Two Sides To the Battle With OTAs

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It's encouraging to see the hotel industry take the offensive in its latest battle with the online travel agencies. Special kudos to Choice Hotels President Steve Joyce, who refused to blink in face of Expedia's extortionist demands during negotiations for a new contract to represent the brand's properties on the OTA site. According to recent press accounts, Expedia apparently blinked and the two sides are back at the negotiation table. And, judging by comments from marketing chief Dorothy Dowling at the brand's convention last month, Best Western isn't willing to cave-in to Expedia's demands, either.

The situation was much different eight years ago during the last travel industry slowdown in the aftermath of the Sept. 11, 2001 terrorist attacks. The hotel industry was reeling, no one was traveling, and the OTAs were emerging as powerhouses in online commerce. They offered, and the industry immediately accepted, a deal with the devil: Give us all your room inventory, we'll price it at whatever we want and give you a greatly discounted portion of the revenues. Stupidly, the industry agreed and, in turn, lost control of its pricing and its inventory. Within a few years, the chain's all wisely adopted policies guaranteeing customers couldn't find any lower rates than was featured on the chains' website. Immediately, the industry regained control of its inventory.

Of course, there's a caveat that comes with all of the tough talk we're seeing from the chains as they try to maintain the status quo. Since the early 2000s, the web has become the norm as a travel planning, shopping and booking tool for most consumers. According to PhoCusWright, online bookings will account for 39 percent of all travel industry reservations this year, up four points from 2008. And, as another study from Cornell University shows, the OTAs carry a lot of weight with consumers, even if they ultimately don't book on those sites. According to the just released study, OTAs provide a “billboard effect” for hotels that gives value to them beyond reservations booked on the sites. Many travelers, me included, regularly check OTA sites before booking, often on the brand's website or through some other channel. If a brand or property isn't listed on Expedia or other OTA sites, it risks dropping from the consciousness of the traveler looking to book.

The lesson for the industry is to learn from history, but also to understand the dynamics of the online travel world have changed. It could be argued that OTAs are actually more important to the lodging industry than they were in the panic years following 9/11. A lot of travelers book through them, and many more use them as a benchmark when making travel plans. It's smart for Choice, Best Western and other brands to play hardball with them during negotiations, but they shouldn't lose sight of the fact that OTAs can also be the hotel industry's best friend.

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