OTA (Online Travel Agent), Friend or Foe?

In today’s hospitality industry, the role of Online Travel Agents (OTAs) has grown rapidly. OTAs seem to be the “best solution” for attracting guests to a hotel. It seems that from the moment they open, connecting with an OTA means everything will be fine, with a steady flow of reservations filling the hotel’s room availability. However, over time, many hotels have become overly dependent on OTAs, as the majority of reservations originate from them. Furthermore, the commissions charged are quite high, ranging from 17% to 30%, depending on specific circumstances. With such a large number of reservations, coupled with substantial commissions, the cumulative costs incurred are substantial and extend over a significant period of time during the hotel’s operational life. This situation creates a sense of intimidation in some hotels, raising the question: are OTAs a friend or a foe?

To answer the above question, we first need to examine the sales methods, which are principally divided into two categories: direct distribution and indirect distribution. Direct distribution is sales conducted without an intermediary, meaning it is sold directly to customers or guests who plan to stay. Because sales are direct, there is no commission component included in the sales price. In practice, direct distribution occurs through the hotel website, hotel app, telephone, WhatsApp/Messenger, email, or chatbot. Indirect distribution, on the other hand, is sales conducted through an intermediary or third party. Customers or guests who plan to stay at a hotel purchase from this intermediary. Therefore, this intermediary receives a commission from each room purchased by the guest. In this case, OTAs fall into the indirect distribution category.

Both direct and indirect sales channels must operate well. Within a hotel, the ratio of direct distribution to indirect distribution is considered healthy if the direct distribution proportion is the majority. Empirically, the indirect distribution portion is considered healthy if it is around 20%. Indirect distribution will become the majority if the direct distribution is not functioning well or optimally. In addition, in terms of Market Segment, sales can be divided into at least 4 categories, namely:

1. Corporate
2. Government
3. FIT (Free Independent Traveler)
4. Travel Agent/Whole Sale

In this case, guests from OTAs fall into the FIT category. This illustrates that even if all four market segments operate optimally, it is highly unlikely that FITs will constitute a majority of the overall market segment.

The brief explanation above provides an insight into the answer to the question: OTA, Friend, or Foe?

When something exceeds a healthy dose, it becomes harmful. In the case of OTAs, they are Friends when they are in adequate amounts. However, OTAs become Foe when they exceed their normal dose. Even a potent medicine can become poison if consumed in excess. A good management principle is to follow: “Don’t put all your eggs in one basket!”

What can a hotel do if OTAs have become the majority and have become overly dependent on them? Here are some tips to fix this issue:

1. Examine the production portfolio of existing market segments and strive to maximize each segment’s production.
2. Prepare and activate the Direct Booking sales infrastructure.
3. Consistently and significantly convert indirect bookings to direct bookings.

Is the OTA at your hotel a Friend or Foe?

Written by Ojahan Oppusunggu, Director of Technical & Technology – Artotel Group