(Posted 15th January 2022)
Have you’ve ever wondered what an OTA actually is, how OTAs make money, why travelers like you and hotels use OTAs?
Online travel agents have become an integral part of many travellers’ “search and book” routine. It used to be so much more tedious to book travel, requiring a phone call or an in-person visit to a physical travel agent. Now, travellers can self-serve all the way from research to booking.
If you’re like most travellers, you’ve used an OTA without really thinking much about it. The website works well, with lots of choices and a relatively smooth booking experience. But if you’ve ever wondered what an OTA actually is, how OTAs make money, why travellers like you use OTAs and what the biggest OTAs are, then I got you covered today. I have compiled some of travellers’ most frequently asked questions around OTAs and answered them all in one place. Let’s get curious!
What’s an OTA?
“OTA” stands for Online Travel Agency, which is a travel agency whose primary presence is on digital channels. Consumers can use a website and/or mobile device to search and book their Diani holiday — all without the traditional “gatekeeper” travel agent. OTAs connect to the full breadth of travel providers, giving travellers access to the entire inventory that they may want for their next trip. Online travel agents are the travel industry’s largest source of bookings and often use package deals including airfare and hotels or special offers like flash sales to drive more bookings to airline and hotel partners. These massive travel websites like Booking and Expedia have millions of monthly visitors.
Large hotel groups (like Kempinski and the like) have been consolidating and building new sub-brands, which means that they have a lower reliance on OTAs; travellers can find many types of accommodations on the global brands’ own websites. Yet, many independent hotels rely entirely on OTAs to drive their bookings as they don’t have a booking engine of their own. This really saddens me if you ask me. Either way, OTAs have a breadth and depth of travel inventory that covers all segments, geographies and groups of travellers.
It’s also important to understand what ARE NOT online travel agencies. Metasearch engines like TripAdvisor and Google Flights, for example, are not OTAs. In the United States Expedia is the dominant player while in Europe it is Booking.com.
How do OTAs make money?
Most OTAs make money by taking a commission per booking, which is anywhere from 5% to upwards of 25%. The actual commission rate is negotiated on a brand by brand, property by property basis. Call me if you need this negotiated for you. It’s one of my talents. In general, larger hotels and bigger brands with many properties use their leverage to negotiate lower rates. So when you book that boutique hotel on an OTA, it’s likely that they are paying more on commission than the name brand Hotel down the street.
Most OTAs also make money through advertising, in which hotels pay to be prominently placed above organic results in relevant traveller searches. This model, which is also used by metasearch sites, is generally on a pay-per-click basis.
Why do travellers use OTAs?
Over a fifth of travellers say they use OTAs to book all or part of their travel. And OTAs (and their metasearch cousins, often owned by major OTA groups) remain popular among all age groups.
At the highest level, there are three main reasons why many travellers book their trips on an OTA:
Choice. Online travel agencies are a “one-stop-shop” for all things travel. From flights and hotels to short-term rentals, cars and vacation packages, you can pretty much find any type of product that you want on an OTA.
Price. OTAs have done an excellent job of developing a perception of value — even though they aren’t always the lowest price or the best value. The real value here lies in comparison shopping. It’s easy to compare options on an OTA and that type of information is very valuable to consumers.
Convenience. OTAs are the Everything Store for Travel, available on any device. It’s a convenient place to book your car rental, hotel and flights in a single reservation. It’s so much easier to deal with that single point of contact — especially when things go wrong and you need help. Rather than calling multiple numbers to puzzle together a new itinerary, you only have to call one number to get it done.
Hygiene. Travellers want to be assured of the relative cleanliness of the service or product. By using a reputable online travel agency, travellers have an expectation of a certain level of quality. The attributes of the brand make a big difference in the perception of quality.
Privacy and security. Privacy and security are also important. And, just like hygiene, Travelers have a certain level of trust in the OTA brand to deliver a quality experience that won’t expose them to privacy breaches or physical harm.
Reviews. Social proof has a major impact on why travellers use OTAs. A feeling that others had a good experience goes a long way in pulling more consumers into the OTA ecosystem.
What are the drawbacks of OTAs?
There are also some disadvantages of using OTAs, which travellers must be aware of. For one, travellers often are lured by low prices on many online travel agencies. Yet, once they try to book, they find out that the price includes hidden fees or added restrictions that wouldn’t be found by booking directly with an airline or hotel.
Niche OTAs, which can pop up seemingly overnight, often hide the true cost of a trip during a given search to entice consumers to click through. The worst actors will actually appear to offer the lowest price all the way through to booking. However, once you check-in to their flight or hotel, you may discover unexpected fees. All of a sudden, that “steal” of a price actually becomes more expensive than it would have been booked direct.
Examples of these tactics periodically pop up, such as when one online travel agency was accused of using improper charges and bait-and-switch fares. The tactic can mislead consumers, who see an OTA as the cheapest option in search results and thus click through to book.
Another major drawback is customer support. Not all OTAs are created equal on this front. Especially when it comes to regional ones, travellers often face less-than-ideal support. For the average trip, when everything goes well, this is far less of an issue. It’s when things go wrong that support matters greatly. No one wants to be stranded without anyone to help!
This can be exacerbated during disruptions that come out when travel suppliers prioritize direct workers over others. When booking directly with a hotel or airline, travellers will deal directly with the company for any issues that arise.
So it’s not always cut-and-dry that an OTA will be able to provide you better or more effective support than a travel company — and in some cases (especially with more niche/regional OTAs) there’s spotty support that can cause more frustration than the price savings.
What are the top online travel agencies?
When choosing where to book, most consumers opt for one of the top OTAs: Booking Holdings and Expedia Group. That’s not really difficult to do, as these two companies own the bulk of online bookings. With many brands that span categories and regions, Expedia and Booking have all corners of the globe and all travel niches covered:
In addition to its namesake OTA Expedia.com, which sells all categories of travel to a global audience, the company operates sites that span hotels, ground transportation, cruises, vacation rentals, metasearch and business travel.
Headquartered in Amsterdam, Booking Holdings is best known for its flagship brand Booking.com, which sells all types of travel to a global audience in 43 languages. The global conglomerate also operates niche websites serving specific segments in travel and hospitality.
The dominant short-term rental player now also offers boutique hotels on its platform. And while the pandemic has shifted its vision somewhat, the platform is now an OTA that competes directly.
Until recently, Ctrip was focused primarily on Asia. This changed with the purchase of Trip.com, which gave it a global footprint on major North American and European markets.
Okay, so technically this is not an OTA as the business model is strictly “pay for performance.” But Google Hotels is the elephant in the room: a major competitor from the dominant search engine where the vast majority begin their travel searches.