The partnership giving American Express agents access to Orbitz hotel inventory may represent a breakthrough deal for online and offline retailers, but one group in the equation is keeping a wary eye on the arrangement.
For hotels, OTAs represent seductive volume but at rates that cost hotels billions of dollars in revenue.
Travel-research firm STR estimated in August that OTAs cost U.S. hotels $2.5 billion in revenue last year, up from about $1 billion in 2004. OTAs accounted for about 7.2% of the approximately $120 billion in U.S. hotel revenue in 2010.
Thanks to the deeply discounted rates they negotiate with hotels, OTAs are able to mark up the rooms between 22% and 25%, which enables them to offer travel agents commissions as high as 12%.
OTA proponents say online travel agencies generate a lot of revenue for hotels that otherwise would have been lost, while hotel representatives say the OTAs’ cut is too big, especially since travel agents typically were paid commissions of about 10% before the rise of the Internet.
Recognizing that traditional agents bring in better rates than the OTAs, hotel companies have spent millions developing agent booking portals and courting consortia and agency groups such as American Express.
Now that the OTAs are penetrating this sector of the market, hotels are expressing concern behind the scenes about the resulting loss of revenue from traditional travel agents.