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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?
Credit
Larry Mogelonsky CHA    Mr. Larry Mogelonsky - CHA
President and Founder
Owners, Principals, or Partners
LMA Communications Inc.

Bio: Larry Mogelonsky (MBA, P. Eng) is the founder of LMA Communications Inc. (www.lma.ca), an award-winning, full-service hospitality consulting and communications agency. Established in 1991, the company has assisted hundreds of luxury independent and branded properties throughout the world, providing solutions to sales, marketing, operational and digital challenges. Larry is an associate of G7 Hospitality Group as well as a member of Cayuga Hospitality Advisors and Laguna Strategic Advisors. He is also ...
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RE: Calling for a Commission Free Day article link
This is one of the least forward thinking ideas ever and frankly, typical thought process for someone not actually working at a major hotel or chanin that understands the real hotel business. First of all, hotels do not pay a commission direct to OTA's...the rates are net rates and the OTA marks it up whatever percentage was negotiated in their contract with the supplier. This is important because hotels than do not have the expense on the back side like we do for travel agents and third party planners. The rate is what it is and you can yield up other market segments to properly drive the correct mix for your hotel. Also, if you were an early adopter and partner with an OTA back in the day, I assure you the "commissions" are no where near 30% and in fact many large hotels in the top 3 hotel markets for OTA's are much closer to 10% than 30%. And although margins are higher than a TA 10% commission, the OTA's drive tens of thousands more bookings than traditional Travel agents, so the extra margin is well worth it and should be considered a marketing/advertising fee. OTA's are great partners 365 days a year and yes, during peak times do we all get greedy and wish they did not exist...of course. But in business, you have to take the good with the bad and if you want to have a long-term strategic partner than an OTA Free Day would be the dumbest idea ever.
6/20/2014

RE: Calling for a Commission Free Day article link
The key is to pick a day that would not hurt the hotels, but would hurt the OTAs...in the US I would say July 4. But it is too late to do it for 2014 (already have reservations!). So my suggestion would be July 4, 2015 and turn it off now. Most hotels would sell anyway and not give up 25% commission to the OTAs on that date.
Posted by: Ron Wallace
Email: rwallace@ashleyinns.com
6/19/2014

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