Operators fight back on OTAs' dominance of online guest bookings

20 July 2018 by
Operators fight back on OTAs' dominance of online guest bookings

Hotel operators have described a toxic relationship developing with online travel agents (OTAs) as the platforms' increasing dominance of the market leaves them with "no negotiating power".

Operators told The Caterer of increasing demands being made by OTAs who can buy up search engine advertising, making it very difficult, particularly for independent hotels, to secure direct bookings.

But Richard Clarke, a senior analyst of European leisure and hotels at investment company Bernstein, predicts the tide could be about to change as operators reach a tipping point and consumers realise the benefits of booking direct.

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Richard Clarke, Bernstein

e said: "I think there's an impression across the industry that they've created a monster. Digital distribution used to be small compared to phone calls and walk-ins, but consumers have got used to using them and they've become more and more powerful.

"You've seen Booking.com and Expedia buy up a lot of their rivals. While 10 years ago there were a lot of largeish OTAs and hoteliers could pick and choose, giving them a reasonably strong negotiating position, you've now got next to no negotiating power because, particularly in Europe, the only one that counts is Booking.com. You need to be at the top of its list, so you need to pay higher and higher commissions to get yourself there.

"This is impacting the profitability of independent hotels and I've seen a shift in mentality recently, with hoteliers asking if there is more we could be doing to drive direct distribution and move away from the OTAs."

Clarke's view was echoed by Laurence Beere, owner of the Queensberry Hotel in Bath, who said: "I'm not anti-OTAs, they have a presence in the world; they are important. But I think unfortunately their behaviour has become moderately abusive because of their strength and buying power. They use their buying power to buy up everybody's advertising space - if you search for Queensberry Hotel's website you get Booking.com. They are very effective at buying up online space and very successful in convincing consumers that they hold the best rates, which isn't the case."

Beere also spoke of the increasing demands being made by OTAs to keep his hotel at the top of their rankings, including offering discounts and deals that will increase their commission despite the hotel's payments having grown by 42% in 2017 to more than £45,000.

Beere added: "They are here to stay, but it just gets harder and harder for small independent businesses with every other financial pressure, such as business rates, National Living Wage, food inflation. Every single cost is being pushed. Before OTAs the standard commission was 8%-10%, but now you're looking at rates of anything from 15% to 25%, and we still get penalised because they want us to give them every last bit of our margin."

Clarke believes a change in the relationship between OTAs and hotel operators will be driven by campaigns to promote direct bookings, new players such as Google and Facebook looking to enter the market, and the power of large brands, who will make up 90% of new-build hotels and are increasingly looking to move away from using the platforms.

He explains: "OTAs are big, powerful companies with big marketing budgets, so we shouldn't rule them out, but it does feel like hotels have reached that tipping point where it's unsustainable to have such a large part of your distribution handled by a third party."

Mike Sheffield, director of Perth hotel company Symphony Hotels, agreed that guests need to be educated to book directly. He said: "Their commission equates to being vastly over-valued for what they really provide. Bearing in mind that if the customer can actually get a better deal by booking direct - why would they use an agent? It's time for the customer to stop believing the hype, to have a sense of responsibility and to support UK businesses."

Another factor that could help change the consumer mindset towards booking directly with hotels is last month's news that the Competition and Markets Authority (CMA) has launched enforcement action against hotel booking sites in relation to "widespread concerns". These included search results being ranked in accordance with factors unrelated to customers' requirements, such as the commission paid to the website and pressure-selling techniques including claims about how many people are looking at a room, how many rooms are left or how long a price is available.

It has also questioned if discount claims stand up to comparison and whether the price shown in search results is the complete cost of the booking.

While Adam Rowledge, general manager of the Georgian House hotel in London, agrees that stronger regulation is needed, he stressed that OTAs are effective, particularly when used in a carefully considered manner. He explained: "For most hotels, OTAs are a necessary tool. You use them when you need to and you're in control of those decisions. Some of the practices regarding how rates are displayed in comparison to your own website and bidding on your brand terms on Google do not show a working together approach. They need to be better regulated.

"It's a big cost and I think commissions are too high, but especially as an independent it could well be the most cost-effective way to reach that guest in South Korea who has never heard of you."

Clarke suggested that one way forward could be for OTAs to charge a lower commission for UK guests who are pointed towards the hotel to book, while handling the entire booking for overseas visitors.

The OTA's response

Jean-Philippe Monod, vice-president of government and corporate affairs at Expedia, said: "There's often a lot of misconception about the relationship of OTAs and their position in the market. OTAs are about 25% of the market and the hotels' direct bookings are usually another 10%-15%, which gets you to about 40%. The rest of the market is offline."

He continued: "We work for our hotels and our consumers; we try to create a marketplace that works best for both sides. We want to make sure that consumers are able to find the hotel they need in a very quick way, depending on their criteria.

"We also advise hotels on the basis of the intelligence we see from consumer services. We invest in products that provide insights to using the data we get from various transactions, which provides information for hoteliers about the landscapes in which they are competing."

He said that research had shown that rates of commission had stayed steady and in some cases fallen, as well as citing the rise of large hotel groups using their own distribution platforms.

The Caterer invited Booking.com and Trivago to comment, but both declined.

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