OTA loyalty programs threaten direct hotel bookings

Loyalty programs built by Expedia and Booking.com during the COVID pandemic are paying off now by enabling these OTAs to offer their members prices below direct booking prices being offered by hotels.

Both of these programs have more than 170M members who have access to membership rates at 360,000 participating hotels. That kind of reach gives OTAs increased market share, more repeat business and lower marketing expenses.

Hotels are now getting margins on bookings done through these loyalty programs that are around 18% below margins on direct bookings.

And on top of that, it's becoming more difficult for hotels to do direct bookings of consumers who use Google and other search engines because of changes related to increasing privacy concerns, and the phasing out of third-party cookies.

Accordingly, hotels are faced with a choice between (1) continuing to price above OTAs, losing direct bookings and making 18% less margin or (2) dropping rates and increasing marketing to get more direct bookings while retaining enough of that 18% differential to gain a larger net margin.

What will hotels do? Stay tuned.