Study: OTAs continue to steal market share
31 JULY 2015 8:26 AM
Preliminary research sheds new light on the cost of customer acquisition.
WASHINGTON, D.C.—Demand share is shifting in the booking funnel, with more and more revenue slipping between hoteliers’ fingertips.
“It’s crazy. The world has changed. The question is: Now what? The real work begins,” said Rebecca Bucnis, Kalibri Labs’ executive VP and chief commercial officer, as she painted an ominous picture of the distribution landscape.
Perhaps the boldest stroke on the canvas involves customer acquisition, which costs hoteliers between 15% and 25% of total guest-paid revenue. Each of those percentage points represents approximately $1.8 billion in costs, she said, citing preliminary findings from the 2016 edition of Kalibri’s “Distribution channel analysis.”
Put another way, if hoteliers could decreases customer acquisition costs to between 14% and 24%, they would collectively save $1.8 billion. The more negative spin? If customer acquisitions costs go up to, say, between 16% and 26%, hoteliers could collectively pay and additional $1.8 billion.
That OTAs have continued to gain share in each of the past four years makes the costs landscape a bit more treacherous.
OTA share of guest-paid room revenue increased in economy and midscale hotels from 7.8% in 2011 to 15.8% in 2014. For upper-midscale and upscale hotels, OTA share increased from 7.7% to 11.7% during the same period. And for upper-upscale and luxury hotels, OTA share increased from 6.6% to 8.8%.
Put another way, OTA share increased 108% for economy and midscale hotels from 2011 to 2014; 52% for upper-midscale and upscale hotels; and 33% for upper-upscale and luxury hotels, Bucnis explained.
OTAs’ grip on guest bookings is tighter for smaller chains than it is for larger chains, she said.
Expedia, The Priceline Group and others claimed 15.8% of total guest-paid room revenue for hotel chains with fewer than 30 properties. Their share of revenue among chains with more than 30 properties was 10.2%.
OTA commissions play a part in the above. For smaller chains, commissions averaged at 19.8% of total guest-paid room revenue. For larger chains, commissions were 15.8%.
“The costs of doing business are going up,” Bucnis said.
Those increases are not always evident, however, she said. If distribution channels are not managed correctly, for instance, revenue per available room can go up while net RevPAR, which takes into account transaction fees, commissions and other costs, goes down.
That’s what the Kalibri team found in a study of New York City hotels. While RevPAR increased 2% year over year for the sample, net RevPAR actually fell 1% because of the rising cost of customer acquisition, Bucnis explained.
Some channels are simply less profitable than others, she said. Brand.com yields the highest contribution to operating profit and expense (or COPE) percentage at 98.99%. That means for every $100 generated, the hotelier gets to keep $98.99.
The OTA channel, on the other hand, had a COPE of 79.84%, meaning the hotelier keeps only $79.84 for every $100 in revenue generated.
Hoteliers must come to terms with the fact that “I lose money by some of the channels I use,” Bucnis said.