Sales & marketing

How Online Travel Agencies Work: The Benefits and Disadvantages of OTAs

4 min read

Online Travel Agencies (OTAs) such as Booking.com, Tripadvisor and Airbnb aggregate travel supply into a single place so travellers can conveniently book their own travel online. These sites offer value to travellers at all stages of the online travel customer journey This article is an introduction to how OTAs operate, and what you should take into consideration when using them. 

How OTAs operate

OTAs make money in three ways:

  1. the merchant model
  2. the commission model 
  3. the direct booking model 

In the merchant model, the contracts exist between you and OTAs to provide a set number of products (rooms, activities, rentals…) to the OTA at a favourable rate. The OTA then makes a profit off each product sold. 

In the commission model, the traveller books via the OTA but pays you directly at the time of checkout. You then pay the OTA a commission on the total value of the booking after checkout. There are no contracts and rates are set by hotels.

In the direct booking model, the OTA enables travellers to book directly from your travel website after first learning of the business on the OTA website. OTAs offering this model charge an annual or monthly membership fee. 

Most OTAs have shifted to the commission model and gradually increased commissions. For independent travel businesses commissions can be as high as 30 per cent. Part of this reflects the costs (software development, advertising) but as most OTAs are public companies, they are under constant pressure to show results. This means commissions are not likely to decrease in the future.

The benefits of OTAs for travellers

Before jumping to the benefits and disadvantages of OTAs to your business, let’s look at the reasons why travellers use them:

  1. The convenience of self-service with a multitude of options.
  2. Global access without having to ask for help or do extensive research. 
  3. Price transparency and competitive pricing. 
  4. Trust built on strong brands and trusted reviews.
  5. Accurate and comprehensive local information.

The benefits of OTAs for travel businesses

For travel businesses, OTAs have evolved into useful sales and marketing channels with several benefits:

  1. Better exposure and improved visibility. 
  2. Access to new markets and target groups.
  3. More direct bookings as after discovering your travel product, customers visit your website.
  4. Niche OTAs that cater to a specific type of traveller may allow you to dive deeper into segmentation and target certain markets with specific offers. 
  5. You can control how much space you make available on each channel and take a more sophisticated approach to supply and demand variations.
  6. OTAs provide a reputable brand that travellers trust, which makes them much more likely to give less known products and brands a try. 

The disadvantages of OTAs for travel businesses

Yes, it can be frustrating to pay the high fees, but keep in mind that there are costs associated with direct bookings, too. Demand doesn’t appear without some effort. Sales and marketing campaigns and direct booking tools come with a price tag, too. 

Other disadvantages or points to consider when using OTAs include:

  1. You’ll need reliable online access to meet the OTA rules. This can be a problem if you run activities in remote areas.
  2. You don’t have direct contact with your customers before they book. This means you can’t build trust and answer some doubts they might have that prevent them from booking. You also may miss valuable feedback. 
  3. You might face technical issues as all software is subject to technical problems.

Tips on how to use OTAs smartly

While OTAs are often criticized for high commission costs and lacking collaborative relationships, they often have a place for a profitable travel business. Small businesses, in general, cannot compete with the marketing budget that OTAs have available. 

Here we have listed a few recommendations on how to get the most out of your OTA partners:

  1. Work on one or two OTAs that best match your needs. Not every OTA might be the right one. In any case, master the use of one OTA first. 
  2. Optimize your profile and pay attention to how your profile looks to potential customers. Make sure to complete every field, upload high-resolution images, and keep your information up to date. 
  3. Read the fine print.
  4. Manage your reputation carefully. Most OTAs use reviews as a key factor in determining your reputation and search ranking. 
  5. If you use more than one OTA, consider using channel manager software to keep availability (and other) information in “sync” between the channels.

Online travel agencies can be priceless when it comes to filling your rooms in periods of low demand or increasing market share from a new customer group or region. When managed correctly, OTAs can give you the flexibility and control to maximize bookings and meet your business goals.

 

Authored By

Sirje Nikulainen
+ posts

Sirje is an adventurer who loves exploring Nordic wilderness, new business opportunities and emerging technologies. She regularly collaborates with Atelier Digital, a boutique digital marketing agency in Helsinki.

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