Reassessing the relationship between hotels, OTAs

A seismic event sends the global economy into meltdown almost overnight.

Hotels suffer as reservations, conferences and business trips are cancelled.

Hotels struggle to retain occupancy and rates in the face of a worldwide crisis.

Sound familiar?

You may assume that I am referencing the COVID-19 pandemic of 2020 but I could just as easily be describing the financial crisis of 2008, yet the response to the two above crises by the hotel industry could not be more different.

During the 2008 financial crisis, online travel agencies, which had been around since the mid-1990’s, grew their market share exponentially by offering easy comparison shopping, promises of the lowest and best rates and easy online payment and confirmation. The click and book value proposition proved resilient and OTAs became the go-to platform for many leisure and business travelers, cementing them as a dominant force in the hotel industry.

Meanwhile, hotels at the time were desperate for new business and readily signed agreements with multiple OTAs to try and increase new business during a time of falling rates and occupancy. Hotels viewed OTAs as a new distribution channel that brought them new clients without much sales and marketing effort because only a simple online listing was needed and they viewed the commissions charged per booking as a small cost for producing that new business in a challenging business climate.

However, between the 2008 financial crisis and the 2020 COVID crisis the relationship between OTAs and hotels became more complicated. Over that 12-year span, OTAs consolidated and became huge multinational conglomerates with multiple brands spread across different markets. now has 23 brands worldwide, including, Orbitz, Hotwire and Trivago while now has six brands, including Agoda, Kayak and Priceline. These brands cover different market segments and different global regions and allow the world’s two largest OTAs to dominate the travel booking industry. By 2018, OTAs accounted for 51 percent of all U.S. hotel and lodging online gross bookings and similar patterns were established worldwide.

At the same time, hotels, while acknowledging the importance of OTAs as a sales and booking channel, were increasingly concerned about erosion of their own direct business and a lack of guest loyalty and relationship building due to third-party influence. In addition, the OTA’s increasingly high commissions (15-30 percent of a booking’s value) as well as their insistence on rate parity (hotels must offer the same rates on OTAs as they do on their own websites despite the commission charged) led to an increasing belief that more effort would need to be made to rein in these third parties and increase direct business.

Between 2015 and 2019 the hotel industry began a concerted fightback against OTAs through several efforts: legal and regulatory action against rate parity clauses, advertising and marketing campaigns to promote direct booking and dispel the perception that OTAs offered better rates and an increasing effort to improve hotel websites and social media as well as using search engine optimization and pay per click advertising to capture more guest bookings through direct channels. Hotels made large investments in modernizing their websites, offering exclusive book direct and package deals with “best price” guarantees, making booking and payment easier and paying a lot more attention to the growing influence of social media and influencers to drive business direct. These efforts slowly but surely paid off and hospitality market research company Phocuswright predicted that by 2022 direct bookings would be back to 50 percent of overall U.S. online gross bookings with further incremental growth expected in the following years as further investments were made and consumer behavior changed.

Increasing Challenges

These changes to the hotel industry combined with other market forces led to challenging times for the OTAs between 2017 and 2019. After years of consistent growth, they faced increasing competition by both new start-up OTAs such as Hotel Tonight, which offered rock-bottom last-minute rates (without rate parity!) and Airbnb, which offered a new cheap and easy to book category of accommodation in prime locations, as well as increasing competition from the hotels themselves with their new websites and social media offerings. In addition, the big OTAs found themselves struggling to manage multiple, disparate brands across worldwide regions and struggles to synergize their back-end administration. Lastly, OTAs were challenged legally in several EU countries for uncompetitive business practices and unfair pricing via their contractual rate parity clauses. All of this led to significant headwinds for OTAs in 2019. Booking Holdings, parent company of, reported single-digit growth after many years of consistent double-digit growth while Expedia cut 12 percent of its global workforce after a “disappointing” year.

While 2019 was surely a challenging year for OTAs, 2020 brought a perfect storm like no other. In March 2020 the global hospitality market collapsed overnight in the face of the COVID-19 pandemic. Within just a few weeks in March the world locked down—hotels were closed, conferences, trade shows and business travel were curtailed and millions upon millions of travelers cancelled their travel for 2020 and demanded refunds. OTAs and hotels were dealing with a tsunami of calls and emails and struggled to manage the situation. Call centers were overwhelmed, emails went unanswered, cancellation policies became points of disagreement and refunds became delicate negotiations between the OTAs, the hotel properties and the guests.

Johanna Bonhill-Smith, travel and tourism analyst at GlobalData, explained that “COVID-19 has accentuated a series of problems within the structure of an OTA as customers’ battles with refunds and questionable levels of customer service show. This has caused considerable brand damage for OTAs, which has impacted relationships with both consumers and suppliers.” Thus the first half of 2020 was spent managing the initial fallout from the pandemic crisis while the second half of 2020 brought no respite as further lockdowns, social distancing and travel restrictions continued to batter travel bookings with Expedia reporting gross bookings down 68 percent in the September quarter.

Hotels faced their own disastrous 2020 with revenue and occupancy vanishing overnight and many properties closing temporarily and furloughing staff, but in contrast to the financial crisis of 2008 hotels reacted very differently to this crisis. Instead of relying on OTAs for assistance with finding new clients and bookings hotels turned inward—spending what little sales and marketing budget that remained toward their own website, social media and direct guest engagement. While it is too early and too volatile a period to see how these efforts are affecting long-term consumer behavior some early indicators show that this investment is paying off. D-Edge, a hotel marketing company and consultancy in the Asia-Pacific region, reported that from June-September 2020 the APAC region “has shifted to 45 percent direct distribution making it the most important channel,” an amazing achievement in an area where OTAs have historically been predominant.

The crisis also forced a reassessment of the OTA-hotel relationship. Michael O’Brien, founder of Monday Hospitality Group in London, a hotel consultancy as well as accommodation owner, acknowledges that many hotels “would be nowhere without OTAs during this crisis” but that while “commissions offer value for money” in times of distress for the industry, the treatment of hotels in regards to cancellations, refunds and terms and conditions during the crisis has created a “re-assessment and re-evaluation of the OTA relationship as 2020 demonstrated that we are not really a partner anymore.”

Fighting Back

OTAs are responding to these challenges, adapting to a new normal and planning for the future through investments in new and innovative startup brands, simplifying their cancellation and payment policies and adapting their purchase of search words and pay per click advertising while emphasizing their strength and support in the marketplace, especially with millennial travelers. Trivago recently acquired Weekengo and, a popular startup that connects mainly younger travelers with innovative and inspirational weekend stay opportunities and packages. The purchase highlights the growing trend, especially among younger consumers, of placing experiences at the forefront of the travel experience. Another successful startup popular with younger consumers, Hotel Tonight, was acquired by Airbnb and continues to perform admirably during COVID due to its last-minute booking USP.

While cutting back on online advertising in general due to the downturn, OTAs have also used their deep experience in paid search advertising to further tailor their advertising to the new normal. They have shifted their paid search keywords to themes around cleanliness and sanitization, popular destinations during socially distanced periods and key phrases such as “drive to destination” thus they have uniquely been able to capitalize on consumers' quickly shifting priorities during this time of upheaval.

OTAs have also worked hard to update their customer service as well as cancellation and booking policies to meet the needs of the current consumer. Chatbots are now prominently displayed and are helping to reduce call waiting times, call centers have been expanded to accommodate the increase in calls and easier cancellation and refund policies have been negotiated with hotels.

And so, as the pandemic enters its second year and vaccines become available, we will soon see how consumers respond and behave in this new era of travel booking. We are entering a critical juncture in the OTA versus hotels debate with both sides claiming the high ground going into what is widely hoped will be a rebound period. Late in 2020 Expedia released a study suggesting that “travelers are 57 percent more likely to book their travel through an OTA now than before COVID-19, and millennial and Gen X travelers are the most likely to book via an intermediary” while hotels are also boasting of their own incremental, steady gains in direct guest booking and engagement during the COVID crisis. Yet the importance and symbiotic relationship of both entities cannot be understated. According to a recent hotel website study by Google, “52 percent of travelers will visit your hotel’s website after seeing you on an OTA” and “over 20 percent of direct bookings occurred after the guest found the hotel on an OTA,” demonstrating that even with the gains made in direct booking over recent years, hotels still will be relying on OTAs even for direct bookings going forward. Let’s all hope that guests, hotels and OTAs come out ahead in 2021; your next stay may be dependent on it!

Ryan Green is a hotel manager and consultant based in the U.S. and Malaysia.