Online travel agencies (OTAs) are digital companies that enable travelers and customers to buy various travel-related services such as hotels, air tickets, tour packages, visa processing, etc digitally. In many ways, OTAs are the digital version of physical travel agents, simply with more benefits and ease for travelers.
OTAs, to some extent, are aggregators who aggregate demands aka travelers who come to the OTAs for travel-related services. OTAs, on the other hand, make money in the form of commissions from hotels and airlines. Traditionally, hotels offer better commission rates than airlines. However, earning a commission does not come easy. It takes years of relationship building and ensuring a certain volume to claim a sizable commission from the suppliers.
Over the past years, OTAs have seen excellent growth globally. OTAs account for almost a third of the $8.3trn global travel industry and the share is growing quickly.
OTAs offer excellent benefits to customers - buy air tickets, book hotels, and avail other travel-related services in a few clicks, and thus travelers flock to these services. Similarly, these companies spend a hefty amount on digital and other advertising in order to acquire customers. In return, suppliers such as hotels and airlines provide them with inventories at a better bargain allowing them to achieve better commissions for suppliers. The advantage any demand aggregator has on its suppliers is that they could have a better bargain with suppliers.
This has challenges as well for not so dominant OTAs. Since the largest OTA wins the most customers, it means suppliers usually tend to offer the largest ones the best deals squeezing the smaller players. On top of that, most OTAs rely on Google ads and other digital ads for users, which means if you are the dominant OTA you could spend more on advertising. The Internet always offers benefits to niche players, but it could be difficult for small players to find growth. This is why Booking Holdings and Expedia own the majority market share. Like many markets, it is an effective duopoly. In 2018, they brought in revenues of $14.5bn and $11.2bn, respectively. And they are expanding to verticals across travel.
One growing challenge for the OTAs of the world, over the years, has been the rising advertising cost - the amount of money OTAs need to pay to Google and Facebook and the likes for acquiring customers. Take, for example, booking.com is rumored to spend some $3.5bn on “performance marketing”, which is mostly related to search advertising in 2016.
While OTAs command authority in dealings with hotels and airlines and other suppliers because of their ability to own demand aka customers, they rely on digital platforms such as Google for traffic to their websites. Over the years, digital advertising and customer acquisition costs have soared squeezing margins for OTA.
One strategy companies like Booking Holdings are trying to build platforms that become destination platforms where customers come directly to the website bypassing Google and others and thus building real aggregators.
Bangladesh has seen its share of the growth of OTAs in the past few years. Some of the leading players such as Flight Expert, Go Zayaan and ShareTrip have been able to build excellent awareness in the market. According to some sources, OTAs control some 5% of the $5.3 billion travel market in Dhaka.