There has been a rising trend among hotels to encourage direct bookings through their own websites. The biggest incentive for the same is that then these hotel owners can forego the commission they need to pay to the online travel agents, in case travelers book through the OTAs. Chains suh as Hilton and Marriott had been active with their advertisement campaigns to lure travelers to directly book through their respective websites. These chains also provide attractive discounts for direct bookings thereby dissuading users from booking through the OTAs. However, though it might look like a blow to the OTAs’ profits, a recent study found out that this trend might not cause a major dent in the revenues of the OTA websites.
Research by Morningstar, an independent research firm, showed that the direct booking phenomenon might cause just a 1 percentage point headwind for Priceline, a 1.5 percentage point headwind for Expedia, and a 0.5 percentage point headwind for Ctrip. In contrast it estimates the booking for Priceline, Expedia, and Ctrip to grow by mid-teen, low-teen, and mid-thirty percent over the period through 2020.
Morningstar attributes the size and scale of the OTAs, their extensive hotel networks, superior marketing, and technological strength as some of the reasons behind the direct booking’s negligible impact on their sales. Also, it is not profitable for hotels to continue giving substantial discounts or spend huge amounts on advertisement campaigns because they also need to keep their profitability in mind.
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Let us examine our forecasts for the global hotel room market share in the case of Priceline, Expedia, and Ctrip:
According to our estimates, currently the three OTAs’ combined global hotel room market share is close to 25% and it is expected to reach around 40% by the end of our forecast period. This sheer volume offers them a greater advantage of pulling in more customers and provides them with a variety of choices. Individual hotel chains might not be able to compete with this scale.
Also the research indicates that the hotel industry is in a fragmented state unlike the airline industry. The company estimates that American, Delta, United, and Southwest together enjoy around a 75% share of U.S. online flight bookings while the hotel-direct website share in the U.S. is around 50%. The market is even more fragmented in Europe and the rest of the world, thereby offering the OTAs a great advantage.
However, though it is possible that some of the hotel chains are capable of giving sustained discounts and luring more travelers into booking from their platforms over and above its current direct booking travelers, but the chances of it having a major impact on the OTAs still seem far fetched.
In fact, the dynamics of price undercutting might also change with the new kind of relationships between hotels and OTAs. Expedia, for example, has recently partnered with Marriott to help the chain sell more hotels through its own websites. Expedia is also allowing hotels to sell ancillary services through its websites. With the evolving of the relationship between hotel partners and OTAs, perhaps the relationship between the two parties would be seen more as a symbiotic one rather than a competitive one.
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Have more questions on Priceline and Expedia? See the links below.
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