Online Travel Agencies (OTAs) Continue Strong Growth in Bookings/Hotels Fight to Keep Control of the Customer

The Coronavirus slashed business for travel booking agencies of all types. It remains to be seen what the long-term effect will be, but it was quickly clear that revenues would plummet along with customer counts. Meanwhile, airlines, hotels and online booking sites will continue to battle for control of customers and their loyalty.

One of the biggest single changes in the travel industry has been the exceptionally rapid rise of online travel agencies, also known as OTAs. Around the globe, vast numbers of business and leisure travelers alike rely on the internet as their primary means of gaining travel information, reserving hotels or booking air tickets.

Expedia, Travelocity, Orbitz, Hotwire and Booking Holdings, Inc. (formerly Priceline Group and owner of Booking.com) are among the largest firms offering online travel booking services in North America. In Europe, major online travel booking firms include EasyGroup (a holding company that owns and operates a number of travel and entertainment brands including easyCar, easyHotel and easyJet), Lastminute.com (a subsidiary of Travelocity Europe Limited) and eBookers. The numbers involved are massive.

Other important players include China’s Ctrip.com and eLong, UK-based Opodo and India’s MakeMyTrip. Meanwhile, Airbnb began allowing hotels to list on its site in 2018, charging the hotels a lower booking fee (compared to the 12%-25% fee hotels are charged by booking sites such as Expedia and Priceline).

In September 2015, Expedia completed its $1.3 billion acquisition of Orbitz. Expedia already owned several sites, including hotels.com and Travelocity. From a U.S. travel market perspective, there will now be only two significant corporate OTA groups: Expedia and Priceline. Together, these corporate enterprises control about 95% of the American OTA market. The two giants, Priceline and Expedia, each now have massive existing customer bases. They have enormous marketing budgets that can be used to battle competitors that might emerge. Both have extremely powerful, deeply experienced digital marketing and technology teams that may be able to out-produce and out-compete the strategies of emerging firms. They each own several respected, dominant booking brands. The firms also have reached the point of massive scale whereby they have significant clout with suppliers, and they have the potential to make their loyalty programs even more compelling and competitive due to scale.

Meanwhile, an extremely popular travel reviews and information site, TripAdvisor, has evolved into an online booking site. It is in a good position to compete head-on with Priceline and Expedia. There are even more changes in store with the online travel booking business thanks to recent entries by Google and Amazon.

Consumers like OTAs because they offer a wide choice of hotel brands, prices and locations in one view. Some sites operate as “metasearch” engines, enabling the consumer to link directly to a hotel’s site for booking. The largest, however, operate as true online booking agencies.

Hotels typically pay from 12% to as much as 25% commission for these bookings. In addition to the fees, OTAs are causing serious alarm at hotel chains, which fear they are losing control of the loyalty of and relationship with their customers. This is due to several strategies employed by the OTAs, including continual addition of new travel planning features to their web sites and apps, as well as extremely popular loyalty points programs of their own. Hotels.com, for example, offers a free hotel night, with no restrictions, after booking 10 nights total. This is a much simpler, easier-to-use program than those offered by most chains.

Major hotel chains and airlines have invested immense sums in their own, branded internet sites. These travel providers benefit because the use of their own online booking systems eliminates fees to middlemen and wages to human reservation agents. Encouraging travelers to book through the hotel and airline companies’ own sites also gives the firms control over marketing and branding and enables them to promote loyalty programs. Consumers benefit because they have seamless access to travel information, frequent flyer accounts and other perks. A major consideration is access to loyalty points. Hotel chains are also offering discounts through their loyalty programs.

Most, if not all, chains have adopted aggressive online tactics and are denying awards points to customers who book their rooms through third-party sites. In addition, chains are offering “best price guarantees.” For example, if a guest sees a better price at an OTA but books through the hotel chain, the hotel will give the guest another 25% off. Hotels are also boosting their digital offerings for loyalty program members who book directly with the hotels. These include smartphone apps that enable instant check-in, fast check-out, smartphone-based electronic room keys, digital concierge services and smartphone-based scheduling of hotel services and room service orders.

In most cases, hotels and OTAs have rate parity agreements in their contracts. This means that hotels may not be able to offer lower prices than those provided to the OTAs. However, the hotel chains may offer special prices to select groups of guests, such as loyalty plan members. This means that competitive advantage has to be created in some other manner, like loyalty programs, or special free perks for guests. In this regard, it’s vital for hotel chains to take advantage of assets that they control. For example, Hyatt is among chains enabling direct booking guests to look at a floor plan and choose the actual room that they will stay in. Other hotels are including free meals or drinks for certain guests.

Traditional travel agencies have endured vast changes in recent years, including the growing trend among corporate travelers to use online booking services. Some travel agents have successfully repositioned themselves as “consultants,” charging hourly fees for their expertise. Others specialize in providing unique knowledge about travel to out-of-the-way places such as Cambodia, French Polynesia or Africa.

The largest national travel agencies run sophisticated web sites of their own. They act as outsourced travel departments for their major corporate clients and arrange discounts for clients who purchase massive amounts of travel. For example, Carlson Wagonlit is a leading global business travel agency. Many large travel agencies that focus on leisure travelers buy hotel and aircraft space at wholesale and then create highly profitable tour packages to popular tourist destinations such as Cancun, Jamaica and Orlando.

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