Over the past couple of years, hating the OTAs has become an international pastime. So much so that I think that they”re planning on naming it an official sport in the upcoming Olympic Games in London, alongside the triathalon and archery.
But no matter your opinion on the OTAs, they are here to stay. While it is possible to operate a hotel without listing your property on any OTAs (after all, it is possible – though not optimal – to live without gravity), it definitely doesn”t make good business sense.
Let”s look at a comparison of two similar properties in Miami Beach, Florida. Both are three-star boutique properties (less than 50rooms) close to the ocean with comparable rooms and amenities.
The revenue manager at Hotel A hates the OTAs, so he refuses to list the hotel”s rooms online. Although his occupancy numbers are very low (typically between 55 to 65%), he is able to keep 100% of the revenues from every booking.
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Now, Hotel B…
The revenue manager at Hotel B isn”t the biggest fan of the OTAs either, but he does recognize how important they are in marketing and selling his rooms, so he consistently lists his property with the top 5-6 OTAs. Unfortunately, the hotel has to pay a huge commission rate, losing him money on each booking. But on the upside, Hotel B”s occupancy is consistently high (close to 90%).
In your opinion, which revenue manager is using the correct strategy to increase the property”s revenues?
If you answered Hotel B, then you can stop reading right now because you are already a revenue management star!
If you answered Hotel A, then this next part is for you.
Yes, commissions suck; losing 12 to 35% of every dollar is a (much) less than ideal situation. Yes, the OTAs were designed to profit from tough financial times in the hotel industry”s history. And yes, the industry is now stuck with the online channel and the OTAs, for better or for worse. But does that mean that you should stop earning money, just because of your principles?
Lesson 1: 100% of zero is still zero.
Think about it this way – would you rather earn 65 to 88% of the revenue from a booking or would you rather have the room sitting empty, earning nothing, because consumers weren”t able to find and book your room? That”s what I thought.
Lesson 2: It costs money to make money.
The OTAs are only making money when you”re making money, so by not using the OTAs to list and sell your rooms, you”re actually stopping yourself from making money. As a revenue manager (who”s job is to optimize pricing in order to maintain or increase revenues), that seems a little counterintuitive, no?
Hopefully by now, I”ve got you convinced that the OTAs are a necessary evil and, as soon as you”re done reading this article, you”ll list your rooms online and watch as bookings start coming in. (If you”re still not convinced, go back up to Lesson 1, read and repeat.) Yes, you”ll be paying up to 35% commission but just think, the other 65% is yours to keep. And being the helpful expert that I am, I have an idea on how you can spend the extra money you earn: revenue management software.
Do You Hate the OTA’s – Part Deux? (25 May 2012)
Last week, I wrote an article about how hotels hate online travel agencies (OTAs) because of the commissions charged by the sites for each and every booking. Today, I want to talk about the other major reason that hoteliers hate OTAs: the time and work that it takes to manage them. (Can you say never-ending?!)
Because being a revenue manager is such a time-consuming but highly important job, it”s important that RMs don”t bite off more than they can chew (so to speak). Between strategy meetings, data analysis, competitive analysis, manually updating prices across all OTAs, and all of the other day-to-day revenue management tasks, most revenue managers cannot effectively manage more than four to six channels. If they do take on more, things start to fall through the cracks – pricing is not updated on a regular basis and money is lost. And let”s not even mention the increased risk of human error when RMs are overloaded.
But here”s the Catch-22: if one OTA makes money, then being listed on more than one OTA will make even MORE money. No, no, don”t argue. It”s a proven fact. Even if the travelers don”t book through the OTA, the billboard effect is worth it, in and of itself; many consumers will initially find your hotel on an OTA site and then book directly through the hotel”s website. If that hotel didn”t have a presence on OTAs, the traveler would never have found and booked with them otherwise.
Even so, many hoteliers and revenue managers don”t think that way. They think about all of the work involved with the job – the time spent strategizing, collecting and analyzing data, and then manually updating the rates on all of the different websites – and most want to run away to a Caribbean island and drink pina colodas all day.
But what if you could list your property with 10 or 20 or even 100 OTAs, without dropping the pricing ball? What if your property”s incomes could increase 10 or 20 or even 100 times, without you having to move into your office and manually adjust rates 24/7?
That, my friend, is where technology comes in. Technology can manage your rates automatically, 24/7. Technology can increase your property”s ADR, your occupancy and your RevPAR drastically within days. In short, technology can make your hotel money… lots of money!
But that doesn”t mean that revenue managers will be obsolete. Revenue management software is designed to assist revenue mangers, to make them more effective – not to replace them. It gives revenue managers the ability to focus their attention on what humans do best – strategizing, planning, overseeing staff, etc. – rather than mindless, never-ending analysis and updates (a task which technology can handle more quickly and with less margin for error than a human ever could!).
So go crazy! List your property on 10 or 20 or 200 OTAs, as many as you can, and get on the technology bandwagon. Make your property earn more money… without driving your revenue manager over the deep end. It just makes good business sense (and cents)!