Hotel-OTA relationship not wedded bliss

“(Online travel agencies) have got everybody so scared, because they’re so aggressive about their tactics.”

“Being a big company hotel, we rarely get bullied by the OTAs in regards to pricing or running promotions. Where the bullying really occurred was when I was with independent or smaller company hotels that were more dependent on the OTAs.”

“The OTAs are no more or no less than what we have made them. … We have no one to blame but ourselves.”

You don’t have to look far to find the situation with hotels and the OTAs is a precarious one.

Ask for an honest answer, and you get a polite response from the sources below. Agree to talk to someone anonymously (see the statements above), and the gloves come off.

With this in mind, the discussion about the relationship between hotel operators and OTAs is somewhat guarded in this article.

The airlines have made headlines with OTA negotiations in recent weeks, but hotel companies such as InterContinental Hotels Group and Choice Hotels International have spent time in the spotlight amid contract disputes in the past.

So what’s at stake? Marketing, distribution and millions and millions of dollars.


“(OTAs) can lose tens of millions of dollars if hotels decide to (pull inventory),” said Kristi White, director of revenue optimization at TravelClick. “The catch is that there are too many hotels that have stopped marketing and look at OTAs as a marketing channel instead of one distribution channel.”

It’s unlikely the hotel industry will be able to leverage its weight like the airlines, according to Mark Carrier, senior VP of B. F. Saul Company’s Hotel Division. “The brands are separated from the asset ownership—that’s the big difference. So we’re getting our gooses cooked. … We offer the same pricing as OTAs on our website, so we want a client to visit our sites. Why should the OTA get 20 to 30% of our revenue for serving as a search engine?”

The big deal
Hotels, of course, have long worked with other third-party intermediaries. The difference here was the commission rates.

“In the past, OTAs would allow hotels to choose to participate on 10% commission retail basis, and they would access rates and availability from GDS,” said Adele Gutman, VP of sales and marketing at HKHotels, a New York City boutique hotel operator that does not offer inventory on merchant model OTAs. “At some point a few years ago, some OTAs put their foot down and said they would not promote our hotels unless we switched to a merchant model basis where we would give a deeply discounted net rate and then they would mark it up significantly.”

While Gutman and the HKHotels team believe a 10% commission model is reasonable, the group balked at the OTAs’ new demands for a deeper discount and eventually pulled its hotels from the third-party websites.

“We understand their decision, and every business should make decisions that are right for them,” she said. “… We continue to work with the OTAs who allow us to pay a traditional commission to them instead of a merchant model where have an agreement on a net rate (on which) they then add a tremendous markup.”

The cost of distribution is a “completely legitimate” concern for hotel companies, said Henry Harteveldt, VP and principal analyst, airline and travel research, at Forrester Research. Some of the OTAs are “greedy” and don’t consider the hotel’s needs. That’s not a foundation for a mutually successful relationship, he said.

“If you’re going to do business with anybody … it’s got to work for both parties. Some OTAs are more partner-oriented than others. Some are more flexible in their business terms. Some offer better economics,” Harteveldt said.

One trade group is hoping to win back some control through standardization.

Hotels throughout Europe are concerned about losing control on rates, distribution channels and the product itself, according to Kent Nyström, president of HOTREC, the trade association for hotels, restaurants and cafes in the European Union.

“It is revealing that the hospitality industry considers it essential to bring even basic matters of sovereignty back to mind as a consequence of emerging pressure by distribution partners,” he said upon the release of “HOTREC’s Benchmarks of Fair Practises for Online Travel Agents.”

HOTREC is considering 20 benchmarks to address digital distribution methods that hoteliers increasingly consider to be imbalanced or unfair. The group plans to approve the fair practices at its general assembly in May.

OTA response
There is no problem with the relationship, according to Expedia, whose family of brands account for as much as 44% market share of the OTAs, according to PhoCusWright.

Melissa Maher, VP of global strategic accounts and industry relations at Expedia, flatly denied that Expedia forces hotels to participate in any particular promotion when asked about possible maltreatment. She also stressed that hotels provide their rates to the OTA.

“All of our opportunities are optional,” she said. “We try to put every opportunity in front of the hotels.”

Participation in promotions can affect a property’s placement in OTA search results. That can be an issue for hotels that play the marketing game with OTAs.

Even hoteliers that don’t participate find the tactics of third-part intermediaries a bit harsh.


HKHotels’ Gutman: “If you went to Expedia and enter the ‘Casablanca Hotel in New York,’ they would say, ‘We're unable to find properties that matched your search request. Please see below for other properties in this area,’ which I think is a bit unfair, leading some people to believe we’re sold out, when it would be better to give an authentic response and say, ‘This is not a hotel we work with.’”

Forrester conducted research in 2009 and 2010 and found that Travelocity, Orbitz and Priceline get good marks from hoteliers in terms of attitudes and partnerships. Expedia is viewed as a bigger revenue provider but is often the OTA that’s cited by hotels as not conducting business as a partnership, Harteveldt said.

Manage the relationship
The best remedy for hoteliers is to manage the relationship rather than let the OTAs manage it for them, TravelClick’s White said. “The typical hotel can’t close the door, but they need to learn to manage it. Independents don’t have the buying power to negotiate those lower margins.”

TravelClick advises its clients to take a balanced approach—get no more than 10% of annual occupancy from OTAs.

And it never hurts to focus on the basics: great customer service.

“We are grateful we are not dependent on OTAs the way many hoteliers seem to feel they are. We definitely suggest hotels try and focus more on what we try to do—making sure our guests are so happy they don’t have to find new customers everyday,” Gutman said. “All of our hotels rank at the top of the list on TripAdvisor, so it is the guest satisfaction level that helps drive the demand for our hotels.”

HotelNewsNow.com editors Jason Q. Freed, Patrick Mayock and Shawn A. Turner contributed to this report.