New study: If You Spend $89 on OTA Commissions, Your Hotel's Occupancy Will Be 100%

The study claims that for every $1 spent on OTA commissions, the hotel realizes $7.98 increase in profit, $20.20 increase in revenue and 1.12% increase in occupancy.

So, if you spend $89.28 on OTA commissions, your property’s occupancy will be 100%? The more OTA commissions you pay, the more profitable you are.

Here is my take:

This Cornell School of Hotel Administration study is another embarrassment for this institution claiming to be “The World's Premier School for Hospitality Business.” Was this study financed, again, by the OTAs? Similar to their previous, now notorious, study about the so called billboard effect, paid for by Expedia.

To begin with, the study considered only bookings made using the so called Agency Model (the hotel collects the money, then cuts a commission check to the OTA) and does not consider all of the Metchant Model bookings (the OTA collects the money, deducts their commission and pays the hotel the net rate), which are the majority of bookings. For independent hotels, almost 100% of Expedia and 63% of Booking..com bookings are made using the Merchant Model.

In other words, the study is focused only on small part of the OTA bookings I.e. on a very narrow picture.

So, after you pay as an OTA commission nearly a third of the face value of the reservation: 22%-25% commission, plus 5%-7% loyalty discount to become part of the OTA loyalty program - nearly 400,000 hotels already participate, plus additional fees for mobile bookings and better placement of your listing, your hotel is making more profit?

More profit than direct bookings? And by spending $89.28 on OTA commissions, you ensure 100% occupancy rate of your property. What a joke!

At my company NextGuest, now merged with Cendyn, we tracked the cost of 28 direct online distribution in the course of 20 years across our more than 5,000 plus primarily independent hotel clients. You know what? The average cost has stayed consistently in the range of 4.25% - 4.5%, incl. website cost amortized over 36 months, website maintenance, hosting, analytics, digital marketing (Content Marketing, SEO, metasearch, online media, social media, CRM marketing, omnichannel campaigns, etc.), consulting fees.

Hoteliers have always used intermediaries. Even before the OTAs, back in 1995, a quarter of hotel roomnights were generated by travel agencies, tour operators and wholesalers. A balanced distribution portfolio is a very prudent strategy, but do not insult our intelligence by claiming that OTA bookings are better and more profitable than direct bookings.

The Cornell School of Hotel Administration should be ashamed of themselves and should focus on studies helping the hospitality industry, not the OTAs.

Max Starkov
Hospitality & Online Travel Tech Consultant & Strategist