Will hotels’ book-direct strategy push OTAs to work with Airbnb?
Wednesday, October 26, 2016
This year, the battle between hotel chains and online travel agents (OTAs) — such as Expedia and Priceline — is getting more intense. Hotels are fighting with OTAs to get more direct bookings on the hotels' websites.
For instance, Hilton and Marriott, among many other hotel chains, are rolling out campaigns to lure travelers to "book direct" on their websites. In the past, hotels usually guaranteed that travelers would not find a cheaper price elsewhere if they book direct, indicating that hotels are offering the same low rate as OTAs.
Now, hotels are giving out specials and member-exclusive discounts to travelers who book direct, making it possible for travelers to find an even cheaper price on their websites than on OTAs.
Indeed, hotels have a good reason to get rid of the middleman: money. OTAs usually charge hotels high commissions, sometimes at a level of 25 percent of the hotel rate. So, when a guest pays $500 for a hotel stay to an OTA, $125 would go straight into the OTA's bank account for commissions.
By offering travelers exclusive discounts for booking direct, usually 10-25 percent off the highest available rates, hotels can create a win-win solution for the hotels and travelers. Hotels can keep the "commissions" in their banks and possibly build a larger pool of loyal customers. At the same time, travelers can also save a few extra bucks in their wallets.
At this point, it seems hotels are doing well in getting more travelers to book direct on their websites over the OTA sites. Yet I am still hesitant to conclude that hotels have won the battle over OTAs.
OTAs certainly do not want to give up their market shares. On one hand, OTAs still maintain a competitive advantage over hotel websites in packaging deals that bundle various types of travel products. For example, travelers may find it cheaper to purchase a tour package that includes hotels and flights than to book the hotels and flights separately.
On the other hand, many OTAs have already adopted similar travel reward programs as those offered by hotels and airlines to build customer loyalty.
While the above arguments make perfect sense, I believe the big threat to hotels comes from the possible partnership between OTAs and room-sharing websites, such as Airbnb and Homeaway. Room-sharing websites have made a disruptive impact on the lodging industry, even though some only reported negligible effects.
Now, it is already difficult for the hotel industry to fight with one rival by itself. The real nightmare is yet to come when OTAs and room-sharing websites work closely together against hotels.
Back in 2015, OTA giant Expedia spent $3.9 billion in the acquisition of Homeaway. Even though I have not heard any big movement of any OTAs and room-sharing websites working closely together, there are websites that compare Airbnb and hotel rates in major tourist hubs (e.g., Busbud.com).
What if OTAs start putting Airbnb listings side by side with the available rooms of a hotel in the same neighborhood? How would that change the competitive landscape of the lodging industry?
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