Hotel companies took a small piece of online-distribution market share away from online travel agencies in 2020 as years of direct-booking campaigns and heightened concerns over property cleanliness amid the pandemic shifted some potential OTA users toward hotel websites.
With analysts projecting that it will take at least a year before business travel trends begin returning to pre-COVID-19 levels, experts believe hotel companies and OTAs are unlikely to engage in renegotiations over room-purchasing terms anytime soon and will likely take a more collaborative approach to minimize the travel-industry damage caused by the pandemic.
Higher-end hotels were forced to sell a higher percentage of rooms to OTAs such as Expedia Group and Booking Holdings to compensate for the lack of corporate business, but this increase was more than offset by the propensity for leisure travelers across all sectors to book direct through hotel websites to ensure both the best rates and cancellation opportunities.
As a result, the percentage of U.S. online hotel bookings through hotel websites rose 1 percentage point last year to 49%, while OTA share fell to 51%, according to travel-industry research firm Phocuswright. Online bookings, which account for about half of total U.S. bookings, took a larger piece of a smaller pie as travel agent and travel management company bookings through the global distribution systems declined due to corporate travel nearly vanishing. Meanwhile, the wholesale market, which was largely dependent on inbound international travelers booking rooms far in advance of their arrivals, has virtually disappeared.
“You have the hotels with their book-direct campaigns that were gaining momentum before the pandemic hit. They doubled down on that with the cleanliness guarantees, and loyalty members could do virtual check-in and keyless entry,” said Lorraine Sileo, senior research analyst at Phocuswright. “Hotels were pleased to see their websites continue to grow at a slightly faster pace than OTAs, regardless of the fact that they had fewer frequent members.”
“In the past recessions, OTAs diverted a lot of the business,” said Cindy Estis Green, CEO of hospitality research firm Kalibri Labs. “This time around, loyalty and direct programs that have been in place since 2016 have taken root.”
Hotels and OTAs are battling for distribution share as the pandemic last year narrowed the pool of prospective guests to the smallest it’s been since STR — CoStar Group’s hospitality analytics firm — began tracking that data roughly three decades ago. In 2020, U.S. revenue per available room plunged 47.5% year over year to $45.48. Occupancy fell to 44%, and room rates declined 21% to $103 per night, STR reported in January.
As a result, instead of selling discounted rooms to OTAs and incurring distribution costs as high as 15% to 20% of revenue, many hoteliers chose to keep distribution down to the 8% to 10% it costs to sell rooms on their own websites.
"Hotels have dramatically reduced staffing levels in an effort to stay afloat and are cognizant of the market dynamics, which basically mean there is really no need to chase those last few rooms via the OTA, as they are much better off managing perhaps fewer guests but without the intermediary commissions," said Christopher Anderson, professor at the Cornell School of Hotel Administration.
OTA statistics reflect this decline. Through the third quarter of 2020, Expedia’s worldwide roomnights booked fell 54% from a year earlier, while gross booking revenue was down 66%. During the same time period, Booking Holdings’ worldwide roomnights booked declined 57% from a year earlier, while booking revenue fell 63%.
Still, Rachel Bird, vice president of market management for North America at Expedia Group, said the OTA’s investment in demand-generating technology tools last year helped its hotel partners.
“We committed $250 million to a global recovery program which helped hotels on our platform rebuild their business, attract high value guests, and optimize cash flow. Those properties that participated in the program produced about 23% more net roomnights compared to non-participating competitors,” Bird said. “Restoring travel will take an unprecedented level of partnership across the entire industry and is something our supply partners recognize as well. It comes down to trying to do good for travel, our supply partners, destinations and customers.”
Anderson said several factors have aided hotels' distribution efforts.
"The Relief and Recovery program announced by Expedia was well-timed, but I think met with mixed results owing to the need to provide competitive rates," he said.
OTAs did benefit somewhat last year from hoteliers with a big stake in the luxury or upper-upscale market. Group and corporate business, which accounted for about 45% of revenue within the luxury and upper-upscale sectors in 2019, plunged in 2020, leading to OTA bookings as a percentage of total bookings almost doubling, Estis Green said.
Executives from the hotel industry's major brands have recently commented on this phenomenon during earnings calls.
"If you look at like our OTA percentages through [the second quarter], they were tracking pretty consistent with where we've been over the last couple of years. [In the third quarter,] they were up as we would have expected, just given the base of business, which was non-frequent, non-loyal leisure business during the summer that was, that is more OTA-oriented," Hilton CEO Chris Nassetta said on the company's third-quarter earnings call with analysts in November. "So it was up, not in any alarming way, but it was up. And we expected it, and we wanted it to be up in the sense that we wanted access to those customers."
Marriott International and Hyatt declined to comment for this story, and company officials didn’t address the OTA distribution channel on third-quarter 2020 earnings calls with analysts.
Worries over OTAs using a less-active travel period as leverage to negotiate for cheaper hotel rooms from the hotel companies failed to materialize, Sileo said. This is essentially what happened in the wake of the 9/11 terrorist attacks, when companies like Expedia and Booking Holdings predecessor Priceline.com catapulted their booking numbers as hoteliers struggled to sell rooms and travelers became more comfortable reserving rooms online. But both Sileo and Estis Green agree history is unlikely to repeat itself.
“It was not a year to strategize in a selfish way, for the OTAs to play hardball” Sileo said. “It’s a year where chains really had to think about the mistakes they made in the past. After 9/11, they really gave away a lot of the properties to the OTAs.”
“It’s the first time we’ve had a recession where the hotels have had their own versions of special promotions,” Estis Green said. “There’s a bias built in, which is I think the reason for an uptick in direct booking.”
Wholesale distribution, which had accounted for less than 5% of U.S. hotel room bookings before the pandemic, has become negligible as international inbound travel to cities such as New York and San Francisco has been delayed indefinitely.
"Wholesaler relationships are on pause largely because retail rates are so low and nobody is planning that far in advance," Anderson said.
Looking ahead, both Estis Green and Anderson predicted a return to normal travel demand will be delayed, thus preventing hoteliers and OTAs from negotiating any major new agreements anytime soon. Indeed, U.S. RevPAR, which was cut in half last year, will rebound slightly to 61% of 2019 levels this year and 81.5% in 2022, according to STR.
“We still have at least a year before the impact of COVID filters through the system where people are comfortable to travel again, so the bias towards booking direct is going to remain in place,” Estis Green said.
Editor’s note: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on CoStar Group’s board of directors.