The Conflict: Online Travel Agencies versus Hotels

For many years, travelers have gone onto online websites like Priceline, Expedia and to find and reserve hotel rooms or flights. However, over the last year a direct booking war between the Online Travel Agencies (OTAs) and hotels has only become more intense, as they both battle one another for direct access to travelers. As hotels did not have the right technology and commissions were reasonable, it was completely normal initially. Fees paid to OTAs are now higher than ever, at nearly 25 – 30 percent in some cases, and contracts have become horrendous. Nevertheless, a definite is that hotels have clearly stepped up their game in the last year to steer bookings through their own website. Read on to know more.

The bond between OTAs and hotels / hotel chains has been under growing pressure for some time. While OTAs have simple and user-friendly websites offering a range of hotel options for the traveler, they are not quite able to build brand loyalty. For price conscious tourists, they would go for that hotel option that satisfies basic needs: a place to sleep, wireless internet connectivity (increasingly) and perhaps, breakfast. What about the other traveler segment, the one who actively seeks out the hotel brand they long to stay in, every annual holiday?

A research by Morgan Stanley projected that the global hotel business saw revenues of $570 billion in 2015, and of that amount, OTAs collected roughly $16 billion in commissions. With the online titans merging and possibly narrowing their hold on travel bookings, globally popular hotel chains are now offering unprecedented benefits to attract travelers to book directly on their platform: check-in before even arriving at the hotel, Wi-Fi, free meals and even the ability to choose a particular room – one of the many standout perks Hilton offers its direct-booking guests.

There’s a lot at stake. Eliminating the intermediary not only saves on commissions, but also means that hotels can be in direct contact with their guests. This means hotels could then build guest profiles of certain desires and spending patterns, to assist in attracting them in the future. Moreover, hotels introduced loyalty programs to get guests to book directly with them, with reward points and exclusive benefits like lounge access, room upgrades, etc. Hilton’s multi-million-dollar ad campaign ‘Stop Clicking Around’ proved to be a success, as they promoted a 10% concession and free Wi-Fi for loyalty members who booked direct. By doing so, loyalty program members also earn reward points and many of them do not wish to give them up, so it could be a great lure.

Nonetheless, the OTAs took a step ahead and responded, and Expedia in particular did a great job at it. First of a kind, the travel company promoted a hotel’s discounted loyalty rates next to standard rates. Provided guests enter their credentials they get to avail this special rate, and instant enrollment into the scheme was possible as well for guests wishing to join – allowing them to book on the channel, and not necessarily on the hotel’s website.

On the contrary, competing with OTAs on price itself is not too simple. A traveler’s assumption could be incorrect sometimes, that hotels could offer better rates if booked direct. In reality, rate parity clauses exist in contracts with OTAs, disenabling them to challenge the OTA – even though OTAs constantly battle out each other, killing the transparency in rates. It’s more than just the room price at the end of it all, it’s about what more could be offered by the hotel as additional perks.

In conclusion, the book direct war is not anywhere close to an end as OTAs and hotels are in a constant clash for travelers’ bookings. Hotels encourage guests to book direct by using a variety of incentives like loyalty based extras and upgrades. OTAs as well have stepped up by eradicating rate transparency. As mentioned by Morgan Stanley research in the simplest form, should OTAs win the war, they will be able to gain a larger share of bookings and drive up the distribution costs for hotels. Should hotels be victorious, the efforts taken to increase direct bookings would simply boost hotel brands, at the expense of OTAs. A long term price war without increased focus on experience or additional benefits, would see a drop in daily hotel rates and would eventually mean the traveler wins, as they continuously hunt for the best deals.