The Real Cost of Online Travel Agencies
By Kristi White Director of Revenue Optimization, TravelCLICK, Inc. | January 16, 2011
Hoteliers will tell you that dealing with online travel agencies (OTAs) is a necessary cost of doing business. Yet, in recent history, they have been much more than that for hotels – in fact, for some hotels, particularly in 2009, OTAs were an essential marketing channel for staying alive. However, 2010 has been a different story, and 2011 will be an even more different story.
So, in the midst of budget seasons for most hotels, let's look at the true cost of this business as we would examine any cost at our hotel. Because of their business model, OTAs are often an overlooked cost that is not included in annual marketing budgets. (OTAs very wisely retain their commission at the point of sale.) So, hotels never feel the pinch of the "cost" of that piece of business.
The chart below analyzes the true cost of OTA business. It looks at the average size of a hotel in different regions of the world. Using July year-to-date occupancies and average daily rates (ADRs) from Smith Travel Research, we extrapolate the cost of the OTA business at different contribution levels. For margin, we used an average of 20%. Your individual hotel costs may be lower or higher based on the favorability of your margins. The cost ranges from a low of $22,450 at the 10% contribution level to a high of $173,881 at the 25% contribution level. Are you shocked by this spend?
On an annualized basis, these numbers are even higher. If your hotel is in the Americas, you could be spending as much $96,000 in unallocated funds toward marketing your hotel.