June 01, 2018

Why hotel brands should really be scared of Expedia


What is preventing OTAs from initiating their own hotel brands, just like the Marriotts and Hiltons of the world?

It’s not implausible. And for hotel franchisees who already pay fees to the brand on top of OTA fees, it sounds even better. According to HVS, hotel franchisees pay upwards of 11 percent of their rooms revenue to their brand or franchisor. This includes a royalty fee, a sales fee, a marketing fee, a loyalty fee, miscellaneous fees and an initial startup fee. That’s a lot of fees, which is why some hotel owners make the decision that operating an independent hotel is more profitable in the long run.

If those fees weren’t enough, hotels, in many cases, are subject to a commission fee when taking business through an OTA. Under the Agency Model, OTAs serve as agents for their merchants, listing the hotels, their services, and the prices. The OTAs receive commissions (generally between 10 percent and 30 percent) on bookings made via their sites, with the hotels paying the OTAs following receipt of payment. All of these fees add up, with, sometimes, only gristle left on the bone.

A natural evolution of OTAs is a product for traditional hotel owners. As evidenced, OTAs have gradually become more differentiated, offering similar products to those of traditional hotel companies. All that is missing are the flags. Should an OTA seek to enter the brand game, it would come down to this: convincing a hotel developer/owner to use its brand over another. And hotel companies going asset light and relying purely on their brands makes it that much more a compelling reason for OTAs to join the mix.

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