Online travel agencies (OTAs) like Expedia and Booking.com provide a convenient booking platform for travelers, while also supplying hotels with significant customer reach. But how exactly does this relationship between OTAs and hotels work?
If you’re short on time, here’s the quick answer: OTAs partner with hotels to provide an online marketplace for rooms. They take a commission on each booking made through their site. Hotels pay for marketing, technology, and global distribution.
In this comprehensive guide, we’ll dive into the nitty-gritty details of the OTA and hotel business model, how bookings are made, the pros and cons for hotels, and how travelers benefit.
The OTA and Hotel Business Model
Online Travel Agencies (OTAs) have revolutionized the way people book their travel accommodations. These platforms act as intermediaries between hotels and travelers, making the booking process quick and convenient. But how exactly do OTAs work with hotels?
Let’s dive into the details of their business model.
Contract Agreements
When hotels decide to work with an OTA, they enter into a contract agreement that outlines the terms and conditions of their partnership. This agreement covers various aspects, including the commission structure, parity rate clauses, and other important provisions.
OTAs typically offer hotels a wide range of marketing services, including exposure on their website, advertising campaigns, and access to a vast customer base. In return, hotels agree to pay a commission for every booking made through the OTA platform.
Commission Structures
The commission structure is a crucial aspect of the OTA and hotel business model. It determines the percentage of revenue that hotels must share with the OTA for each booking. The commission rates can vary depending on factors such as the hotel’s location, star rating, and the volume of bookings generated through the OTA platform.
For example, a luxury hotel in a popular tourist destination might have a higher commission rate compared to a budget hotel in a less visited area. These rates are usually negotiated between the OTA and the hotel, and they play a significant role in the profitability of both parties.
Parity Rate Clauses
Parity rate clauses are another crucial aspect of the contract agreements between OTAs and hotels. These clauses ensure that hotels offer the same rates and availability on the OTA platform as they do on their own website or other distribution channels.
This parity rate requirement aims to prevent price discrimination and maintain fairness among all distribution channels. By enforcing parity, OTAs can provide travelers with consistent pricing and help hotels maintain their brand reputation.
However, it’s important to note that parity rate clauses have faced some criticism in recent years. Some argue that they limit hotels’ flexibility in setting their own prices and restrict healthy competition among different distribution channels.
How OTA Hotel Bookings Work
Online Travel Agencies (OTAs) have revolutionized the way people book hotel accommodations. With just a few clicks, travelers can browse through a wide range of options and secure their stay at a preferred hotel. But have you ever wondered how exactly these OTAs work with hotels?
Let’s dive in and explore the process.
Real-time availability via channel managers
One of the key features of OTAs is their ability to provide real-time availability of hotel rooms. This is made possible through the integration of channel managers. These software systems allow hotels to update their inventory and rates across various OTAs simultaneously.
As a result, travelers can instantly see which rooms are available and make a booking without the risk of double bookings or outdated information.
Channel managers also enable hotels to manage their inventory efficiently. They can set restrictions, such as minimum stay requirements or maximum occupancy limits, to ensure that their rooms are utilized optimally. This helps hotels maximize their revenue and maintain a balanced occupancy rate.
Reservation and confirmation process
Once a traveler selects a hotel and room on an OTA platform, the reservation process kicks in. The traveler provides their personal details, such as name, contact information, and payment details. The OTA securely transmits this information to the hotel.
The hotel’s reservation system receives the booking request and checks if the selected room is available. If it is, the hotel confirms the reservation and sends a confirmation to both the OTA and the traveler.
This confirmation typically includes details such as the booking reference number, check-in and check-out dates, room type, and any special requests made by the traveler.
In some cases, the hotel may need to manually confirm the reservation if the availability needs to be double-checked. This can cause a slight delay in the confirmation process, but it ensures that the information provided by the OTA is accurate.
OTA extranets
OTAs provide hotels with extranets, which are secure online portals that allow hotels to manage their presence on the OTA platform. Through these extranets, hotels can update their availability, rates, and other information in real-time.
They can also access detailed reports and analytics to monitor their performance and make data-driven decisions.
Extranets also enable hotels to communicate directly with the OTA’s support team, resolve any issues, and receive assistance if needed. This direct line of communication helps maintain a strong partnership between the OTA and the hotel.
Pros and Cons for Hotels Using OTAs
Increased exposure and distribution
One of the biggest advantages for hotels working with Online Travel Agencies (OTAs) is the increased exposure and distribution they can provide. OTAs have a wide reach and attract millions of travelers looking for accommodation options.
By partnering with popular OTAs, hotels can tap into this vast network of potential customers and increase their visibility in the online marketplace. This can lead to a significant boost in bookings and revenue for hotels.
High commissions and service fees
While the increased exposure is undoubtedly beneficial, it comes at a cost. OTAs charge hotels a commission on every booking made through their platform. These commissions can range from 10% to 25% or even higher, depending on the agreement between the hotel and the OTA.
Additionally, some OTAs also charge service fees to hotels, further eating into their profits. These high commissions and fees can significantly impact a hotel’s bottom line, especially for smaller establishments with limited resources.
Less control over brand identity
When hotels partner with OTAs, they relinquish some control over their brand identity. OTAs often have their own branding and design elements, which can overshadow the hotel’s own brand. This can make it challenging for hotels to establish a unique identity and differentiate themselves from their competitors.
Additionally, hotels have less control over how their property is presented on the OTA’s website, as the OTA controls the content and images displayed to potential guests. This lack of control can be frustrating for hotels that want to showcase their property’s unique features and amenities.
Benefits for Travelers Booking via OTAs
Easily compare hotel options
One of the major benefits of booking hotels through Online Travel Agencies (OTAs) is the ability to easily compare different hotel options. With just a few clicks, travelers can compare prices, amenities, customer reviews, and other important factors.
This saves them valuable time and effort in researching and browsing multiple hotel websites. OTAs provide a user-friendly interface that allows travelers to filter their search results based on specific criteria such as location, price range, star rating, and more.
This makes it incredibly convenient for travelers to find the perfect hotel that meets their preferences and budget.
Simplified booking experience
Booking a hotel through an OTA offers a simplified and streamlined booking experience. Travelers can complete their reservations quickly and securely, without having to navigate through multiple pages or go through lengthy booking processes.
OTAs provide a seamless booking platform that is designed to make the entire process as effortless as possible. They often offer a wide range of payment options, including credit cards, debit cards, and even mobile payment methods.
Additionally, many OTAs offer customer support services that are available 24/7, ensuring that travelers can receive assistance whenever they need it.
Loyalty programs and special deals
Many OTAs offer loyalty programs and special deals for travelers. These programs allow frequent users to earn rewards, such as free nights or exclusive discounts, for their continued loyalty. By booking through an OTA, travelers can take advantage of these loyalty programs and enjoy additional perks and benefits.
Furthermore, OTAs often negotiate special deals with hotels, resulting in discounted rates or exclusive promotions that may not be available when booking directly with the hotel. This gives travelers the opportunity to save money and enjoy added value during their hotel stay.
Conclusion
OTAs provide a huge demand generator for hotels through their global online booking platforms. But hotels pay a price by giving up commissions around 15-30% on OTA bookings. Travelers benefit from the simplicity and deals, but hotels have less control.
Understanding the OTA and hotel relationship provides insights into the complex hospitality tech landscape.
By partnering together, OTAs and hotels can service more customers, though not always profitably for hotels. But overall OTAs have become vital distribution channels in the internet age.
