Twenty years ago, people relied on the telephone, fax, and mail; today, the vast majority rely on the Internet. As a result, the importance of the Internet as a sales platform is growing, as are all the measures that enable the use of the Internet as a sales channel.

Online Distribution Channels For Tourism Companies

Digitalization in the hospitality industry is undeniably on the rise. From inspiration to check-in to reflection, the guest can be accompanied digitally. However, this digitization is most noticeable in the booking process: Whereas 20 years ago people still used the telephone, fax or letter, today the vast majority trust the Internet. This goes hand in hand with the increasing importance of the Internet as a sales platform and all measures that enable the use of the Internet as a sales channel. A hotel's own website, for example, is only one way of encouraging guests to book online. Others are online travel agencies and third-party providers, known as OTAs, which now account for a large share of online bookings.

What are Online Travel Agencies?

OTAs or Online Travel Agencies are travel portals that allow users to book their travel online. From transportation to accommodations and additional services, trips can be customized or booked as a package. In addition to tourism services, OTAs also provide other helpful information, such as hotel reviews or travel tips.Hotels and travel companies can usually register for free. In addition to the most important key data, room availability and room rates must be entered. When a booking is made through an online travel agency, the company is charged a commission. Most online travel agencies work on a "pay for success" basis, meaning that actual costs are only incurred for completed bookings. The agency commission is based on various factors such asnumber of beds, location or annual revenue, and varies from company to company.The three largest OTAs also account for the largest market share. The Priceline Group, which includes booking.com, the Expedia Group, with expedia.com, and the HRS Group, with hrs.com, are among the top providers, claiming more than 92 percent of online bookings. In addition to traditional online travel agencies, meta-search engines are also widely used to book travel online.

What are Meta Search Engines?

Meta search engines are not search engines per se. Rather, they are web portals that combine the search results of many different search engines for a specific term and provide bundled information. From the user's point of view, this has many advantages: For example, meta-search engines compare prices and availability, filter out the best packages, and make it easier to navigate the vast array of booking options. Most importantly, meta search engines save time when planning travel. Meta search engines follow a CPC model, meaning that costs are calculated per click. With a defined starting budget, an offer can be positioned in the search results and the highest bidders get the first places in the ranking. When a click occurs, a certain amount is deducted from this budget. Anyone who is interested can bid. Individual companies as well as OTAs have the opportunity to place their offer in the search results. The booking is then made through the site that has the desired offer.The largest meta search engines are Trivago, TripAdvisor and Kayak. As with OTAs, the three largest players are Priceline Group (with Kayak), Expedia Group (with Trivago) and HRS Group (with hotel.de).

The Importance of OTAs in the Hospitality Industry

In May 2017, HOTREC, the umbrella organization for hotels, restaurants and cafés in Europe, published a comprehensive study on the distribution situation of European hoteliers in the reference year 2017. The study, conducted by the Welsh Institute of Tourism, analyzed more than 3,412 surveys from individual accommodation establishments in twelve European countries. The results were intended to paint as accurate a picture as possible of the current state of distribution (online and offline) in the European hotel industry, but especially in relation to online booking portals. According to the results, the percentage of direct online bookings has decreased from 57.6 percent to 52 percent since 2013. The market share of booking.com has increased by around 6 percent over the same period, from 60 percent to 66.4 percent. This makes booking.com the most influential OTA in Europe, followed by expedia.com with 16.6 percent and hrs.com with 9 percent. These developments clearly show that a decline in online bookings via OTAs is not to be expected. More and more guests trust booking portals and prefer them to direct bookings.The high profile and growing popularity of the big three OTAs seems to be both a blessing and a curse. While some properties are able to use this to gain greater visibility, others feel driven into a dependency. The use of online travel agencies certainly presents both opportunities and threats that need to be explored on a company-to-company basis.

OTAs - Their Potential and Dangers

Probably the biggest advantage of working with OTAs is high visibility. High online advertising spending in the billions of dollars and strong marketing power are part of the core competence of OTA strategies; after all, it is also in their interest to generate as many bookings and associated revenues as possible.Massive investment in online advertising is a profitable way to achieve this goal. In a report published in 2016 by the Priceline Group, they partially disclose their spending. It shows that it is not just about the sheer volume of online marketing spend, but also about the quality of the individual measures. The purchase of search engine keywords and metasearch recommendations are the two most important investments. Users on metasearch sites are the perfect target group for cost-per-click (CPC) advertising simply because of their interest, making a high budget in this area all the more profitable for OTAs. The result is not only an enormous online presence, but also the visibility of many individual businesses that would not reach them without the help of OTAs.Some OTAs also offer the ability to be flexible with pricing. This means the ability to change room rates based on season and occupancy. Companies can use this advantage of some OTAs to optimize their sales for the best possible revenue management and avoid fixed costs. The "pay for success" principle means that costs are only incurred when an actual booking is made. Few OTAs require setup or ongoing costs.Despite their obvious advantages, OTAs are currently facing a lot of headwinds in the tourism industry. Their growing importance in online distribution is forcing hoteliers into a self-imposed dependency. High commission costs, in some cases over 30 percent, do not pay off, especially for smaller properties. The supposed win-win situation does not always work out, as the aforementioned HOTREC study shows. 50 percent of respondents feel pressured by online travel agencies to accept terms and conditions (such as cancellation and pricing policies) that they would not otherwise offer. 36 percent feel there is no fair and effective way to resolve disagreements with online travel agencies.

Conclusion

Although many hoteliers are clearly resentful of OTAs, the success of OTAs as an online distribution channel is undeniable. Significant growth is expected in the coming years. The challenge for the hotel industry is to rethink and optimize their distribution strategies and set clear goals. A careful selection of distribution channels and partners is essential to achieve these goals. Blindly placing your business on the largest OTAs is not the answer. Rather, it requires a holistic distribution approach that leverages the resources and advantages of many different online and offline distribution options to achieve sustainable occupancy optimization and revenue growth.