The reality, the math and the slippery slope
An opinion piece published recently in PhocusWire talked about a future of OTA dominance. The author writes, “Much of the early returning demand will come through third parties – even wholesalers. Like it or not, the fate of your hotel – whether or not you can recover – is in the hands of the online travel agencies.”
The author outlines a number of reasons why OTAs will dominate over direct bookings, including price conscious consumers, lack of marketing resources at hotels due to furloughs and layoffs and travel returning in waves based on region. While I agree that there will be tremendous temptation to fill rooms at any price, I don’t think hotels should accept that fate.
Yes, a full hotel will provide a feeling of relief and return to normalcy. The lucky staff that’s around to witness it will be happy to service guests again and management will breathe a big sigh of relief to see money flowing again, even if it’s not the most profitable route. OTAs are the path of least resistance but we learned in 2001 the damage that they do to long-term financials.
Plus, it’s 2020, not 2001. Hotels today have an entirely new toolset to win direct bookings. They have CRM platforms, access to rich guest data and far better email marketing tools and social advertising solutions than 20 years ago. Promotions today can be finely tuned to very specific segments and, as a result, drive incredible response rates. While OTAs are technology and marketing masterminds, hoteliers now have the tools to compete.
We hope that hoteliers use their assets before giving up business to OTAs. The math proves that even small shifts in OTA share can have massive impacts on profit, given the cost of acquisition and the fees paid to OTAs.
For example, a $150 room that may cost $75 sitting empty to maintain if you consider the fully loaded cost of real estate, staff, etc., can be sold directly for almost $75/night of profit. That same room through an OTA at a 25% cost of sale makes half the profit. Said simply, a hotel at full occupancy filled with OTA bookers is as profitable as a hotel at 50% occupancy, but with direct bookers.
At the start of Covid-19 we heard hoteliers rallying against OTAs and vowing to do things differently when demand returned. Where do they stand today now that travel is beginning to pick up? It will be interesting to see if the industry uses these market conditions and need for profit to claw against what’s easy and invest in a solution, like Revinate, to drive a smarter profitable revenue, or if they cave to the pressure of filling beds.
While we know many will slip down the OTA slope again, we hope you place a bet on your own marketing prowess coupled with our technology. We know this pair can pay off huge in driving revenue, because we have watched our customers wean themselves off of OTA reliance before Covid-19 hit. Show the industry that profitability matters. Start now.
Need help or just a pep talk? Reach out. And, check out our guide on how to build a competitive marketing strategy.