As the popularity of online booking sites continues to grow in the travel industry, there is an increasing debate over whether or not property owners should be required to pay commissions to these third-party travel agencies.
Some argue that these sites provide a valuable service by making it easier for customers to find and book accommodations. Others contend that these sites’ service fees are unfair and place an undue burden on small businesses.
So, what’s the truth? Are online travel agents a boon or a bane for property owners?
Let’s take a closer look.
How Does Online Travel Agents Commission (or Service Fees) Work?
Before delving into why you may want to consider listing your property with an Online Travel Agent (OTA), you might want a basic understanding of how these sites work.
Generally, customers visit an online travel agent (OTA), such as Expedia or Booking.com, and browse through available accommodations. If they find a property they like, they can book it directly through the platform. Depending on the site, the OTA then collects a commission from the property owner and/or the guest, ranging anywhere from 3% to 20%.
For example, Airbnb’s service fees have a host-only or split fee structure option.
With the host-only option, guests don’t contribute anything towards the OTA commission, but the hosts pay a flat rate listing fee of 15%. So, each time someone books your Airbnb, they will deduct the commission and pay you the difference.
With a split fee commission structure, the guests pay 14.2% in addition to your listing fee, and you, as the host, are responsible for paying 3%.
With Booking.com and most other OTAs, on the other hand, hosts are responsible for paying the entire commission, which could range between 15% and 25% depending on the listing.
These perceived high commissions have become a common bug bear for many accommodation operators, with a constant ‘beat-up’ of OTAs as being greedy. Well, we’d like to challenge that mindset.
Now let’s be clear, we are not in favour of increasing your expenses and paying high commissions to OTA’s, however life would be pretty difficult without them. Imagine going it alone and relying solely on your own website and marketing efforts to get the exposure you are after!
You need to consider how you can reach the multitude of potential bookers on your own, and what money you would need to invest into advertising and marketing. Therefore, we suggest you reshape your thinking and consider OTA commissions as your marketing budget.
The best part about this approach is you only invest on a pay per result basis, meaning you only pay the 15% commission, IF and WHEN you get a booking.
Sure, we don’t want all your bookings to go through the OTA, but without them, life would be pretty difficult.
If you would like to compare service fees for the other listing sites, we break down some of the Airbnb alternative OTAs in Australia here.
Benefits of Listing On an Online Travel Agent Site and the Travel Booker Journey
There are distinct stages that consumers go through when planning and booking a trip, and by understanding these stages, you can have a better understanding of how to reach and influence their decisions.
The Dream Stage
The first stage is the “dream” stage, where consumers simply fantasise about their ideal vacation. They may not even have a specific destination in mind, but they imagine an escape from the mundane routine of their everyday lives. At this stage, it is essential to capture their attention with advertising that highlights the emotional benefits of travel.
The Planning Stage
The second stage is the “planning” stage, where consumers get more specific about their travel plans. They may research potential destinations, compare flight prices, and look for hotel deals. They must receive helpful information at this stage, such as travel guides and reviews, to make informed decisions about their trip.
The Booking Stage
The third stage is the “booking” stage, where consumers actually make their travel arrangements. They will book their flights, hotels, and any other activities or excursions they wish to include. Be sure to provide them easy-to-use booking tools and clear instructions to make the process as smooth as possible.
The Sharing Stage
After the trip is over, there is one final stage: the “sharing” stage. This is when consumers share their experiences with friends and family (or anyone else who will listen!), encouraging them to share positive reviews and feedback to continue improving your business and attracting new customers.
At all stages of the traveller’s booking journey, listing your accommodation with an OTA is beneficial because it gives you access to a larger audience, provides a convenient booking platform, and offers valuable marketing and exposure. So, despite having to pay a commission, the return, in the long run, may be worth your while.
Keep the Billboard Effect in Mind
Beyond having more of a reach throughout the different stages of the traveller’s booking journey, a research paper written by the Cornell University School of Hotel Administration titled “The Billboard Effect” suggests that traffic volumes to your website will reap the benefits from being listed on the OTA’s.
The theory behind this phenomenon is that the potential guest learns about the hotel from its OTA listing, but then books the room via a channel controlled by the hotel. Study results estimate that listing on Expedia adds 7.5% to 26% to incremental reservations (excluding those made at Expedia).
In other words, the benefit goes beyond the incremental transactions generated on an external channel. Your product’s wider distribution and increased consumer awareness also play a role.
Should You Increase Your Prices to Cover the Commission?
With the rise of online travel booking sites, many hotels face the challenge of maintaining their prices. On the one hand, they want to remain competitive to attract guests. On the other, they need to cover their costs, including commissions on online bookings.
So, what’s the best way to handle this situation?
Many experts believe that the key is to maintain price parity; that is, you should charge the same price regardless of whether a guest books through your website or an online travel agent. By doing so, you avoid undercutting yourself and turning away potential guests who might only be willing to book at a lower price.
In the end, price parity is often the best way to strike a balance between attracting guests and covering your costs.
Key Takeaways
Online travel agents, or OTAs, are a popular way for travellers to find and book hotels, flights, and other travel services. While OTAs charge a commission fee to list on their sites, there are many benefits that can make up for this cost.
One of the biggest advantages is increased visibility. When you list on an OTA site, millions of potential guests will see your property who might not otherwise be aware of your property. In addition, OTAs often offer valuable guest reviews and ratings that can help boost your property’s reputation.
While it may be tempting to consider raising your prices to cover the cost of the commission, remember the concept of parity—that is, if you increase your prices on OTAs, you’ll need to do the same on your own website, if you have one.
Running an Airbnb and keeping on top of all this information about the best way to succeed can be overwhelming, so you may want to consider hiring a property manager to help you navigate it. If you would like to know more about how GrowHOST can help your Airbnb business succeed, get in touch today.
