May 27, 2012

ALERT - Hotel Distribution: >50% Revenues from OTA

What shares does the OTA (Online Travel Agency) segment represent of a hotel's transient leisure demand? removing the corporate and group business segments, and you may arrived at a total dependance towards OTA.

20%? 30%? 40%? 50%? 
60%? 70%? 80%?

Scary? well your Director of Sales may still tell you "it brings revenues", your Director of Finance may still alert the increase in commission level and payment delay.

What shall you think as a Revenue Manager, and how to decide on the right path to lead your hotel.

I would call it an hotelier lazy man's approach. It may work for you on a short term notice, but does it really make sense when a hotel hire 5 full sales managers who blitz the market, develop the so-called "business relationship" (Room Nights potential versus Rate), segment the market towards Corporate Individual, Corporate Government, Corporate Groups.

Very often, the e-commerce manager or online distribution manager, will settle rates that drive bookings but under-cut your long term business relationships being "Your corporate market". If you take a monthly report and look at the average rate (before and after commission deduction) for online bookings and compare it with your Corporate market average rate, you may find surprises.

What are the distribution cost for an Independent Hotels in the Gulf?
- Direct Online Channel (Hotel brand website): AED 25-30.00 per booking

- OTA Channels: AED 220-260.00 per booking based on average 20% merchant commission, length of stay of 2 nights and an average rate ranging of AED 500-650.00

On average it is 10 times cheaper to sell your room via the direct online channel compared to the OTA channel. On a year basis, can you imagine what the difference in distribution cost it would represent for a 140 room hotel (Average rate of AED 395.00):
* Direct Online Booking (40% of total room nights) = 20,440
Cost = 20,440 room nights x AED 25 = AED 511,000

* Online Travel Agencies OTA (60% of total room nights) = 30,660
Cost = 30,660 x AED 200 = AED 6,132,800

Name any Hospitality owners who would not like that!

Hoteliers, you need to invest in your direct online channel. Being dependent from OTAs, who required year on year, higher commission and commitment, will not allow you to leverage any types of strategies.

Top 3 Recommendation for General Managers:
1) Challenge your e-commerce managers to create Direct Online Channels strategies and not only fill up extranets. Because a large part of profit is left on the table.

2) Organize a meeting with your Online brand booking being I-hotelier, Synxis, Fastbooking, Res-Avenues, and ask them the following: "I would like to increase my market share of Direct Online Bookings to 50%, what would you suggest us".

3) Review your website redesign, optimization and SEO, online media with experts, take control of your database (email collection...) to turn your e-commerce person as a data analyst rather than an extranet order taker (that adds room when the allocation is set at zero).

Please share your thoughts below.

Romain @

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