Do hotels really need wholesales contracts in the OTA world?

Introduction

There is no doubt that Online Travel Agencies (OTAs) are playing very important role in the global hotel industry and have heavily marked it with their impact. OTAs increased popularity over the past years, as more and more travelers are booking their trips and accommodations online, have enabled many travelers to find suitable properties which were hidden from their market knowledge before as well as those properties to gain its spot on the market.

The same time as positive impacts on customers are quite straight forward, an argument can be made that with many OTAs to choose from, it can be overwhelming for travelers to decide which one to use. Also, there is the historical case with IT technology which tend to have a "market concentration" trend instead of a diverse and free competitive market development, which can lead to customers having very little choice at the end.

For properties (i.e., hotels) on the other hand, partnering with OTAs has become a necessary part of their business strategy in order to access this wide market audience and increase their occupancy rates. While partnering with OTAs has proven to be beneficial for hotels, in the last years there is a growing concern about the practice of subcontracting accommodation offers from one OTA to another behind the primary Property/OTA contract.

Wholesales dilemma

This business practice is of course not new, but in the past it occurred under very different circumstances. Previously wholesales for hotels was limited mainly to wholesale contracts with wholesale companies. The point of wholesale companies is that they gain a very discounted price for a limited number of inventory but guarantee to pay for it weather they sell it or not or at least they have to fulfill a specific quota. Current practice is far from that. OTAs don't guarantee anything, what they do is they simply forward hotel's offer, discounted or modified for an unknown value (which usually represents the portion of OTAs provision or fee) or they forward hotel's offer which is already discounted and maybe even fixed priced "exclusively" for them.

If such offer is than taken over by other OTAs, TAs or anyone having access to this primary OTA API or sales channel the result is, in its worst form, having net negotiated discounted and/or fixed prices appearing on the OTAs website along dynamic, BAR based prices which are offered from hotel to OTAs as a regular price. The confusion for both end parties, customer and hotel, can't be worst.

It is clear that emergence of OTAs have enabled hotels to gain substantial market reach but on the other hand hotels lost quite a portion of control over their pricing and control over inventory availability as well as a substantial reduction in their profit margins. As any hotelier knows having contract with OTAs brings with it a noticeable value on expenses side. Having to deal with "wholesales price leaking" and even more chaotic inventory distribution is the last thing any hotelier needs.

For travelers, the problem is that they may end up paying more for their hotel accommodations than they would if they had booked directly with the primary OTA and definitely the hotel itself under the same conditions. They may also be unaware that they are booking through a secondary OTA, which can lead to confusion and a lack of transparency in the booking process and sometimes in the process of issuing an invoice. Even in the case of getting a lower price, travelers can find themselves in the situation expecting specific services and/or cancellation policies and getting something completely different.

Sometimes due to synchronization lag between the systems the offer is not valid anymore at the time the traveler still sees it and books it. This usually results in a lot of awkward communication on both end sides since hotels have to spend a lot of time resolving overbooking issues or turn down the traveler. OTAs of course generally do not accept any responsibility since there is always an error "somewhere" down the chain.

Equal opportunity for all?

To address this issue, some hotels are taking steps to limit or prohibit the practice of wholesaling or shifting by including clauses in their contracts with primary OTAs that prohibit such practices. However, if such negotiations can be available to the biggest players such as Marriot and other global property management chains they are out of reach for many small and independent properties. Not to mention the ability of an independent hotel to take any legal action against such OTAs practices.

What to do?

In conclusion, the practice of subcontracting hotel offers from one OTA to another behind the primary hotel OTA contract (whole-selling) can lead to a number of issues for both hotels and travelers. While it can be beneficial for hotels to partner with OTAs to increase their occupancy rates, it is important to take steps to limit or prohibit the practice of whole-selling or shifting offers in order to maintain control over their pricing and inventory, and to ensure a transparent and fair booking process for travelers.

We can be sure that big property management chains with an army of layers can solve the issue, but what is there to do for smaller independent hotels?

Well first of all re-consider what portion of your revenue is guaranteed through wholesales contract and if you really need such contract. If you do not or if wholesale prices are leaked to other OTAs, cancel it right now. If you still need it, at least limit the offer to a dynamic price rate and remove all fixed rates. Tie the price to your daily BAR price with a possible negotiated discount, if a specific number of rooms-sold is met.

The COVID-19 situation has given hoteliers many troubles but also the opportunity of changing some of un-favored business practices in their favor.

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