The huge financial toll that the pandemic has taken on the travel industry, which the World Travel and Tourism Council estimates lost $5.5 trillion last year, is renewing complaints from hotels, airlines, and tour providers about the largely unseen percentages of their revenues they have to pay to online travel agencies, or OTAs, including the behemoths Expedia and Booking.com and their subsidiary brands: Priceline, Kayak, Hotels.com, Hotwire, Orbitz, Travelocity, and many more.
“I don’t think most consumers understand how much hotels are paying out to acquire their business,” said Cindy Estis Green, CEO and cofounder of the hospitality data firm Kalibri Labs.
The crisis has encouraged independent hotels and small hotel groups in particular to speak out publicly about OTA commissions as high as 25 percent. The big chains can negotiate for lower fees, but even they’ve been doubling down on loyalty programs, offering points and other perks to encourage direct booking and avoid paying OTA commissions. Some airlines have also pushed back.
“The hotel industry took a pretty hefty body blow because of COVID,” Green said. “So anything they’re having to pay out is going to be a topic of interest.”
All of this coincides with greater consumer awareness of commissions charged by middlemen, most notably third-party food delivery companies. Early problems processing refunds have hurt OTAs’ approval ratings, which the American Customer Satisfaction Index says have fallen to an all-time low. Independent hotels and small hotel groups are banding together for added clout in networks such as Preferred Hotels and the new Curator Hotels, which launched in November. Travel review sites including Needham-based Tripadvisor are seizing the moment to promote subscription programs they say will bypass OTAs and save money for both travelers and travel providers.
Still, the formidable role that OTAs have come to play in travel isn’t likely to diminish. In fact, with group and business travel almost nonexistent, OTAs have been delivering an even larger share of what few bookings are still being made. And $250 million in marketing credits and a temporary reduction in commissions given by Expedia to participating hotels as part of a recovery plan came with conditions that lock the hotels even more tightly into this relationship.
OTAs hit their stride during the last recession, when hospitality companies suffering through huge declines in business travel used them to fill empty rooms. “They relied on those powerful channels to help,” said Brian Hoyt, spokesman for Tripadvisor, who previously held the same job at Orbitz. “That was a great argument for 2008. Then commissions started to bite more into profit margins.”
Some of those same hotel executives seem surprised in hindsight about how big the OTAs have gotten since. More than two-thirds of online hotel bookings are now made through OTAs, the market research company Micrometrics reports. Commission payments have grown to become the second-biggest expense on the accommodations side of the hospitality business, on average, the American Hotel and Lodging Association says.
“It got out of hand too fast,” said Johnathan Capps, vice president of revenue at management company Charlestowne Hotels.
But hotels also benefit from a channel that makes it easier for consumers to book with them and vastly expands their market, and from the nearly $11 billion a year on marketing spent by Expedia and Booking.com.
“There is a broader reach in terms of customer that we deliver,” said Zuhairah Washington, senior vice president and general manager of global strategic partnerships at Expedia.
The biggest players have been chafing at sharing so much revenue with OTAs, however. Airlines, which reportedly have hammered down their commissions to around 2 percent, have nonetheless begun to block some OTAs from listing their fares in an effort to steer more flyers to their own websites; several offer bonus frequent-flyer miles to travelers who book direct.
Delta and JetBlue have pulled out of several smaller OTAs and Southwest prevents any third-party sites from selling its flights. United in 2019 threatened to cut ties with Expedia and the two went to court before eventually agreeing to a new contract.
Hotels have fought back, too. Marriott negotiated a new deal with Expedia in 2019 that reportedly lowered the commission it has to pay to 10 percent.
Tripadvisor, which is not an OTA but gets paid when users click from its site to OTAs to book, launched a service in January called Tripadvisor Plus through which consumers can buy $99-a-year memberships that gives them discounts at participating hotels, tours and attractions, and amenities such as welcome gifts and meal credits.
Members reserve their stays directly, saving the providers from paying a commission; Tripadvisor’s Hoyt said that what they save in discounts should more than make up for the fee.
“The consumer’s winning, the supplier’s winning, and Tripadvisor’s winning too,” he said.
Expedia won’t divulge its commissions and its contract bans its partners from disclosing them; by even mentioning the topic, that front-desk clerk in Maine was in violation of the hotel’s agreement with Expedia. But travel companies say there’s no question they make less money from customers who come through OTAs than from those who book with them directly, even when the guest’s rate is exactly the same.
That’s why, like airlines, hotel companies have put their principal emphasis on getting more of their guests to book direct, pushing loyalty programs and adding perks. Marriott launched its Bonvoy program in 2019, for instance; Hilton that year ran a “Stop Clicking Around” ad campaign. These are slowly making inroads; loyalty-related bookings rose that year to 56 percent of all reservations, according to Kalibri Labs, outpacing OTA growth.
“We have strong relationships with many online travel agents,” said Hilton spokeswoman Meg Ryan. But “we do encourage our guests to book directly to receive the most benefits and lowest prices.”
Independent hotels and small hotel groups are trying this now, too.
“What the pandemic did was force people to be more engaged,” Capps said. “Guests had to call hotels directly to get information. We got a lot of direct access to consumers. We try to engage that customer, get that contact information, tell them that we send out offers related to booking directly with us. It may be a long play, but it’s starting to work.”
Washington, at Expedia, said direct booking and loyalty programs “don’t have a notable impact” on its business, though it last year added a clause to its contract forbidding partners from disparaging the company or telling guests that Expedia bookings “are not entitled to the same benefits, amenities and services as bookings through your own channels.”
She said the company has ongoing communication with partners. “The conversation about commissions is one that’s not new,” Washington said. “We feel really confident about the agreements we have in place. We think they reflect the value of the role that we play.”
Independent hotels are now signing up with networks such as Preferred, which has its own loyalty program offering points that can be redeemed for stays.
“If the smaller independents can form a network and have the added leverage, then they can put more pressure on the OTAs to lower the commission,” said Deborah Friedland, practice leader for hospitality advisory services at the accounting and advisory firm EisnerAmper.
So far OTAs have resisted this, said Michelle Woodley, president of Preferred, which she said has been in discussion with the major OTAs about commissions for years.
“We just don’t seem to be getting anywhere,” Woodley said. “It’s unfortunate that it takes a serious situation like this for the covers to be really pulled back on that reality.”
Jon Marcus can be reached at [email protected]