Hospitality

"It's complicated" - a hotel may say when asked about its relationship with OTAs and bed banks. Nearly half of all hotel inventory sales online happen through OTAs and wholesalers, and that share is growing, although direct bookings continue to be attractive for hotel brands in search of greater margins.

In his recent interview with CNBC, Mark Okerstrom, the CEO of Expedia, highlighted that diversity and size of inventory is a key part of his strategy for the future. "We've built an incredible platform for customers to come and look at all of the properties. We've got 1050 properties in New York; an incredible selection. Compare that to the largest hotel; they probably have about 50", said Okerstrom.

The same strategy appears to be permeating the industry. Recently, three smaller but significant brands – Hotelbeds, Tourico and GTA – made headlines when they joined hands and presumably became a rival for the likes of Expedia. The combined entity now handles as many as 40,000 room nights and counts the UK as its biggest market. The balance is important because it keeps business viable for all three parties, and avoids one exerting unfair pressure on the others as in a monopoly.

Hotels – which are the original suppliers of the inventory sold through these entities – expect a positive future as a result of this merger. The Director of Leisure Sales at a prominent luxury hotel in Las Vegas (which is a customer of IBS) commented "We are excited about the merger. The three companies have some very strong core positives" while also pointing out some specific flaws in the individual companies which would potentially be solved in the combined entity. Hotels like this one insist on consistency in how their inventory is displayed and sold, whether it be on their direct booking site or via a third party. 

In other words, they require more control over their inventory to ensure effective distribution in accordance with their sales goals. On the other hand, OTAs which work on the commission model may set preferences based on their own revenue potential from each booking. Differentiation of inventory, to them, is based on the features which a customer may search for and not on something as singular as a brand name.

Logically, OTAs are preferred by the brand-agnostic traveller who is willing to try new properties that suit his/her specific requirements – and therefore they offer a chance for less popular brands to be discovered and acquire new business. Hotels which possess significant brand value can use their own channels to tap the loyal consumer base, but simultaneously try to attract new customers through the OTAs which have a broader base. But it is important to note that the commission model in use here has its terms dictated by whichever party holds more power in the market.

Consolidation, in this context, can mean one of two things. When the leading players in a market consolidate, that results in one monopolistic entity that can corner the market and potentially make business tough for its suppliers and customers. On the other hand, when a group of second tier players consolidate into one entity, it may gain enough power in the market to compete with existing top tier players. The Hotelbeds story is an example of the latter – which is why hotels have something positive to look forward to!