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Online Travel Agencies: Threat or Opportunity for Hotels?

March 2015

For hotel companies, the success of online travel agencies represents both an opportunity in terms of additional revenues and promotion in new markets and a threat because of the significant commissions they need to pay and the rising competition for customers’ loyalty. To be successful in such a challenging and constantly evolving competitive environment, hotel companies need to learn to cooperate effectively with OTAs as well as to implement innovative strategies to increase direct bookings.

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The rise of Online Travel Agents

On-line travel agencies (OTA’s) were the first companies to understand the potential of the on-line channel for hotel bookings and still lead in this sector in terms of both technological innovation and marketing.

Increasing consolidation

Two players in particular, Priceline and Expedia, emerged as the most successful OTAs and today not only dominate this sector but are the two leading global travel intermediaries ahead of traditional players.

On-line Travel Agents successful model

Leading OTAs are able to consolidate the fragmented hotel offer. Other strengths of their business model are technological innovation and large on-line advertising investments, but especially a strong focus on consumers’ needs.

Opportunities and challenges for hotels

While OTAs represent an important resource for hotels to generate revenues and reach new markets, they also represent a challenge due to significant commissions and competition for on-line promotion and customer loyalty.

Risk of commoditisation

The main risk for hotels is commoditisation as price, discount, location, photos, reviews and rating scores become more important than brands for consumers when choosing a hotel.

Hotels’ possible strategies

To deal with these challenges hotels need to focus on consumers and technology, strengthen alternative distribution channels as well as make the most of their partnerships with the increasingly powerful OTAs.

A constantly changing competitive landscape

The next few years will see significant changes in the on-line hotel distribution competitive environment including the rising importance of mobile apps, in-destination services and big data and the emergence of new players.

Introduction

Scope
Key findings

The OTA challenge

The sharp rise of OTAs
Increasing competition between direct and indirect bookings
OTAs’ position strengthened by hotel sector fragmentation
Leading OTAs’ business model
OTAs’ business model main strengths
OTAs: Largest spenders on online advertising

OTAs’ Threats

Hotels-OTAs relationship: Benefits and drawbacks
Hotel-OTAs issues
Risk of commoditisation for hotels
Competition for brand loyalty intensifies

Hotels’ Possible Strategies

Focus on consumers and technology
Diversification of online channels and promotion
Make the most of hotels’ relationship with OTAs

From OTAs to Web Marketing Tools

A broader role for OTAs in hotels’ marketing strategies
Booking Suite: Booking.com moves into B2B services
Booking.com: Marriott partnership

Future Outlook

Towards a closed app environment?
OTAs as big data companies?
Competition moves to the hotel room
Proliferation of online distribution channels

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