A new and compelling study from Hospitality eBusiness Strategies seems to sound a loud alarm for all hotel owners and operators. The message, as written by Chief eBusiness Strategist Max Starkov, is that hotel owners and operators all of a sudden got stupid during the last economic downturn and ceded their marketing clout, their revenue management expertise and, most critically, a large chunk of their profits to the online travel agencies.
Starkov got the story half right. As he points out, the percentage of Internet hotel bookings the top 30 brands channeled through OTAs climbed from 24 percent in 2007 to 28 percent in the first quarter of this year. That means 72 percent of Internet reservations still funnel through brand websites, which is by far the most cost-effective distribution vehicle. This shift toward greater reliance on OTAs, says Starkov, has led to more than $5 million in “leakage,” or the revenues hotels give up to the OTAs in the form of commissions.
His warnings sound very dire, but I don't believe the vast majority of hotel owners and operators have been conned, bullied or outmaneuvered by the OTAs. Contrary to their pirate-in-disguise reputation, Expedia and the other Internet travel sites are merely capitalist entities looking to maximize their revenues and profits—very much like all hoteliers. And, not coincidentally, Starkov's firm is looking to sell its Internet marketing services to frightened and supposedly hapless hoteliers. And, as it turns out, we're all capitalists.
Many hotel operators have upped their use of OTAs in recent years because business has sucked, and they need to fill rooms, not at any cost, but at a cost (25 percent is a typical OTA commission) that still leaves some profit for hotels. The oldest aphorism in the lodging industry still rings true: hotel rooms are perishable commodities that don't hold over from one night to the next. Thus, a sale at a deep discount is usually better than no sale at all.
Sure, some operators (particularly independents without the benefit of chain negotiating powers with the OTAs) have succumbed to the lure and pressures of OTA promises and threats. But I believe most GMs, revenue managers and owners are smarter than Starkov gives them credit for, and they use the power of OTAs wisely and for the mutual benefit of both sides of the relationship.