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Do You Hate the OTAs?

By Jean Francois Mourier 
May 4, 2012
 
Over the past couple of years, hating the OTAs has become an international pastime. So much so that I think that they’re planning on naming it an official sport in the upcoming Olympic Games in London, alongside the triathalon and archery.
 
But no matter your opinion on the OTAs, they are here to stay. While it is possible to operate a hotel without listing your property on any OTAs (after all, it is possible - though not optimal - to live without gravity), it definitely doesn’t make good business sense.
 
Let’s look at a comparison of two similar properties in Miami Beach, Florida. Both are three-star boutique properties (less than 50rooms) close to the ocean with comparable rooms and amenities.
 
The revenue manager at Hotel A hates the OTAs, so he refuses to list the hotel’s rooms online. Although his occupancy numbers are very low (typically between 55 to 65%), he is able to keep 100% of the revenues from every booking.
 
Now, Hotel B…
 
The revenue manager at Hotel B isn’t the biggest fan of the OTAs either, but he does recognize how important they are in marketing and selling his rooms, so he consistently lists his property with the top 5-6 OTAs. Unfortunately, the hotel has to pay a huge commission rate, losing him money on each booking. But on the upside, Hotel B’s occupancy is consistently high (close to 90%).
 
In your opinion, which revenue manager is using the correct strategy to increase the property’s revenues?
 
If you answered Hotel B, then you can stop reading right now because you are already a revenue management star!
 
If you answered Hotel A, then this next part is for you.
 
Yes, commissions suck; losing 12 to 35% of every dollar is a (much) less than ideal situation. Yes, the OTAs were designed to profit from tough financial times in the hotel industry’s history. And yes, the industry is now stuck with the online channel and the OTAs, for better or for worse. But does that mean that you should stop earning money, just because of your principles?
 
Lesson 1: 100% of zero is still zero.
 
Think about it this way – would you rather earn 65 to 88% of the revenue from a booking or would you rather have the room sitting empty, earning nothing, because consumers weren’t able to find and book your room? That’s what I thought.
 
Lesson 2: It costs money to make money.
 
The OTAs are only making money when you’re making money, so by not using the OTAs to list and sell your rooms, you’re actually stopping yourself from making money. As a revenue manager (who’s job is to optimize pricing in order to maintain or increase revenues), that seems a little counterintuitive, no?
 
Hopefully by now, I’ve got you convinced that the OTAs are a necessary evil and, as soon as you’re done reading this article, you’ll list your rooms online and watch as bookings start coming in. (If you’re still not convinced, go back up to Lesson 1, read and repeat.) Yes, you’ll be paying up to 35% commission but just think, the other 65% is yours to keep. And being the helpful expert that I am, I have an idea on how you can spend the extra money you earn: revenue management software.
 
Just saying…


Jean Francois Mourier is CEO and Founder of REVPAR GURU, a company that provides automated revenue and rate optimization solutions. REVPAR GURU’s real-time pricing solution combined with automated online distribution helps hotels maximize occupancy and increase their profits. The company’s Dynamic Pricing Engine, an integrated revenue optimization and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving revenue managers more time to run their hotels, make better decisions and do what they do more efficiently. You can reach Jean Francois through www.revparguru.com or by calling 1.786.478.3500.
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Contact: 

REVPAR GURU INC. 
786-478- 3500 
www.revparguru.com

 

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Also See: The Future of a Revenue Manager 2.0 - Part Human, Part Computer, All Profits / Jean Francois Mourier / January 2012

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Big Booking Rates Brimming With Holiday Cheer: What the Good News Means For the Hotel Industry / Jean Francois Mourier / December 2011

Demystifying the Magical Pricing Potion / Jean Francois Mourier / November 2011

Getting Into Bed With The Enemy: Like Any Relationship, It Pays To Know Your Partner / Jean Francois Mourier / October 2011

Hotel Revenues on the Rise for 2011 Holiday Season / Jean Francois Mourier / October 2011

Shifting From Manual to Automatic in Revenue Management / Jean Francois Mourier / July 2011

Going with GOPPAR? Not so fast, RevPAR is still the best metric for revenue managers / Jean Francois Mourier / June 2011

Protecting Your Brand from Discounts; The Real Economic Impact of Losing Rate Discipline / Jean Francois Mourier / June 2011

A Tale of Two Strategies; Contrasting boutique and chain hotel revenue management approaches / Jean Francois Mourier / May 2011

The Great Debate: Humans vs. Automated RMS: Their strengths, weaknesses and what responsibilities are best suited for each / Jean Francois Mourier / April 2011

When Every Second Counts: Secrets for making the most out of the new last-minute booking trend / Jean Francois Mourier / April 2011

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Pricing Beyond the Comp Set And other new pricing strategies that really work / Jean Francois Mourier / March 2011

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System Underload; Inefficiencies in RMS Systems are Costing the Industry Dearly / Jean Francois Mourier / February 2011

Revenue Management: Back to Basics: The Importance of Revenue Management Principles / Jean Francois Mourier / January 2011

Revenue Management: Profiting from the Industry’s Growth in 2011 / Jean Francois Mourier / January 2011

Home For the Holidays: Tending to Hotel Operations When Your Revenue Manager is on Vacation / Jean Francois Mourier / December 2010

The World of Revenue Management: Past, Present & Future; Looking back on hotel revenue management in 2010 and what the industry is expecting for 2011 / Jean Francois Mourier / December 2010

All Science, No Guesswork: The Benefits of Algorithms in Hotel Revenue Management / Jean Francois Mourier / November 2010

The Great Debate: Humans vs. Automated RMS: Their strengths, weaknesses and what responsibilities are best suited for each / Jean Francois Mourier / October 2010

Rate Parity vs. Rate Integrity—What is Rate Integrity? / Jean Francois Mourier / October 2010

A New Day For Timeshares; Using automated RM systems for running your timeshare company / Jean Francois Mourier / October 2010

Best Practices in Revenue Management, Part 3; Automation, Channel Management and Decision Making / Jean Francois Mourier / September 2010

Best Practices in Revenue Management, Part 2; Rate discipline, the leveraging of real-time information, and price prediction / Jean Francois Mourier / August 2010

Best Practices in Revenue Management, Part 1; General revenue management and strategic pricing / Jean Francois Mourier / July 2010

The Irresistibility of the Obvious; How a new trend in revenue management and metrics is missing the point / Jean Francois Mourier / July 2010

Pricing Beyond the Compset - And other new pricing strategies that really work / Jean Francois Mourier / June 2010

A Tale of Two Strategies; Contrasting boutique and chain hotel revenue management approaches / Jean Francois Mourier / June 2010

Historical Pricing Is History, Well, Not Exactly; Examining the Role Historical Pricing Should Be Playing in Hotels’ Pricing Strategies / Jean Francois Mourier / May 2010

Tipping Your Cap (Rate) - Why hotel owners need to pay attention to RevPAR / Jean Francois Mourier / April 2010
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