For over ten years, OTA (online travel agency) giants such as Expedia, Priceline and Booking.com have been demonized by franchise chains for being too expensive, and even leveraging 9/11 to take over the industry.
Is the rap true, or is it possible the OTAs have been framed?
Why would franchise chains such as Wyndham, Choice, Accor and IHG focus so much attention on what they refer to as the evils of the OTAs?
Before the 1990s, most hotels received business the direct way; drive by, AAA, selling direct to corporate and government segments. The only hotels receiving GDS travel agent business were generally the largest chains, such as Hilton, Marriott, Holiday Inn, Best Western and Choice.
But the 1990s brought 2 large changes.
- The massive franchise explosion driven by Henry Silverman on top of the go-go economy of the Clinton years.
- The Internet and the birth of online travel.
Franchises offered hoteliers the benefit of the CRS (central reservation system), which at the time consisted of 800-call center and access to GDS travel agencies. So they added Internet booking and marketed themselves as the one consolidated source of business for hoteliers. It made perfect sense at the time.
Then after 2000, the Internet exploded. Consumer preference for online hotel booking became massive so quickly that OTAs became the connection between guests and hoteliers, instead of the franchise chains.
When chains responded slowly to the post 9/11 travel shutdown, hotels needing to fill their rooms quickly reacted out of necessity and went direct to the newish OTAs.
So much business came directly from the OTAs to the hotel that for the first time, the question arose–Why do I need a franchise when my hotel can sell via Expedia and Travelocity?
Before the Internet, key sources of business for hotels were:
- Direct, walk up
- AAA guides
- GDS travel agencies-source of 90% of corporate and non-leisure business.
- Wholesalers, such as tour buses.
- Direct corporate business.
- Government business.
And the costs associated with these channels were always perfectly acceptable.
- AAA was a 10% discount off rack.
- For corporate and international business, we paid travel agents a 10% commission plus a $6.00 GDS fee per booking. For a $65.00 room, that was a cost of 19%.
- Tour buses asked a 25-30% discount and a guaranteed block of 25 rooms.
- Government and military discounts ranging from 10-25%.
So if we want to examine the actual costs of acquiring customers, it’s important to include the franchisor as a channel.
- Let’s take a 150 room midscale WYNDHAM operating at 65% occupancy with 10% of their bookings through OTAs.
- The hotels’ gross annual room revenue is $4.9 Million.
- All OTAs combined deliver 10% of the revenue, less a cost of 15%, or $73,710.00
- The franchise website delivers 18% of the revenue less a cost of 11.5% of gross, or $565,110.00
- The cost of an average franchise is 11.5% of total room revenue.
- So, the cost of the average Wyndham or Choice franchise is 7.7 x or 767% over the cost of all OTAs combined.
From a cost to acquire customer basis…. does any franchise deliver 7.7 x Booking.com, Expedia, Priceline and Google combined? While it is difficult to accurately calculate franchise chain contribution to hotel owners, the OTAs can.
While the OTAs have been cast as the greedy villains by the major franchise chains, today any hotel anywhere can be booked globally. And at less than the cost of a travel agent or traditional walk-in discount
Do you consider OTAs as your partners along with travel agents, and tour bus operators?
That depends, on whether you are a hotel owner or franchisor.