VILAMOURA, Portugal — The dominance of online travel agencies (OTA) in the distribution mix caused heated debate within the hotel industry for several years.
As hoteliers complained about paying OTA commissions as high as 30%, an entirely new support system of digital marketing companies emerged with the aim of helping hotels receive a greater proportion of direct bookings.
The so-called “direct booking wars” were sometimes fierce, but the fighting is over, according to a panel discussion at the Resort & Residential Hospitality Forum (18 October).
Dimitris Manikis, president EMEA, Wyndham Hotels & Resorts said: “How can we improve our distribution? The reality is we are seeing peace. In the past there was a war and we all need some peace, right? Each one of us is doing what we need for our owners and guests. Yes, we are sweating, but at least everyone has a role to play. There is enough business out there. Wyndham is number one, but the OTAs are doing well and tour operators too.”
Market share change
This magnanimous attitude might be explained by the OTA versus direct booking mix changing during the pandemic in the hoteliers’ favour.
Before the pandemic, the market share of OTAs in Europe continuously increased from 19.7% in 2013 to 29.2% in 2019. In the meantime, direct bookings experienced a downward trend, from 57.6% in 2013 to 47% in 2019, pointing to the over-dependence on OTAs that was prevalent pre-Covid.
However, as consumers sought reassurance and a direct point of contact during the pandemic, direct bookings rose (from 54.5% in 2019 to 59.7% in 2021) while OTA bookings dropped a little (from 29.4% in 2019 to 28.7% in 2021).
Georg Schmickler, CEO group hotel division, DER Touristik Group, noted that the importance of direct booking in general increased in Germany during the pandemic and he expected it to continue.
However, the panel discussion reflected a greater acceptance and understanding of the role that OTAs play. Dillip Rajakarier, CEO, Minor Hotels, added: “We have to be quite agnostic. It’s all about seasonality and room type and sometimes you need all these [channels] to come together to get the best rate for your room. We’d love to have a shift from OTA to brand but at the end of the day that’s not our core business. We can’t compete.”
Marketing spend
For a start, hotel brands cannot compete with the enormous marketing spend of OTAs. Moderating the discussion David Eisen, content director - media, Questex, said that Booking Holdings spent $3.8bn on marketing in 2021 and Expedia spent even more: $4.1bn.
The panel underlined the importance of brands for effective distribution. Sergio Carrascosa is the co-founder and managing director of asset management at HIP Hotel Investment Partners, a group with 74 hotels across southern Europe. He said: “They are all branded. Distribution is very important. You need to control it. We see branding as important to control distribution strategy and good pricing.”
Manikis noted that franchisees may be investing their life savings in his brand so the brand had an important responsibility: “Brands should never be just a name or a flag. It’s about security and safety. If someone chooses your brand, there is choice of 145 brands, so that’s a compliment but it’s a burden. Brands need to transform but we are bullish about the future of hospitality in this part of the world.”
Delegates learned that selecting the right brands was crucial. Loyalty programs may not always be as powerful as advertised from the owner’s perspective. Rajakarier commented: “There are brands that say: ‘Plug into our system and 60% of your business will come from our loyalty program.’ You look at the profit per room and it’s a loss and it’s the owner who takes it, not the brand. Look at the channels and see whether you are really making money.”
There is a huge degree of inter-dependency between hotels and their various distribution channels, Manikis concluded, with airlines being fundamental too.