I'm going to say this out loud. We, the business travel community, are letting the online travel agencies gain an even more dominant position in the marketplace, without truly recognizing how it will impact us all.
OTAs already dominate the leisure hotel booking marketplace. You only need to attend or speak at a hotelier conference to be asked, "What can we do about a hotel's dependence on OTAs?" like they're addictive occupancy drugs that come with a number of side effects.
Now, I'm no hotel revenue management expert, but I get the supply-and-demand dynamics of perishable goods like hotel rooms and therefore the need to fill, fill, fill those rooms. Every hotel needs a mix of business to fill its rooms. Location might make one or the other predominantly leisure or business, mixed up with some tour group, crew or meetings business. That mix commands different rates—and therefore yield—via different channels and helps plug gaps if a property is in a down season or a period of downtrading. The art of revenue management and smart distribution has become the secret weapon of every hotel. Hotels have worked out how to release and hold their inventory of rooms based on factors like day of the week, citywide events and onsite meetings. This enables them to fluctuate the price of their bedrooms; a bedroom that hasn't been slept in is a waste, just as out-of-date food is to a supermarket. Hotels' techniques are becoming more sophisticated, even helping them fend off the bots continually shopping for reduced rates.
OTAs spend literally billions of dollars a year in advertising to win over leisure traffic, for which OTAs charge hotels high commissions. Basically, the OTAs tell hotels, "Pay us more commission, and we'll do the advertising for you." There's much debate among hoteliers as to whether the system favors the OTA or the hotel, but the majority are in the OTA-wins camp. So if OTAs own the leisure space, it's natural for them to come hunting for the business traveler.
Business travelers are easier for hotel companies to acquire, via "preferred" hotel rates negotiated between the company and the hotel. These "special" rates then appear in business travel booking channels for ease of booking, though with much rate loading/auditing pain. Sometimes these rates garner 1,000, or even 5,000 travelers a year for a property. Not a bad deal, especially as there's no double-digit commission to pay an OTA. It's a nice deal, and in return, the hotels generally look after the business travelers and don't stick them in the dark rooms overlooking the air conditioning units.
However, OTAs are luring business travelers with "lower" rates by distributing and making their rates bookable via travel management company/online booking tool channels. Whilst other suppliers might be leaving these channels and creating direct book platforms, OTAs have actively pursued them. Why? A business traveler will still garner the OTA its eye-watering-for-hotels commission from the hotel with the added bonus of costing the OTA nothing to advertise, though the OTA will spend some on a corporate sales team.
An OTA booking also may not earn the traveler any status or points, and the air conditioning-view room becomes more likely when travelers book OTA rates. And now OTAs are partnering with the major travel tech providers to integrate these rates alongside other standard rates in corporate booking tools, a smart way of winning additional market share. OTAs stand the chance to rapidly grow their market share and become even more dominant.
The business travel industry's quick win in using OTA rates is that travelers will see the lowest market rates, but how will these be displayed? We shouldn't expect the traveler to understand what's included in one rate versus another. And herein lies an opportunity. You may be following the development of the Next Generation Storefront capability that allows better comparisons among airline products at the point of sale. It seems we'll need NGS for hotels now, too. Some forward thinkers are already on this. For instance, the RoomIt by CWT display clearly shows what's included in a hotel room rate, including those elusive loyalty points—or not, as the case may be.
Don't get me wrong. I'm all for a dynamic and progressive marketplace, just as long as the buyer/customer is aware of the shifting sands. The more we welcome OTA rates into the business travel ecosystem, the more we impact hotel profitability. Maybe that's OK as long as we all are aware of the shifting profit across the value chain. Maybe it's time to scrap corporate rates all together and move to a full and open hotel marketplace. Some leading-edge buyers are already thinking differently about hotel spend, and others are walking away from a reliance upon the much-maligned annual RFP. Whatever the strategy, I hope buyers are keeping a critical eye on internal demand/traveler need and overlaying this with an understanding of this shifting marketplace. As under any strategy, it's critical to keep an eye on the road ahead.