because you are already a revenue management star!
If you answered Hotel A, then this next part is for you.
Yes, commissions suck; losing 12 to 35% of every dollar is a (much) less than ideal situation. Yes, the OTAs were designed to profit from tough financial times in the hotel industry’s history. And yes, the industry is now stuck with the online channel and the OTAs, for better or for worse. But does that mean that you should stop earning money, just because of your principles?
Lesson 1: 100% of zero is still zero.
Think about it this way â€" would you rather earn 65 to 88% of the revenue from a booking or would you rather have the room sitting empty, earning nothing, because consumers weren’t able to find and book your room? That’s what I thought.
Lesson 2: It costs money to make money.
The OTAs are only making money when you’re making money, so by not using the OTAs to list and sell your rooms, you’re actually stopping yourself from making money. As a revenue manager (who’s job is to optimize pricing in order to maintain or increase revenues), that seems a little counterintuitive, no?
Hopefully by now, I’ve got you convinced that the OTAs are a necessary evil and, as soon as you’re done reading this article, you’ll list your rooms online and watch as bookings start coming in. (If you’re still not convinced, go back up to Lesson 1, read and repeat.) Yes, you’ll be paying up to 35% commission but just think… the other 65% is yours to keep. And being the helpful expert that I am, I have an idea on how you can spend the extra money you earn: revenue management software.
Just saying…
About REVPAR GURU
REVPAR GURU provides hotels around the world with an alternative revenue management software solution, designed to deliver maximum bookings and profits. As REVPAR GURU's custom-designed Yield Dynamic Price Engine is the only real-time revenue management software available on the market, it meets the rapidly changing needs of hotels in a very demanding business environment. REVPAR GURU’s solution offers dynamic rate optimization, real-time pricing, integrated internet and extranet yield channel management and GDS sales distribution, to increase a hotel's RevPAR intelligently and effectively, while maintaining rate integrity and automated rate parity. Since 2004, REVPAR GURU’s software solutions are used by hotels worldwide to increase occupancy and RevPAR.
Headquartered in Miami, Florida, additional information can be found at www.revparguru.com or by calling +1.786.478.3500.
Readers Comments:
Mr. Mourier,
First let me admit that my job is to help hoteliers shed their dependence on the OTAs. I must also admit that the OTAs are smart and have a loyal customer base so a case can be made that a hotel must have exposure on the OTAs simply to be relevant to that user base. However, please allow me to ask this question:
In your example we have two 50 room 3 star Miami Beach hotels. The hotelier that ignores the OTA’s averages a 55% to 65% occupancy rate vs. the hotelier that participates averages a 90% occupancy rate. So let us assume 65% versus 90% at a $200 ADR and the OTA takes 20% commission.Â
That would be 12.5 rooms per night x $200 = $2500 x 20% commission = $500 to the OTA. Expand that out to a month and that is $15,000 to the OTA.  $180,000 annually.
The question is â€" could not a fraction of that $15,000 per month be spent on a better website, a better website technology platform and a better digital marketing strategy to increase either hoteliers direct bookings?
My fear is that the OTAs have made it easy for hoteliers to accept this arrangement because they do not have to budget for it (capex) however as you correctly point out “you have to spend money to make money”.
Well written article and I do not disagree with your premise I simply refuse to believe that hoteliers must accept this bad deal with the OTAs in order to achieve distribution targets. They must have the courage and cunning to invest in themselves to ultimately improve their profitability. Â
I would also like to say that the OTAs have done a shrewd job in pitting this opinion (eCommerce) versus your opinion (Revenue Manager) and making us feel like we are on opposing sides. I believe we are not, we both sit on the side of the hotelier and owner to help them maximize the value of their asset. Our disciplines must come together along with asset managers to develop a common strategy that will achieve this goal.
Michael Bongiovanni, General Manager, Asia Pacific HeBS digital â€" michael@hebsdigital.comÂ
Hi Michael,
I completely agree with you… being listed on the OTAs is not enough for hotels in today’s day and age, but for those who are not using technology at all (or very little), it is a good start. Overall though, I do agree that the direct channel is always the more profitable channel and as such, hoteliers must invest in the tools that make it possible - and simple - for consumers to book direct. At REVPAR GURU, our recommendation is to focus on optimising both the OTAs and direct distribution channels to ensure that you are getting as much occupancy and as much RevPAR as possible. That being said, we advocate for hotels to put a greater focus on direct sales (rather than OTA sales) because of the many reasons that you mentioned below; in general, we recommend to our customers that they try to attain 70% of bookings from the direct channel vs. 30% from the OTAs.
And finally, I do agree with your very accurate statement: we should be looking at this issue from a singular viewpoint, as we all our on the same side and hoping to achieve the same end - profitability for hotels.
Thank you for reading & opening up dialogue on this very important subject. It’s always great to hear from our readers!
Kind regards,
Jean Francois Mourier
