Online travel agencies are taking back some of the distribution market share they lost to hotel chains during the years leading up to the pandemic, as companies such as Expedia Group and Priceline parent Booking Holdings have ramped up marketing investment and product improvements to sell more room nights to prospective U.S. lodging guests.
Direct-booking incentives and loyalty program pushes have made strides in driving guests to book on the websites of the big hotel brands. But as the industry's recovery from the pandemic has progressed, OTA bookings have again outpaced hotel website bookings.
According to travel-research firm Phocuswright, online travel agencies' share of bookings dropped to as low as 49% before the pandemic, but has since rebounded to 52%. In 2012, OTAs had a 54% share of that business.
While such gains appear incremental, one percentage point of online gross bookings can account for as much as $1 billion worth of business and anywhere between $100 million and $200 million in commissions swapped between the hotel companies and OTAs.
“It became easy and cheaper if you were a member of a loyalty program to book direct, but that’s been countered by [OTAs’] marketing programs, and hotels can’t compete with that,” said Lorraine Sileo, senior analyst at Phocuswright. “When things ramped back up in 2022, the OTAs hit it hard and gained share back.”
Executives at both Expedia and Booking Holdings indicated in recent earnings calls that the momentum has carried over into this year.
Expedia’s total lodging bookings increased 38% year over year in 2022, and the company reported record fourth-quarter bookings last year. Expedia CEO Peter Kern, speaking on the company’s earnings call in February, partly attributed the gains to investment in integrating its Hotels.com site into Expedia’s booking platform.
“In January, we saw a step change where our lodging gross bookings accelerated even further, growing over 20% versus 2019,” Expedia Chief Financial Officer Julie Whalen said on February’s call. “While it is still early in the quarter in 2023, we are pleased to see strong lodging demand continue.”
The number of rooms booked on Booking Holdings’ channels increased 52% last year to almost 900 million, an annual record for the company.
“On our volume and consumer spend basis, we have grown our U.S. business to be meaningfully larger than it was prior to the pandemic,” said Booking Holdings CEO Glenn Fogel on the company’s earnings call in February. “We believe that our growth rate has outpaced the recovery in the broader market for U.S. accommodations, which means we believe we gained market share.”
Analysts say the tug-of-war for online hotel bookings between the chains and OTAs began in earnest during the early 2000s and intensified in the years following the Great Recession, when hoteliers scrambling for guests offered more rooms to OTAs at discounts of as much as 25% relative to the retail rate. Additionally, tech-savvy leaders of OTAs created and tweaked booking platforms that were often more user-friendly than hotel websites.
“Sometimes, making the first move in technology is everything,” said Mehmet Erdem, associate professor of hotel operations and technology at University of Nevada, Las Vegas. “Historically, we know that the hotel industry has blinked and let third-party intermediaries take a large share of the market.”
By 2016, though, that market share was shifting in the other direction toward hotels, as lodging companies beefed up loyalty program marketing and started offering lowest-price guarantees and other perks for members who booked rooms directly. Additionally, hotel companies became more adept at creating simpler online booking processes on their websites.
“There’s been a lot of progress made by Brand.com,” Erdem said. “If you counted how many mouse clicks it’d take [to book a room], it’d take as many as 30 steps. Accor’s brought it down to five clicks.”
During the pandemic, direct bookings were driven in part by guests who had questions only someone at the hotel could answer.
“People wanted to book direct because they needed to know if the pool or restaurant was open,” Sileo said.
As travel and hotel booking patterns have normalized, in some ways relationships have improved between the hotel companies and OTAs.
Sileo said OTAs have been willing to pay a little more in commissions to the hotels they list, while the discounts hotel companies are giving the intermediaries are ranging from 8% by the larger chains to about 20% by the independent properties.
“The relationship between the OTAs and chains has definitely improved, and the chains feel like they have a lot more negotiating power,” Sileo said. “There is so much strength in the hotel market in general. Even if they lose a little share, they’re still growing at a healthy clip.”
Another economic crisis, such as a global recession forecast for the second half of 2023, could upend that relationship again — or not.
“In the past, a weak economy has helped the OTAs because of all of the deals,” Sileo said. “But hotels have made so much progress that it may not repeat itself.”