2019 marked both the collapse and the success of OTAs. What the industry learned, however, is that it doesn’t really matter if an OTA fails, because another one will likely take its place.
Indeed, OTAs are becoming more advanced, but competition from Airbnb and Google still lingers. Along with this, OTAs struggle to keep up with hotels’ direct-booking strategies, according to Gino Engels, co-founder/chief commercial officer for OTA Insight, who gave Hotel Business a look into what’s ahead for OTAs.
Let’s reflect on 2019. What were some of the major challenges for OTAs? OTAs were squeezed by emerging competition from the likes of Airbnb, Google and metasearch, in addition to some hotel chains’ more aggressive direct-booking strategies. We also saw the dramatic and sudden collapse of arch-undercutter, Amoma. Many other OTAs—plenty of them good actors—struggled to dissociate themselves from Amoma’s bad practices, causing reputational challenges.
What did they get right in 2019? Expedia did well in striking a deal with Marriott to handle the latter’s wholesale business and police parity with other sellers. Expedia has the wherewithal to manage this process well, and by publicizing this relationship, it’s likely to improve its already quite good reputation as an OTA that respects the importance of maintaining parity. On a more general note, OTAs continued to increase in sophistication throughout 2019, providing hoteliers with mechanisms to up their revenue and occupancy when needed.
What challenges do you foresee in 2020? How should hoteliers and OTAs combat those? One challenge that we foresee in 2020 is the rise of new market players disrupting the space such as Airbnb and Google. We’ll see increased competition from Airbnb as the company seeks to become an end-to-end provider, and with Google, as the company continues to add features that ease the booking experience for travelers. Both companies will further challenge direct bookings and increase competition among OTAs as they begin to offer features focused on enhancing the user experience. The amount of data that Google holds on its potential customers and what it knows about its habits presents a real threat to the OTAs. Let’s not forget the growing importance of the millennial traveler, which goes hand in hand with the gradual rise of booking by mobile, something that affects both OTA and hotel platforms alike.
What are some travel trends? How will they affect OTAs in regard to delivering the latest and greatest to travelers? In North America and Europe, fears of a recession might increase the number of “staycations,” that is, consumers holidaying in their own countries. This wouldn’t necessarily reduce the number of hotel rooms needed, but it would likely mean OTAs shifting the emphasis on their segmented marketing efforts. Whether this will affect the burgeoning source markets in Asia remains to be seen, but they seem likely to remain quite buoyant, so OTAs will continue directing some of their efforts there.
Going into an election year, what’s on travelers’ minds? Is there economic or political uneasiness? What do you expect? Staycations could increase as a result of general political uneasiness and uncertainty. Across the Atlantic, Brexit could have a similar effect, but that’s likely to increase toward the end of the year, depending on whether a free trade deal between the U.K. and the EU is on the cards. There’s also an increased awareness of the impact travel has on climate change, as recently reported in a small academic study. This could marginally reduce how often people fly but they might just look for alternative means of traveling, such as by train, so the impact on hotel reservations probably wouldn’t be that big.
How will OTAs aim to provide value in 2020? One way that OTAs will aim to provide value is by creating a more seamless booking experience through the connected trip, where travelers are supported by technology that can adjust to changes in travel schedules, such as delays, and also adjust to traveler preferences. This has both negative and positive implications for both OTAs and hoteliers. The connected trip will increase the stickiness of OTAs in the industry, as it gives travelers the option to manage their trips all in one place. For hoteliers, the connected trip presents a challenge in acquiring direct bookings while also bringing a lack of transparency in pricing payments. Having different elements of a trip bundled together makes it harder to compare hotel prices to their competitors and creates parity problems.
How will OTAs try to increase pricing transparency? What are some challenges that may come along with this? Transparency is good for reputation management, so the more reputable OTAs will be keen to refine their systems to make sure that what customers see is what they get. We know that Google is now branching out to include taxes and fees in their searches; OTAs will want to follow suit. However, the pricing that’s useful for guests to see isn’t necessarily what’s useful for hoteliers, tracking things like parity and their competitors’ rates. So, package rates, for example, could counter this drive for transparency, in that they make opaque the price of individual elements of a package, such as rooms and flights.
Are you predicting any new OTA services? Absolutely. Despite the relatively poor performance in 2019 from the likes of Expedia and Booking, the online travel agency remains a vibrant business model. With no physical product or need for customer-facing offices, the startup and running costs are mainly technical and commercial. Tech hubs are popping up all over the world, with countries like Israel rising in importance, so companies are willing to give it a go, but they need to innovate to stay competitive. Long term, the ones that establish mutually beneficial relationships with hotels will do best, and the smaller hotels with less marketing budget will welcome them. But in the short term, there will be a temptation to replace Amoma through the practice of buying heavily discounted itinerary from wholesalers, marking it up a bit for a profit but leaving enough room to undercut hotels.
Any industry trends you’re forecasting for 2020? How will they impact the OTAs? One trend that we’ll see in 2020 is a rise in attribute-based selling, which will fundamentally change the way that travelers search for and book hotels. The process will become much more targeted, and hoteliers will be focused on finding additional ways to more meaningfully compare their rooms’ rates with those of their competitors. As hotels look to provide a more personalized experience, this could present a threat to OTAs in acquiring customers. We’ll also see the millennial traveler gain more prominence as a target audience for hoteliers. Hoteliers can drive unique experiences that generate demand from the millennial traveler through social media channels, which makes them an attractive audience to target. We expect to see this group have an impact on direct-booking trends in 2020.
Is there anything else readers should know about? Most importantly, the onward march into AI-driven systems will pick up the pace. Among other things, these will be designed for measuring, responding to and creating demand among travelers and giving hoteliers a better view of their competitors’ distribution channels. Much of it will be about making better predictions. Another issue that will remain in 2020 is rate parity caused by “rogue” OTAs. While 2019 saw the collapse of Amoma, which led to a temporary relief for hoteliers, it’s only a matter of time before another OTA steps in to take Amoma’s place. Before the end of the year, we expect to know who to watch. HB