Revenue Management

Here at NetRev we have only one goal – to increase your hotel’s Net Revenue

Managing Online Rooms Distribution

The arrival of the Online Travel Agents (OTAs) was initially welcomed by the Hotel Industry when the industry felt that they were charging reasonable commissions (10%) and they were helpful in filling rooms in periods of low demand.  However as time has progressed the influence of the OTAs has grown stronger and stronger and they can now command commissions of 15% to 25% which many hoteliers no longer believe is good value.

To illustrate how these commission can be so significant please see the example at the bottom of this page.  It is not uncommon to hear of hotels paying OTA Fees in excess of €250,000 per annum. However, nowadays the average OTA fee is 18% to 22% which represents a significant cost, and its fair to say, that many hotelier’s believe it is excessively high and that a fee of 10% would be more appropriate.

If a hotel could succeed in reducing its average OTA fee or Cost Per Acquisition (CPA) fee closer to 10% this would represent a meaningful costs saving.

Naturally individual hotels and the hotel industry in general are looking for ways to reduce these OTA and CPA fees and overcome their over-reliance on the OTA channel. There are ways to achieve these objectives but first lets have a closer look at the OTAs.

THE RISE OF THE OTAs

Since the late 1990s the OTAs have become incredibly strong with 2017 bookings, according to their SEC filings, of $68bn in the case of Booking.com and $88bn in the case of Expedia.  Each of these giants of the bookings’ industry have over 22,000 staff dedicated to increasing their hotel commission income.  With this many people dedicated to finding ways to exploit hotel commissions, it is no wonder that individual hoteliers are finding it difficult to fight back.

Booking.com and Expedia between them have the lions’s share of the OTA market.  To confuse things further and to emphasise their grip on the market, they also own the Meta Search Engines Kayak and Trivago respectively.  Of all online bookings in Europe, 80% are booked through OTAs with the remaining 20% via the hotel’s website. (tnooz.com)

The OTAs are so dominant that they can charge commissions of 15% – 25% or more on the bookings they generate.  Hotels are dependent on the OTAs for volume and are also hamstrung by the OTA Rate Parity agreements where they are restricted from offering better rates to guests booking directly on their hotel website.

There is a general desire by hoteliers to try to increase direct bookings and become less reliant on the OTAs.  This can be highly lucrative for Hotels but it is easier said than done. However, with patience, perseverance and the right partner this can be achieved.

OTA Example with Data

OTA FEE EXAMPLE

If a hotel derives say 70% of its bookings online and the OTAs drive 2/3rds of these online bookings then the hotel will be getting 46% of its entire bookings via the OTAs. Assuming an average commission rate of 18% (citation needed) then 9.2% of a hotel’s entire Rooms Revenue (online and offline) will be paid to the OTAs.

If the hotel in question is a 100 bedroom hotel with an ARR of €100 and an Occupancy Rate of say 80% then (100 x 80% x €100 * 365 days) x 9.2% = €268,640 payment per annum to OTAs. For context this is equivalent (roughly) to one fifth of the hotels payroll cost. The OTA fees have become a significant cost and this looks like it will grow as the OTAs grow their market share.

Online Bookings, is your hotel website converting direct bookings

How to Tackle the OTAs (THE OPTIONS)

As discussed, due to the OTA Rate Parity clauses, it is not possible for a hotel to charge the public a cheaper room rate on their own website so this is not an option.

Does a hotelier launch a Paid Google AdWords campaign on a pay per click basis and how much will this cost?  Does he/she use Social Media instead? How about restricting the supply to the OTAs and advertising through Trivago, TripAdvisor and Kayak (The Meta Search engines)?

He/She may have heard of Google Hotel Ads as an alternative to the OTAs and Meta Search players?  The OTAs charge a commission but how does the Meta model work and how much do they charge?

How will he/she control their budgets if they use any of the above solutions? Will the hotel need a full-time revenue manager?  How much of his/her time will they have to spend overseeing this activity?

Then there are the software options.  Which channel manager software should he/she go with? Siteminder/guesty/eviivo/eRevMax etc etc?  How do these systems integrate with his/her PMS system?  Do they integrate with all OTAs?  What about the Meta integration?

Like a chef, the easy part is knowing the necessary ingredients, the hard part is making it all work together to produce the desired result.  There is another approach, the NetRev approach:

THE NETREV APPROACH

Here at NetRev we have only one goal – to increase your hotel’s Net Revenue (Online Rooms Revenue less commissions and advertising costs).  In addition to Digital Marketing NetRev will help you to take back control of your Channel Management.

We provide a one-stop-shop solution where we use the above software and channel solutions in a blended approach specific to the setup of your particular hotel. We are agnostic on the various internet booking engines (IBEs) as they all have their strengths and weaknesses. We will work with whatever IBE you have in place and integrate it with the most appropriate software and OTA and Meta channels to maintain and grow your volumes but in such a way as to increase your Net Revenue.

Taking on the strategy of increasing direct bookings and reducing the power of the OTAs is no easy task.  It requires a lot of thought and planning and while it is possible to do it all in-house, it may be unfair to expect a single staff member to implement and master all the above technologies and also deliver on the strategy.

NetRev has a team of specialists consisting of web developers, PPC specialists, channel managers, SEO specialists as well as experienced hoteliers. A Hotel is not a technology company but may need to have these skills at its disposal to successfully take on the OTAs of this world because the OTAs are technology companies.

The OTAs still have an important role to play and, when you have to use them, it is important to maximise the business you get from them e.g. to fill quiet Monday nights. We will ensure that your presence on each OTA is maximised. By this we mean your imagery and content and room supply is at its optimum when trying to attract business on each OTA platform.

If you would like to hear more or arrange to meet please contact us.

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