Study: OTAs continue to steal market share
 
Study: OTAs continue to steal market share
31 JULY 2015 8:26 AM
Preliminary research sheds new light on the cost of customer acquisition. 
By  
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. 
 

9 Comments

  • The Brothers July 31, 2015 2:00 PM

    If all the Hotels of the world had the bottle and eliminate the OTA's, the problem would disappear. It would interesting to see what the ota's response would be if in one city somewhere all the Hotels got together and do just that, so that the customer to book a room had to go direct!! The term parasite seems quite relevant here!!

  • NOW July 31, 2015 9:48 PM

    DO IT!

  • Fredrick Farley August 2, 2015 3:46 AM

    Interesting article and one that clearly puts out data based facts which many people in the industry have believed to be true for some time. So, how do you solve the problem? The comment from The Brothers isn't the answer obviously - that has 'lawsuit/collusion' written all over it. Going direct isn't the sole answer either - and calling OTA's a parasite, well, name calling never resolved much. Some good lessons can be learned from how the airline industry has evolved and managed distribution to a certain extent. OTA's play a role in that they bring many consumers to the table in many cases that may be untapped business. Undoubtedly, they are part of the solution. However, as this study shows, it is incumbent upon hotels for their financial interests to more closely and accurately manage their channels. HBA's - while not exactly like OTA's - can be lumped into this group for the most part. TMCs are part of the equation as well. Of course their might be a higher absolute 'cost' from the pure fee paid to the GDS for the transaction but the value of the revenue and customer is, in many cases, higher. Technological developments and evolution have made the old 'rate parity' clauses of TMCs and Hotel relationships obsolete. In fact, the larger TMCs continuing to insist on rate parity clauses is actually self damaging and, at best, an illusion only. GDS and additional distribution channels (again, HBA's can be viewed in this group somewhat as well - witness them providing their 'content' to GDS and TMCs directly...) are a solution provided their is an overall strategy. If there is enough money being paid to OTAs and HBAs (Hotel Booking Agency) that in and of itself, tells you there is possibly too much money being paid out! More precise and stronger language about redistribution (not to mention enforcement - both capability and willingness) and what that entails needs to be developed to 'put fences' around some of these channels. This doesn't even touch upon Consortia and the role they play in not just 'distribution' but delivering value as well. Times have changed with all the technology - do they make sense compared to 25, 15 or 10 years ago? How many consortia does your typical agency join/participate in - where do they access the rate(s), who pays them and how, who determines what drove their business decision to make the booking they did? Of course we also have our friends at technology companies such as TripBam, Yapta etc. who are helping to lead the race to the bottom. Where do they access their content, how are/were they authorized to access the content, how can fences be put around that to eliminate that downward spiral? A lot of questions, no easy answers but this isn't the first time in the hotel industry that we've heard this exact same issue come up. A close look at how some of these issues arose on the air side of the equation is revealing. Are there parallels - absolutely; are they the same - not quite. Can it be solved - yes, but keep in mind as long as the current model exists of hotels (independent, franchisee, corporate owned, small group holders etc.) independently managing to their best interests - either short term or long term - that there will be no universal solution and no matter what happens someone isn't going to be happy!

  • Simon Costain August 2, 2015 7:38 AM

    Independent hotels are on a losing game until OTAs are taken out of organic Google search

  • Daniel Backhaus August 3, 2015 8:00 AM

    Let's start with the heading that states that OTAs "steal" revenue. Really? I submit they earn it, instead. Every penny of it. Simply by doing a job that hotels, management companies, and brands should be doing but fail to. Or, they are doing it so poorly as to be laughable. Which is proven out by the data: OTAs are gaining ground across the board and in every category. They are making these inroads through better targeting, better SEO performance, better content marketing and a better user experience. And, as previous commenters have pointed out, name-calling or whining will do little to change this. After all, nobody is FORCED to work with the OTAs. And, let us remember, the OTAs were once a welcome - and low-cost - distribution channel, and one that was eagerly embraced. Now, as the balance of power has shifted - through their hard work and the hotel brands' complacency - they, much like Goethe's Sorcerer's Apprentice, lament the spirits that they themselves summoned to once help them. The answer? Do your homework. Get to know your customers and what they want. Master the digital channel. Focus on user experience. You have access to data the OTAs can only dream of: your loyalty programs, brand and property websites, in-house POS systems for F&B, regular customer interactions, etc. Try actually mining it, listening to your guests, and understanding them. Focus on your customer and the revenue (and direct bookings) will follow. Fail to do so and watch others step in and disrupt your model. It's what happens in a free market. And it's called disruption, not theft.

  • Kris Seeboo August 13, 2015 9:44 PM

    The analysis above is clear and very pertinent. Hand wrangling attitude from any stake holders will never help any one's organisation to embrace all changes that are evolving at such an astounding pace . Hoteliers cannot stay complacent and blame the others who have identified emerging trends of the market.The Macron's Law in France would just highlight the new contour of the relationship between OTA and Hoteliers . Let us be real LEADERS than just mere MANAGERs

  • Revenue Manager December 9, 2015 5:31 AM

    OTA's are like fast food. They'll prevent you from starving to death, but if your diet is based on regular consumption, it will eventually kill you.

  • Joel Ross December 9, 2015 8:50 AM

    Between OTA's rising costs and market share, and Airbnb taking a growing share of room nights, and add the proliferation of brands canibalizing exisitng franchisee income, owner operators are needing to run ever faster just to stand still. This is why instead of all the focus on Revpar, the data needs to be on net revpar and NOI. Gross revpar is irrelevant for the owner investor

  • ollybeat December 10, 2015 4:42 AM

    If we remember that the OTAs were originally a source of access to direct clients /SMEs when they first started and offered a cheap GDS type distribution channel (called the internet!) to small "mom n pops" which then became quickly very successful and travellers drifted away from stuffy old school legacy chains stuck with 60's airline based inventory and booking management technology, who weren't prepared to invest the $s that the OTAs did in web based systems and mobile. Now the chains have let the "Genie out of the bottle " they are desperately trying to put it back in again! Accor have recognised this as have the Marriott/Starwood tie up with loyalty offers in a closed user group to get arlound the one-sided rate parity contracts THEY signed with the OTAs. But guess what? All the big loyalty travellers work for large global corporates who use TMCs and will not book direct! You make your bed....

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