OTAs – Hotels Need a Chance to Compete, Including Through Consolidation – RealClear Markets

Separately, Choice and Wyndham are in a weaker position against the OTAs, but a Choice-Wyndham combination would give them more leverage to negotiate lower commissions.

According to Morning Consult research commissioned by the American Hotel and Lodging Association, hotel bookings make up 15 percent of all U.S. e-commerce, with over 500 bookings occurring every minute. This is an extremely lucrative business model and generates billions of dollars for Online Travel Agencies (OTAs) every year.

Each year hotels pay more than $50 billion to OTAs like Expedia and Bookings, which control 90 percent of the online hotel marketplace. And, while research shows that booking directly with a hotel equals higher customer satisfaction, the ubiquity of these OTA sites and the aggressive online marketing means that number is likely to only get higher. And, as those sites grow, and hotels book less of their own bookings, hotels start losing negotiation leverage. This puts OTAs in an extremely powerful position to extract more and more from hotel franchisees.

In this environment, the segmented nature of the hotel industry provides a strategic advantage for OTAs. And, to make matters worse, the franchise model hotels operate on often give OTAs an even larger advantage. In fact, Hilton does not own a single one of its 7,000 properties. This makes it even harder for franchisees to push back against OTA pricing.

However, the brands can, and one is giving it a shot: Choice Hotels is in the midst of acquiring Wyndham. These two firms represent a similar market capitalization of $6.4 billion and $5.9 billion, respectively. This puts them well below hotel giants like Marriott ($59.7 billion) and Hilton ($40.8 billion). Separately, they’re in a weaker position against the OTAs, but a Choice-Wyndham combination would give them more leverage to negotiate lower commissions. Booking commissions range, but can be up to 30%. Having more negotiating power to lower that fee can put real money back in the pockets of franchisees and give them more resources to invest for direct-to-consumer marketing and other.

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