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| STR's Steve Hood shares findings from the hotel distribution analysis. |
NASHVILLE, Tennessee—Online travel agencies cost the U.S. hotel industry approximately US$2.5 billion during 2010, according to preliminary findings from the AH&LA and STR’s hotel distribution analysis and further analysis conduct by Tourism Economics.
The US$2.5-billion tally assumes all of the rooms sold via OTAs during 2010 would instead be sold on brand.com or property direct. That number does not include the costs associated with booking on the brand.com or property-direct channels.
The booking study, for which finalized data will be published in September by the HSMAI Foundation, was the focus of discussion Wednesday during a general session at the Third Annual Hotel Data Conference, held at the Gaylord Opryland Resort & Convention Center in Nashville, Tennessee. The report aims to analyze the costs and benefits of various distribution channels, such as OTAs, brand.com, voice, property direct and GDS.
The study comprises booking data from 24,500 properties, of which more than 95 hotel chains were represented.
Hotel roomnights booked through OTAs accounted for 9.8% percent of total U.S. demand during 2010, said Steve Hood, senior VP of research for STR, the parent company of HotelNewsNow.com. Brand.com was the most dominant booking channel, accounting for 17% of all roomnights booked, followed by voice/central reservation system (13.7%), the aforementioned OTAs, and GDS (7.9%), among others.
Put another way: OTAs accounted for approximately 99 million of roughly 1 billion roomnights sold in the U.S. during 2010, Hood said.
Brand.com (19.4%) was also the most dominant booking channel in terms of total revenue share. Voice again came in second with 17.4% of total revenue share, followed by OTAs (7.2%) and GDS (10.4%), among others.
OTAs and demand
The OTAs’ share of total revenue has grown significantly since 2001, said Adam Sacks, founder and managing director of Tourism Economics. Back then, the booking channel accounted for 1.34% of the U.S. hotel industry’s total revenue. Today, that number has risen to 7.35%.
That increase has generated an incremental increase in demand, he said.
“In terms of demand, there is a relationship. The growth in OTA market share has indeed driven demand. It’s increased demand by a little over 1% over the period of the last decade,” Sacks said.
But with that influx in demand has come a decrease in average rates. A regression analysis performed by Tourism Economics revealed that for every 10% the OTAs gain in market share, the U.S. hotel industry as a whole would experience a revenue decline of 4.4%.
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| Hotels need to do a better job at “owning” their customers, said Choice Hotels International's, as Expedia's Nick Graham looks on. |
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“Over time, the gradual increase in hotel market share has had a negative effect on overall hotel revenues,” Sacks said.
The property-level perspective
Sacks was careful to emphasize his analyses addressed only the hotel industry in aggregate. The effects of distribution channel management could yield dramatically different results property by property.
Mark Lomanno, chief strategy officer at STR, agreed. While he took an opposing viewpoint that OTAs don’t generate any incremental revenue, he said distribution channel management yields winners and losers in the hotel industry as properties move finite demand from one location to another and from one time to another.
Cindy Estis Green, managing director of The Estis Group, said it’s for this very reason that effectively managing that channel is so important.
“Optimal channel mix requires analysis of demand and competitive analyses of the market situation,” she said.
Hoteliers should keep track of how much each channel costs versus how much revenue it generates. Finding that cost-to-revenue ratio will help determine which channels are most beneficial and which should be pursued by a given property and to what extent.
Nick Graham of Expedia Partner Services Group—and the lone OTA representative on the panel—further emphasized the channels within the OTA channel itself.
“When you peel the cover back within the OTA segment, there’s actually many channels of OTAs to manage,” he said, offering corporate versus leisure and international versus domestic as two examples. “… When you look at an OTA, don’t look at it as one source of business or one single entity (but rather a channel to mix in your strategy).
“The OTAs are not one size fits all. It’s about finding the right channel within the OTA mix for your property,” he said.
Still, OTAs are typically the most costly of any distribution channel, Sacks said.
The reason for that is simple, according to Bill Carlson, senior VP of performance analytics, for Choice Hotels International: OTAs are just another intermediary that stands between a hotel and the traveler. Added costs are inherent in that business model.
That’s not necessarily a bad thing in general, Sacks said, pointing to economic theory that states intermediation improves transparency, efficiency and is better for the consumer—and therefore better for the economy as a whole.
Hotels just need to do a better job at “owning” their customers, Carlson said.
“You would have to win that guest and do something unique, special … at the property—something the OTAs can’t touch,” Carlson said.
