Post 9/11 and 2008, OTA's were able to increase the take rate charged to hotels for filling rooms.
We discussed with a Former Head of Google Travel how the bargaining power of OTA's is set to increase post-covid pandemic.
In the full video interview we explore:
- COVID impact on hotel occupancy and traffic
- Why the OTA's are set to gain power in the travel value chain post-covid
- Google's position in the travel ecosystem versus the OTA's
- How hotels can outbid OTA's on HotelAds
- Challenges for independent hotels driving direct distribution
How do you think this Covid disruption will change the bargaining power in the travel value chain?
I'm certain about one thing, which is that intermediaries, in general, and OTAs in particular, are going to gain power. They are going to be on the long side of the stick, to put it in those terms. We've seen this over and over again. After 9/11 where OTAs were, at the time, just starting to take off and although Expedia was founded five years before that, it was starting to gain significant share and significant volumes, especially in the US. It really took off after 9/11, because hotels were starving for business. So were airlines; everyone was starving for business. In the different crises that we've seen since then, the financial crisis, the different epidemics, like the swine flu and SARS and so forth, in all cases, intermediaries and OTAs, specifically, have been able to gain share. I think that this time round, it will be even more acute, because the crisis is more acute.
The reason behind that is that the OTAs have the ability to adapt faster. These are technology companies, deploying their resource and their know-how into marketing. They don't own assets; they just have people and servers, so they can adapt much, much faster to the new normal, versus hotels. Especially in a world where you need to consider that MICE, meetings, incentives, conferencing and exhibitions, are going to disappear completely. For some hotels, MICE, that segment alone might represent 30% to 40%. If you go to Vegas, it's even higher. You take gambling and MICE and that's Vegas, basically. With that disappearing completely, I'm certain that MICE is going to disappear, for at least 18 months. Then the FIT, the foreign individual traveler or the groups are going to become particularly relevant. OTAs are already gaining specific weight, within the mix and the ecosystem has gone completely dark and the only lights are the OTAs or the tour operators. As a result, everyone is going to be begging for their business.
Do you think the OTAs will be able to charge a higher take rate for that, where the hotels are going to be really pushing that business?
That's a great question. The short answer is, yes. If you have more power, you should be able to charge more; it's basic supply and demand. Hotels and airlines are suppliers, in general, fighting against OTAs and there's a frenemy feeling. I used to work at Expedia and I can remember airline executives saying, you are like a drug dealer. We don't like you, but we love you. I get your point, because you need me, but you don't like me, because you don't want to need be but, again, you need to fill your planes and, as a result, you need to call me. That was an interesting time.
Now, the same thing is going to happen. Hotels are far behind airlines, in terms of intermediation, for different reasons. But I would say that hotels are 10, 15 years behind. As a result, they are even more dependent than airlines are, for distribution. I don't want to get into technical aspects, but all of the OTAs in the world always give you increased visibility, MODs, member only discounts, the Genius program, whatever you call it. At the end of the day, it's the same game. Give me commission and I'll give you more business, because I'll give you increased visibility and increased merchandising. That will become particularly acute now. As a result, the effective take rate – which is what really matters, not the contract commission, but the effective one – will go up, for sure.