Managing OTA Distribution to Optimize Revenue

Date: September 27, 2021

Written by Alecia Boyce, CHBA; CHRM; CHIA

Hotels have long been known to have a love/hate relationship with online travel agencies. OTAs are loved for their ability to put heads in beds and for their marketing reach, but the cost of utilizing OTA distribution makes the benefits of working with them bittersweet. While there are some costs to OTAs that are simply unavoidable (unless a hotel were to stop using them), there are ways to mitigate the damage to the hotel’s bottom line, such as limiting inventory; reconciling statements and encouraging direct bookings.

Limiting Inventory

One way to reduce the cost of utilizing an OTA and increasing a hotel’s revenue is to limit the inventory available to an OTA. All OTA reservations cost the hotel money in terms of commission, whether it is paid upfront or billed monthly for pay-at-the-hotel reservations. However, there are instances when restricting an OTA’s inventory – and, therefore, eliminating the potential for commission fees – makes sense.

Premium room types – Does the hotel have a particular room type that sells frequently in addition to having a stronger price point? There is no obligation to sell inventory for such a room on an OTA site. If a room can be sold at a premium rate and the hotel knows that it can sell the room without the assistance of an online travel agency, this inventory should be restricted for direct bookings.
High occupancy dates – While there are some booking instances when rooms must be made available on a LRA basis, that is not the case with general OTA inventory. If a property knows it will sell out from a large group or citywide event, for instance, inventory available to an OTA should be limited to allow the hotel to capture 100% of the room revenue.
General stay restrictions – Hotels should utilize stay restrictions on OTAs in addition to applying them to direct bookings when the situation would warrant doing so. Minimum length of stay, maximum length of stay, stay through and closed to arrival restrictions can be utilized on OTA bookings just as they can be for direct bookings.

Reconciling Statements

One of the easier ways to reduce the cost of utilizing OTAs is simply to pay attention to the bookings themselves and to reconcile them in the billing / financial section of the hotel’s OTA extranet pages.

Cancellations – Did a guest with a book-now-pay-later reservation cancel (or not show up)? If the hotel does not indicate this on its extranet, it will be charged commission on a stay for which it received no money. Guests who book via OTA and call the hotel directly to cancel should be directed back to the OTA to do so. This is the preferred practice for OTAs, and it will ensure updates are made to the reservation by the OTA, reducing the likelihood of an overlooked cancellation that will result in a commission billing at month-end. If an agent would forget to redirect the guest and cancel at the hotel’s end, then the hotel must remember to go into the extranet and update the reservation status to avoid being charged commissions.
Stay Updates – Did a guest update his or her reservation to stay for fewer nights? As with cancellations, guests should be directed back to the OTA to make length-of-stay changes to their reservations. These changes can result in updates to the nightly rate in addition to changing the rate for the overall stay. If the hotel makes these changes directly but doesn’t realize the nightly rate changed or doesn’t update the extranet, commission will be charged for the amount of the stay as indicated in the extranet even if the guest was not there for the duration of the original reservation.
Invalid credit cards – Did a guest mistakenly get checked in with a declining credit card? Did the hotel attempt to collect on a no-show charge but the card declined? The OTA doesn’t know this if the hotel doesn’t communicate it. Commission can frequently be waived in instances when the hotel cannot collect payment from the guest.
Deadlines – It doesn’t matter how closely a hotel monitors its reservations if it doesn’t update the extranet by the deadline. Every OTA has a deadline by which reconciliations must be made each month. While it’s not impossible to have commission waived or adjusted after the monthly reconciliation deadline has passed, it is substantially more difficult to do so. There are a number of ways a hotel manager can ensure deadlines are met, from managing reservations daily rather than monthly to delegating the task to a responsible assistant manager; front desk supervisor/agent or night auditor. As an added benefit, a hotel struggling to get associates to remember the need to redirect guests booked through OTAs when they call to cancel or change their reservations will see delegating this task often reminds them to do so, which will in turn reduce the likelihood of overpaid commissions.

Encourage Direct Bookings

Driving direct bookings is perhaps the most obvious means of reducing costs incurred from OTA distribution, and there is a substantial number of ways this can be done; however, before trying to encourage more direct bookings, a hotel first needs to understand why guests are not booking directly to start with and are instead choosing to book by OTAs.

It’s easy – The OTA will provide all the locations which are distributing available inventory. Guests don’t need to investigate which hotels are in the area or call to see what the availability is at those hotels as the OTA does this for them. (And it probably does it with an easier-to-navigate and better-functioning, more user-friendly website!)
It’s fast – What are front desk agents doing in hotels? A large number of them are manning the phones while ensuring breakfast is stocked, the laundry is getting loaded into the washing machines and the lobby trash bins are being emptied. What is an OTA doing? Selling inventory, period.
Better rates – Every hotel has heard it. “But such and such a website says your rate is (insert whatever rate is lower than the hotel’s advertised best available rate).”
Bundles – They get their car, their plane and their hotel all in one place! Again, OTAs make it easy for the would-be traveler.
Loyalty programs – Hotel franchises aren’t the only ones offering loyalty programs. The OTAs do the same thing for the same reason. It drives loyalty, and loyalty drives revenue.

If a hotel wants to drive direct bookings, it needs to start by doing what the OTAs are doing.

Be easier – Is the hotel’s website user-friendly? If a button is clicked, does it work? Does the hotel’s website provide the same details regarding the property that the property has provided to the OTA for use on its website? Are all booking options on the OTAs available on the hotel’s website?
Be faster – While there is a need to optimize workloads to ensure the hotel’s operations are running as they should without wasting payroll dollars, there is a fine line between efficiency and overkill. The front desk agent may be able to reduce the expense of a breakfast attendant, but how much future revenue is lost because an admin for a large corporate group called an OTA as his call to the hotel wasn’t answered due to the front desk agent’s not hearing the phone ring while he was in the kitchen.
Utilize a loyalty program – Most franchises already offer this. Loyalty programs have one job: increase loyalty. If a hotel wants more direct bookings, it needs the guest to be loyal to the property and not to the OTA. Loyalty programs are, however, only as good as their promotion. This requires training. A loyalty program that staff isn’t talking about only exists on paper and will not drive revenue.
Match rates – How often does it happen: a potential guest searches hotels on an OTA, but then calls the hotel directly to book and is offered a higher rate than what is available online? While the lack of rate parity can be an issue, this in and of itself is not the issue with which the guest usually has a problem – the issue is that front desk agents frequently do not match the OTA rate at the time of the call and instead tell the guest she has to book online to receive the discount, doubling the booking effort on the guest’s part and negatively impacting guest satisfaction before the guest has even arrived to the hotel. Why in the world would a hotel give away commissions (or risk losing a reservation all together) when it could have booked the guest directly? Rather than reducing a $105 rate $5 to match a $100 rate online, for example, a front desk agent will frequently turn away the booking, resulting in the hotel receiving, say an $85 after-commission rate from the OTA instead of the discounted $100 that it could have received directly from the guest. This is a training issue.
Bundles – There probably aren’t a lot of hotels that can offer a room, a car and a plane. However, there are a great deal of hotels that can offer a room, a meal and tickets to a local event at a packaged rate. Is it as convenient as an OTA’s providing what they are able to provide? Of course it isn’t, but it’s the same concept. Hotels can drive revenue by making convenient what can be made convenient.
Guest experience – One thing the hotel has that the OTAs do not is the ability to form a real relationship. Guests booking online don’t experience that. Guests booking with an OTA by phone may form a relationship, but they will not likely ever meet the person who booked their stay. The OTA agents may be the nicest people in the world, but they aren’t leaving a sympathy card and flowers in the room for guests attending a funeral. They aren’t helping an elderly guest to his car. They aren’t surprising guests with balloons at graduation. They aren’t waving at the small children of a couple checking in or doing any of the other countless things that on-property staff do every single day that makes the difference between just a typical stay booked only one time and a phenomenal vacation that will result in future revenue for years.

Online travel agencies aren’t going anywhere. While utilizing OTAs is optional, it is imperative that hotels distributing inventory to them do not allow the OTAs to run on autopilot as doing so can – and will – prove detrimental to a hotel’s bottom line. Effectively managing OTA distribution is one of many ways hotel managers can help drive the revenue at their properties. Limit inventory, provide a better experience and when all is said and done – reconcile those statements!