Online Travel Agents driving up hotel prices

The hospitality industry’s increasing reliance on online travel agents is driving up hotel prices, according to the Good Hotel Guide (GHG), the 2014 edition.

logo02Adam Raphael and Desmond Balmer, the guide’s editors, said that guests are paying “hundreds of millions of pounds” in commission fees to booking agents for little in return.

“Guests who reserve rooms via agents are paying over the odds because hotels have to pay 15% plus VAT on their gross revenue for each booking,” they explained. “For small owner-managed hotels, commission fees inflate costs at the expense of guests who are unaware that they would usually get a better deal by booking directly.”

According to Raphael and Balmer, the growing power of OTAs stems from internet search results being dominated by marketing companies.

“Google, for example, sells advertising to the highest bidder on a pay-per-click basis which enables third part agents such as Booking.com to lead search results using the name of the hotel as bait. When travellers click on these ads at the top of the search page, few realise that they are dealing with a commission charging agent.”

The GHG said many hotels claim they have to use booking agents to fill empty rooms and fail to analyse the impact of OTAs on the bottom line. However, it highlights that some hotels are now providing incentives for guests who book directly. For instance, the Queensberry in Bath offers guests who book directly a 10% reduction on the price of dinner, a 20% discount on cocktails, and a free gift.

Raphael and Balmer also said that many OTAs impose expensive conditions as well as take commission fees.

“Mr & Mrs Smith, which specialises in promoting boutique hotels, charges hotels up to £7,000 for an entry, plus 15% commission on bookings,” they said. “Its selected hotels are also required to provide four nights free hospitality each year, to provide a free gift to every Smith card holder and are urged to throw in free breakfast, dinner and spa treatments.”

James Lohan, co-founder and chief executive of Mr & Mrs Smith, responded by saying that its annual fees are tailored to the size of the property, ranging from a few hundred to several thousand pounds. “Of course we’re not going to ask £7,000 of a four-bedroom B&B, the figures quoted are those likely to be paid by a larger hotel with considerably more rooms.”

He went on to explain that Mr & Mrs Smith asks hotels to provide a gift on arrival for guests to reflect the travel club nature of the business. “This usually costs the hotelier around £15 and is worth about £30 to the customer.

“The costs incurred by a hotel featured in the Smith collection are more than offset by the bookings generated as a result – we guarantee this to our hotels and our business wouldn’t work otherwise.”

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