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Calling for a Commission Free Day

Want to wean yourself off paying those fees? Try one day without them and see if you can do it.

Wednesday, June 18, 2014
Mr. Larry Mogelonsky - CHA
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For most, dealing with online travel agencies (OTAs) to serve your leisure travel needs is a love-hate relationship; everyone appreciates the room generation, seemingly on demand. But this volume comes at a price, as, for an independent property, the commission rate can be much as 30%. Commissions at that level make us all yearn for the good old days of traditional travel agents and their standardized 10% rates.

But the issue is this: how do you stop? How do you wean your business off this seemingly endless gravy train of near-instant reservations generated through an impressive global electronic distribution network?

Don’t get me wrong; the OTAs are brilliant marketers. They extensively rely upon broadcast advertising, having the critical mass and clout to generate high levels of awareness. They also have a better reservations system than most hotels; they also book airfare, making it easier for a consumer to complete their vacation planning in a one-stop-shop manner. But being brilliant marketers does not mean they are the hotelier’s salvation.

Rather, my feeling is that the OTAs are the quintessential Trojan horse for the hotel industry. It starts when we let them in and give them our remnant inventory. First we’re happy to have the business, filling dead spots in the calendar and smoothing out occupancy valleys. Then slowly, they win customers over to only book through them, minimizing hotel loyalty programs and ensuring their permanent survival through detailed contracts that protect against possible channel conflicts.

Think of Yourself as Living in Ancient Troy
In ancient Troy, the Trojan Horse allowed the Greek army access to the city, and once inside, well, it wasn’t pretty. Now think of your property as Troy. You probably started with a few reservations on just one or two OTAs, but with the advent of a revenue management system, this was rapidly expanded to cover the entire spectrum. Computer programs now assist your revenue manager in allocating inventory and maximizing coverage. This only accelerates the success of OTAs full penetration of your annual occupancy plan.

Run the numbers. Extend your OTA share to double or even triple its current level with no increase in occupancy, swapping rooms with those generated through your brand.com channels. Once you’ve done that, take a look at your bottom line. How do you feel about the resultant figures?

Many hoteliers I have spoken to are aghast when they analyze this scenario. To quote the words of one luxury hotelier, “If that happens, we’re out of business.”

Time to Fight Back
Do you think it is too late for the hotel industry? Unless we as hoteliers band together, it just may be. I have read many of these OTA contracts. Well written and professional, they have but one (in keeping with the classics theme) Achilles Heel. Namely, there is nothing written that mandates you to give them inventory if you do not want to. Inventory supply is voluntary.

The best defense is to give them zero inventory. Nothing, nada, zilch. Many will say this is too harsh and too hasty. After all, you have owners to satisfy and you have rooms to fill.

An OTA-Free Day
What I am proposing in this article is an OTA free day. It works similarly to a meat free day that many diet-conscious persons are now using. For one 24-hour stretch, you abstain from consuming any animal protein, thereby affording your body a brief period where it can expunge most of the meat-induced carcinogens from the body.

If the hotel industry can pick one day, one day where we allow zero check-ins except through our own direct sources (brand website, telephone direct, central reservations and so on), then we’ll be able to see if we really need the OTAs, or whether we can live without them.

We need a date that the entire industry can agree on. Sure there will be hotels that say, wow, what an opportunity for my property. But, if we all band together, then we’ll get a feel for whether we can live without them. And the success measurement has to be its impact on the bottom line, not simply occupancy levels.

I am interested in feedback for this concept. If this approach works, we’ll extend the OTA-free period to a full week. Then, as the commission costs in our plan are reduced, funds can be put back into building revenue through promoting the property directly.

This idea is still in the inception phase, so I am very interested in hearing your thoughts. Are you ready to fight back?
Larry Mogelonsky CHA    Mr. Larry Mogelonsky - CHA
President and Founder
Owners, Principals, or Partners
LMA Communications Inc.

Bio: Larry Mogelonsky (larry@lma.ca is the president and founder of LMA Communications Inc. (www.lma.ca), an award-winning, full service communications agency focused on the hospitality industry (est. 1991). As a recognized expert in marketing services, his experience encompasses Four Seasons Hotels & Resorts and Preferred Hotels & Resorts, as well as numerous independent properties throughout North America, Europe and Asia. Larry is a registered professional engineer, and received his MBA from McMaster University. ...
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