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OTAs: Good for business or bad businesses?

June 4, 2016 Headline News 2 Comments Email Email

Although the hatred for the OTAs seems to have lessened slightly over the past few years, there are still many hoteliers who are adamantly against listing their rooms on OTAs.

But no matter your opinion on the OTAs, they are here to stay because consumers love their convenience and savings. They are beneficial to hotels as well – even with the sky-high commission rates. 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 sunlight), it definitely would hurt the property’s bottom line.

So my lesson today is simple… ALL hotels should be listing their rooms on the OTAs, no matter their opinion on the sites’ business practices or revenue model.

To outline why it’s an operational imperative for hotels to list their rooms on the OTAs, let’s look at a comparison of two similar properties in Miami Beach, Florida. Both are three-star boutique properties (less than 50 rooms) 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 to 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…

By Jean Francois Mourier, CEO of REVPAR GURU

Currently there are "2 comments" on this Article:

  1. Pete says:

    That is until you hit the point of diminishing returns. This figure will certainly be below 100%. Most often, it would be around 85% give or take 5%. You have a variable cost in Labour. The more rooms you servide, the more you pay in costs. 100% occupancy is not nesciaalrily a good thing, unless you’re in a special event period. If your opportuntiy costs are reducing, then it’s time time shout off rooms through OTA’s

    You could use OTA’s as a loss leader or use the OTA’s in the same way as airlines use theor lowest booking class.

  2. Andrew says:

    So lets look at this from the viewpoint of the accommodation owner instead of the OTA…….

    55% occupancy and 100% of the revenue = lower wages costs, lower worker’s comp costs, lower wear and tear etc AND you don’t have to work as hard = more time to yourself.
    88% occupancy, but paying 35% commission on the difference = 35% x say $100 = $65 nett – add in wages, wear and tear etc so call it around $30 profit. If on the weekend and paying penalty rates, then more likely $15 profit. It also means if you are a smaller place, then the low profit bookings are taking up occupancy that you may have been able to sell to direct bookings.

    I know which life I prefer and it ISN’T the one where I do all the work and some parasite gets 1/2 my profit.

    Looks to me to be another article written by an OTA to try and justify why they should cream off 1/2 your profit.

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