Online Travel Agencies Majority Revenue from Hotel Booking Fees and Commissions

My Loyalty traveler advice is to use online travel agencies (OTAs) for hotel rate comparisons, but always go to the hotel chain’s own websites for booking your hotel stay.  After you have narrowed your hotel selection down based on rates displayed on sites like Expedia, Kayak, and Orbitz, then search the hotel chain’s website for even lower rates. This will often reveal a better rate. Remember to check group rates like AAA and senior discounts which are not shown on the results of an OTA search.

Also, special offer rates through the individual hotel’s website many times will provide an even lower rate than AAA for your dates.

HotelMarketing.com posted an article showing OTAs make the majority of their revenue from hotel industry fees and commissions. Expedia made 60% of its 2008 revenue from hotel bookings compared to just 15% from airline bookings.

The case study shown in the cited article reveals Expedia had a 25% mark-up for hotel fee/commission on a $550 New York 2-night hotel stay. Basically the hotel is paying Expedia quite a chunk of change, $137.50, for a $550 booking.

The deep discounts available on special offer rates through the hotel’s own website are possible because the inventory off-loaded to OTAs is at a substantial discount to the hotel’s own listed rates.

In this case study the $550 booking for a New York hotel shown on Expedia is only generating $412.50 for the hotel while generating $137.50 in revenue for Expedia. This is equivalent to a nightly rate of $206.25 for the hotel.

What does this mean for the hotel guest?

The chances are fairly high that a potential guest looking for rates on the hotel’s own website will find a lower rate somewhere between the $275 shown on Expedia and the $206.25 the hotel has contracted with Expedia to sell the room. A $240 per night rate is a $35 savings for the hotel guest and generates an additional $33.75 for the hotel.

What do you do when you go to the hotel’s own website and you see a $275 rate just like seen on Expedia?

Advice: Go to the hotel’s website and look for AAA rates and special offer rates. You should be able to drop the $275 rate by 10 to 20% with a group discount like AAA or AARP or a hotel special offer rate.

The hotel is giving up 25% of its revenue to sell a room through an OTA, whereas the cost is only a few dollars to sell through its own website. This is the reason hotels require frequent guest members to book through hotel chain branded websites to earn loyalty program benefits. And this is the reason hotel loyalty program benefits can be generous.

A free breakfast, some hotel loyalty points, and a $50 room upgrade make the frequent guest a happy guest and may still bring in more revenue to the hotel than the guest on an OTA booking.

Loyalty travelers are generally happier travelers when it comes to getting good value on hotel bookings.

Loyalty Traveler Case Study: Hotel Rates Comparison between OTAs and Hotel Branded Websites

Chicago, Illinois

Friday night, August 14, 2009

Remember three facts about Online Travel Agency Rates:

1.      OTAs do not display AAA rates which are typically the lowest rate about 50% of the time.

2.      OTAs charge a small fee of $1 to $5 per hotel booking that is disguised in the additional Tax and Fees rate charged by the OTA for the booking.

3.      OTA bookings do not qualify for frequent guest benefits in most cases. Points and benefits earned from a hotel stay booked through the hotel chain’s own website can be a $50 to $100+ value.

The Hyatt Regency Chicago could earn 2,000 Gold Passport points using a G2 booking bonus and earn 2,500 points per stay with the current Gold Passport promotion. Along with base points earned, the frequent guest would earn over 5,000 points for this one night stay at the Hyatt Regency Chicago. 5,000 points is sufficient for a free night at a Category 1 hotel. That is a lot of added-value to forego on an OTA booking.