Hoteliers may be apprehensive when it comes to discussing hotel distribution channels. On one hand, it’s clear that they will need the help of the distributors to achieve higher occupancy rates. On the other hand, doubt arrives when it comes time to choosing the right ones in order to generate both high sales volume and acceptable revenues.
The online distribution map has developed a lot during recent years, and today almost all B2B providers, wholesalers or tour operators are reselling each other’s contracted rooms. Why? The integration is more streamlined than ever before. By doing this they are better able to offer the best available rate and thus a broader worldwide portfolio. As you might imagine, this has configured a really complex scenario.
Let´s revise the main business model of these companies, paying attention to their characteristics, the cash flow and their approximate fees or commissions.
B2C OTAs (Business to Consumer Online Travel Agents)
These retailers are usually specialized, serving as hotel providers only for directly contracted hotels. They normally work with a commissionable business model, also known as retail or agency model. The traveller is expected to pay the hotel directly upon checkout, though he booked via the online travel agency (OTA) portal. The hotel then pays the OTA the previously agreed upon commission which varies from 10-20% on average, based on the room revenue paid. This commission is also remitted within a previously agreed upon time frame.
These companies characteristically create and sell a holiday product such as a pre-packaged trip with several components, including flight, hotel, and transfer. Their product is multifaceted in that tour operators directly contracted the hotels on offer. They then distribute these hotels through their own B2C travel agency networks or through other travel agencies.
The tour operators focus their efforts mainly in sun and beach destinations. In many cases these operators also work with ‘guarantee clauses’. Once the season finishes, they start negotiating the following one, booking at that moment a significant number of rooms to guarantee they can offer them in their catalogue. They will prepay the hotelier for all rooms which will give the hotelier high liquidity, but these distributors will have great net rates in exchange: Around 30-40% lower than the retail rate depending on the volume booked.
Traditionally, wholesalers received really competitive net rates (approximately 30 % off) because they purchased a large stock of rooms from the hotels. Then they apply a mark-up and distribute the rooms to other distributors. This model continues to exist. However, the emergence of the internet and OTAs gave way to the possibility that some hoteliers were losing control over their final prices and business in the different channels. Some providers began to demand the best available rate in their contracts and when or if the hotel could not guarantee it, they would occasionally suggest discontinuation of their current efforts.
Because of this, many wholesalers also offer the possibility to work with commissionable rates. In this case the hotelier provides the wholesaler their retail rates and agree upon a commission. They will then distribute the hotel rooms to other intermediaries, normally obligated through contractual agreement, to sell the hotel room at the retail rate. In this case the commission could be lower than in the previous example (around 20-25%). The difference? The hotelier will have to pay fees if they want the product to be delivered by specific intermediaries. Alternatively, the agreed upon commission rate may be higher if the wholesaler distributes your hotel with no limitations. The wholesalers will negotiate which share of the commission they will keep for themselves and will leave a percentage for the intermediaries via whom room allocation occurs.
Wholesalers might have extra commissions (rappels) according to the revenue as well. The more they sell in a given period, the higher the commission rate. Although this is intended to foster an entrepreneurial spirit and better rates, efforts could wain following this period. To learn more about this structure check out this dedicated blog post about the rate disparity.
B2B & B2C OTAs (Business to Business and Business to Consumer Online Travel Agents)
This business model is normally characterized by selling various travel products like flights, hotels, or car rental, packages. They may also use products from directly contracted hotels or other suppliers including other OTAs, wholesalers or tour operators. When they contract directly with the hotelier, these OTAs start to mix different models more and more to increase their revenues. An OTA can be both working on a retail model (commission on retail rates, between 18-25%) and merchant model (net rate + mark-up) at the same time. When they are working based on the merchant model, the mark-up (around 18-25%), net rates and minimum final rate are negotiated between the hotel and the OTA.
Finally, if the OTA has no direct contract with the hotelier and it has been provided with a commissionable rate, they are normally linked with a legally binding clause to offer the retail rate to the final customer. On the contrary, if they have been provided with net rates, they will apply the mark-up they consider and display its retail price.
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