News for the Hospitality Executive
Should Earn Their Commissions Just
Like a Traditional Travel Agent Does”
AboutAnywhere.com on the Hotel-OTA Relationship
AboutAnywhere.com, a hotel referral website, has highlighted that there are many hotels that do not understand how to efficiently and effectively use the power of the OTAs.
The CEO of AboutAnywhere.com, Ashwin Kamlani, says hotels that fill a room with an OTA customer when the same room could have been filled with a direct booking, are guilty of not managing their channels correctly and therefore are missing out on valuable revenue.
From OTA’s perspective, Kamlani believes the role of OTAs (and wholesalers) should not change according to economic conditions.
“These are expensive channels to work with, and should only be used to fill rooms when necessary. That necessity may be larger now while demand is relatively low and there are fewer customers to capture overall, but the role of the OTAs remains essentially unchanged,” said Kamlani, who is scheduled to speak at EyeforTravel’s Travel Distribution Summit North America 2009 to be held in Chicago (September 16-17) this year.
“Hotels that play more aggressively with OTAs and drop rates in an effort to steal market share damage the market conditions for their entire destination and it will take them years to build the rate back up to normal levels.”
It is said that Rate Parity and Best Rate Guarantees have contributed to the commoditisation of the hotel product.
“Rate parity became a major topic of discussion when OTAs switched from GDS powered rates to merchant model, extranet powered rates. Particularly, certain more traditional wholesalers like Tourico Holidays and Gullivers became infamous when they realised that they could use a minimal markup on contracted wholesale rates and sell them online, and it would be difficult for hotels to notice especially when these rates were being re-distributed through a network of affiliates,” Kamlani told EyeforTravel.com’s Ritesh Gupta.
He added that outraged hotels threatened to cut off online agencies that continued to operate this way. Then, hotels started to build their own websites with their own booking engines and suddenly the pendulum swung the other way. Hotels realised very quickly that even by selling at a rate that was slightly lower than the published rate in the OTA sites, their direct bookings were still much more lucrative.
The OTAs of course reacted swiftly with automated robots to monitor and control this behaviour, imposing harsh penalties for hotels that undercut them in their own websites, and quickly implemented new clauses into their contracts that obligated hotels to provide them with the best available rate. Hotels were forced to sign these contracts, for fear of risking the loss of significant volume provided by the OTAs, and started to look for ways around these rules. Hotels began to sell prepaid rates on their websites, or reserved certain room types for their own sites, arguing that they were still maintaining parity with the OTAs where the same room with the same restrictions was being sold.
“I don’t think we have seen the end of this discussion. The OTAs have convinced the hotel industry that the burden of rate parity lies on the shoulders of the hotels, so that regardless of the margin charged by the OTA, the hotel must adjust their net rates in order to ensure the competitiveness of the OTA against other agencies. But I believe that the assertion that customers will be confused by a lack of parity, and that rate variances will reflect badly on the hotel is completely unfounded. In the offline retail world, if a retail store charges more for the same product as the store down the street, it reflects badly on the retail store, not the product manufacturer. The same would hold true with respect to hotels and OTAs,” Kamlani said.
According to Kamlani, OTAs have contributed positively to a hotel’s distribution strategy in today’s environment by providing the option of paying a high commission for capturing demand generated by multi-million dollar marketing campaigns.
“The OTAs have not contributed negatively, but there are many hotels that do not understand how the power of the OTAs should be used correctly. Hotels that fill a room with an OTA customer when the same room could have been filled with a direct booking are not managing their channels correctly. But that is not the fault of the OTAs,” he said.
Kamlani does feel that profit parity would be too drastic a move considering the margins that are charged by the OTAs.
“I do believe, however, that hotels should recognise that a few dollars difference would encourage the most rate sensitive customers to book directly, resulting in a more profitable reservation for the hotel. OTAs should earn their commissions just like a traditional travel agent does,” he said.
If a customer wants to book a package including air, and activities within the destination, this is a service that an OTA can provide that most hotels can’t, and warrants a commission to be paid to the OTA for the booking.
“But we have created a cycle where the OTAs have made so much money from hotel margins, that they can completely dominate the search engines with enormous budgets and teams of SEO/SEM experts, and charge hotels a 25% commission simply because the hotels website cannot compete and is nowhere to be found even for customers who specifically search for them. This is precisely what AboutAnywhere.com aims to change,” Kamlani said.
Different types of OTAs
The lines between different ‘types’ of OTAs are getting blurred more and more each day, pointed out Kamlani.
“So regardless of what type of OTA is being considered for a rate or a promotion, I would only recommend that hotels recognise that there is an endless maze of interconnectivity between websites all over the Internet and the OTAs. Charging a 25% margin allows OTAs to re-distribute rates and inventory through hundreds of thousands of other websites and pay a 10% or even 15% commission to those websites,” he said.
It is important to understand that a rate or a promotion given to an OTA may end up all over the Internet.
“Also recognise that offline wholesalers are no longer “offline” wholesalers. Communication between departments in hotel companies that handle offline and online third party relationships is essential, and promotion strategies should be well coordinated across all departments,” concluded Kamlani.