Another hit for the online travel agents - Insights

Another hit for the online travel agents

Like anything in business, nothing lasts forever. The online travel agency (OTA) world started exactly 20 years ago when Expedia was born inside Microsoft. Expedia, with a valuation of over $10 billion at its spin-off, was the most successful business born inside the software giant.

OTA’s add a valuable way for the hotel to reach customers that they just don’t have the ability to by themselves. However, of late, the costs that hotels are seeing on their P&Ls has their managers and owners pulling their hair and scrambling to find a way out, and a way to reduce these margin-eating commissions.

What has made the online travel agency so popular is two-fold. One, the hotels and their offerings via the web were very late coming to the online revolution in the late ’90s, this gave the OTA’s a huge head start in developing hotel consumer online habits. Even today the hotels are still trying without any real luck to make up ground and have an impact on consumer trends and their efforts to slow the rising costs of commissions resulting from their reliance on OTA’s.

The second reason the OTA’s are so popular is the consumer automatically has 15 to 50 to 100 times more choices than a single barrelÊlook down the offerings of a brand for any named locations. Even with the recent merger ofÊStarwood being gobbled up by Marriott, it’s most definitely an effort to give the customer more brand-inclusive choice, and now that they are the biggest hotel company in the world, they have roughlyÊone in 15 branded hotels in the world in their portfolio of 35 brands as reported by CNBC. Using this ratio, the math would tell us there are approximatelyÊ90,000 branded hotels in the world. Another way to look at this is there is a long, long way to go for the brands, as there are somewhere between 400,000 to 500,000 hotels, hostels and B&B’s in the world. That’s a big number, and the OTA’s strategyÊis to sign up as many as possible and have future clients of these establishments book their stay through the OTA site, which in turn drives commissions.

So, what is a hotel to do to try and get a leg up and diminish these commissions? A Danish company has created a product that might just be theÊstart of something really big. And it’s based on an old idea, service. The company has developed a peer to peer application that connects corporate travel planners, individual travel planners and travel agents with a direct connection to the hotel. No middle man to pass through, no rates to maintain for rate parity with the OTA’s. The hotel can make any deal they want with the inquiring party; again I’ll say, just like the old days. Connecting clients using crisp software that eliminates the middleman puts the service back into the equation. Now a hotel can forge a relationship with a client and build on that transaction. And the really big part of all of this is the hotel pays zero commissions to use the system. All they pay is a basic minimal fee and that then gives them a license to use this product for a year.

On the agent side, the landscape today requires the use of a commission-based product to book rooms that is very cumbersome and not user-friendly for the travel planner. The RFPMaker platform is designed with the travel planner in mind. It uses an API that allows the planner access to over 350,000 hotels, and all the planner needs to do is drop a pin and ask for a proposal from the hotel. The agent can even ask for multiple proposals at the same time from various hotels in the same area, equalling a very efficient system for getting a price for their customers. With the RFP product, no commissions are paid and this means a better deal for the consumer, lower prices and better service.

By David Lund

David Lund is an international expert who has been branded ÔThe Hotel Financial Coach’. Just as any great hotel is true to their brand, so is David. His client commitment is about exceptional service. And his #1 focus is to help his clients gain a fastÊReturnÊOnÊInvestment from his workshops and personalized coaching. David’s background includes over 30 years as a regional controller, corporate financial Director, hotel manager and controller throughout North America.

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