Will Hotel Direct Bookings Kill OTAs for Good?7 min read
Is it impossible for hotel direct bookings to overthrow the reign of OTAs? Can independent hotels challenge the supremacy of the two major channels in the world, Booking and Expedia? Has the pandemic changed the channel mix for hotels? Most importantly, will this be a permanent change?
Similar questions have been asked frequently across the hotel industry and likely crossed your mind too. Keep reading to find the answer.
So, What has been happening in the World of Hotel Bookings?
Up until 2020, Booking.com had been experiencing phenomenal growth and kicking butt for years, as was the case with Expedia. However, the world took a big turn with the Covid-19 crisis and all channels lost an incredible amount of revenue as a result.
According to Phocuswire, global hotel gross bookings amounted to $523.7 billion in 2019. Online sales represented 42% of the total revenue, and the OTAs captured two-thirds of this.
But this all changed in 2020.
According to Statista, gross bookings of Booking Holdings worldwide decreased from 70.7 billion U.S. dollars In 2019 to about 24.5 billion U.S. dollars in 2020. As for Expedia, the global gross bookings of Expedia dropped from 108 billion U.S. dollars recorded in 2019 to 36.8 billion U.S. dollars during 2020.
Is this surprising taking into account the situation we are living in? Not really. What’s new here, is that the Direct channel, meaning the share of website direct revenue, has accelerated in 2020. According to our ongoing Hotelier PULSE research, the Direct channel has proven to be the most resilient in 2020, generating 58.6% of the bookings made in 2019, outperforming Booking (41.5%) and Expedia (22.8%).
You are Probably Wondering, why are Hotel Direct Bookings dominating OTA Bookings right Now?
In the early stages of the pandemic, when the world shut down and people saw their travel plans canceled, everyone desperately tried to get their refund on the vacations that they were unable to enjoy.
During these early stages, Phocuswire interviewed Giancarlo Carniani, who manages ToFlorence Hotels, which operates three properties in Florence. His words mirrored how many Hoteliers felt about OTAs at the time:
“By receiving an amount so big of cancellations, OTAs were not any more able to deal with it. Many clients have called us direct, which never happens in this world. We are all used to seeing our guest when he shows up to the hotel. We don’t know anything about him – he has booked on Expedia or Booking. Now it’s like coming back to the old time. You speak with the people.
All the hotel companies have been furious with Booking.com because Booking has decided on its site to reimburse every single guest even if the guest had accepted the credit.
Booking is trying to force us to do only refunds, appealing to some condition of the contract. And we are furious about that, because when you are in a bad situation like this the worst thing that could happen to you is someone who doesn’t really care about what you are doing.”
Many hotels subsequently rebelled against these practices by offering more flexible cancellations and refundable policies for customers who book direct. Hotels also communicated directly with their clients, and travelers soon realised that the process of getting a refund via intermediary website was considerably more complicated than directly with the hotel. This has put hotels in the driver’s seat in engaging guests during these unprecedented times.
In addition, both Booking and Expedia, one of the biggest Google advertisers, decided to slash ad spending to reduce costs, joining a chorus of advertisers that are putting campaigns on hold or cancelling spend altogether. As Expedia Group chairman Barry Diller explained, “At Expedia, we spend $5 billion a year on advertising. We won’t spend $1 billion on advertising this year,”
You can imagine the impact of this restraint in Google AdWords by the OTAs. Goodbye number one search result for an OTA-sponsored ad about your hotel. Hello organic search as the number one result for your hotel name, without the ads (or hotel Google AdWords if you’re using this).
How did Hotels Contribute to the Direct Channel’s resilience in 2020?
Hoteliers received unprecedented inbound communication from their guests in the beginning of the pandemic back in March 2020. Although not for the best reasons, this communication helped build a stronger bridge between both the hotel and the consumer. Hotels used this to their advantage, offering benefits to guests who directly contacted or booked with the hotel. These measures significantly contributed to the Direct channel preference in 2020.
Since we launched our Hotelier PULSE Report series back in April 2020, Hoteliers continue to emphasize the importance of direct bookings. According to our March 2021 research, an astonishing 84% of hoteliers are prioritizing ‘The Direct channel as the Top Reservation Channel’ during recovery and beyond.
Out of numerous trends that have emerged or re-emerged as a result of the pandemic, including Staycations, Contactless technology, etc, the majority of Hoteliers surveyed in March 2021 expect Direct Bookings to increase in importance over the next 12 months. Consequently, 91% of Hoteliers have also consistently ranked The ‘Hotel Website’ as the most important sales & marketing tool to prepare the upturn and bolster financial recovery.
What Strategies Boost Hotel Direct Bookings right now?
Hoteliers are now redefining their sales & marketing strategies to prioritize their website and direct channels. Many have implemented steps that are no longer submissive to OTAs, and instead, focus predominantly on the hotel website.
These strategies have been largely focused on the domestic market which is the major contributor to hotels’ revenue right now because people are traveling closer to home. This isn’t to say Hoteliers are neglecting international travel because this will certainly pick up again once the situation improves and stabilizes.
Hoteliers already understand that the hotel’s success largely depends on the ability to adapt to the new reality, stay relevant, stay visible and engage guests as the situation evolves. The hotel website needs to be a reflection of this – updated with the latest information about the destination, the hotel’s changes, the most flexible cancellation policies, the direct benefits, and also the most personalized offers.
There is also a host of ways hotels have been adapting to curfew and working from home situation restrictions. Some examples include creating ‘Work from hotel’ options and Curfew packages, that include meals and indoor activities & programs. Furthermore, hotels are selling vouchers (again, an exclusive on their website), which is a win-win situation that can both instantly increase the hotel’s cash flow and give guests something to look forward to and enjoy in the future.
Typically guests book with an OTA because they trust it to be the most cost-effective deal when choosing their accommodation, however this pandemic has accentuated a series of problems with OTAs. These include refunds and customer service issues, which have consequently damaged the relationship with customers.
On the flip side, Hotels are engaging more than ever with their guests, increasing their level of personalization and adapting to their needs. All of this has strengthened the confidence of consumers in booking directly with hotels, thus contributing to the resilience of the channel.
Will Hotel Direct Bookings continue to Dominate when the Upturn comes?
If there is one positive to have emerged from the crisis, it’s hotels’ increased focus on engaging directly with customers to drive hotel direct booking. The tone has been set by how hotels and OTAs have engaged with guests during the crisis and the direct channel continues to outperform all other channels, including the major OTAs. But what will happen when the upturn comes?
Looking at the evolution of booked nights from 1500 hotels across all channels from January 2019 to 2021, the direct channel was the top performer. In February 2021, the direct channel generated 35% more nights booked than Booking.com – the second strongest performer out of all channels.
The trend is clearly showing that the direct channel is on the right path to surpass the frenemies of Booking, Expedia, and other OTAs. Whether this trend will continue into the upturn, and direct hotel bookings continue to make up the majority of hotel bookings, remains to be seen.
Hotel trends and booking behaviors have changed significantly. Hotels are taking advantage of the guests’ communications and generating more direct bookings than in previous years. Could this period be when Hoteliers finally recover their inventory for good? We’re navigating uncharted territory, however, we can say that the chances are higher than ever based on the events of 2020 and data analyzed.