WHAT IS THE FUTURE FOR OTAS?

OTA's (Online Travel Agents) have revolutionized the distribution not only of air transport but also and perhaps especially, of the hotel industry. The vogue of this type of operator arrived in the early 2000s, in fact at the appearance of the dematerialization of transport tickets and vouchers for land services. This is also the time when airlines have embarked on the crazy race for volume. It is who would carry the largest number of passengers and who would have the highest load factor. For this, it was necessary to fill the last seats available on planes and therefore find a practical way to sell them off, even if it would greatly degrade the quality of service.

But the tool was packed with the technological facilities provided by the Internet and then by social networks. It had become easy to offer a wide range of destinations in ascending order of fare. However, it is well known that the first rates displayed are the most requested, regardless of the constraints attached to this display. It remained to find a way to offer the lowest prices while ensuring the profitability of OTAs. As far as the hotel industry is concerned, the matter was quite simple, it was, and it is still the case, to take a sometimes very large commission, of the order of 20%, on the nights booked through their channel. That's what made Booking.com prosperous, for example. Only, for the air, the case turned out to be more complicated.

Since the late 1990s, airlines have eliminated commissions paid to travel agents by generalizing the disastrous practice of "Yield Management" thus depriving themselves of control of their selling prices. So the OTAs had to fall back on another form of remuneration. For this they have massively used the practice of GDS which, to increase their transaction volumes, retrocede part of the fees they levy on the airlines. The latter, although at the origin of the GDS, sold them to the investment funds for considerable sums that they furiously needed to compensate for the losses due to the steady decline in unit revenues. Thus, carriers were obliged to pay about 7 dollars per passenger/segment to the GDS, which in turn paid 3 dollars to the reservation issuers whose OTAs were the largest.

This is how OTAs gradually attracted a very large number of passengers, which allowed them to negotiate very large premiums with airlines to which they brought an increasingly important revenue, even if it did not pay the cost price.

But COVID has been there and the situation has changed completely. Carriers have understood that they can significantly increase their fares, by around 30%, without scaring away the right customers. And with this new recipe, they need less and less of the low rates provided by OTAs. Some have simply taken out of their offer to the distribution channel the booking classes to which the lowest rates are attached. Meanwhile, IATA has developed a new technology called NDC (New Distribution Capability) that allows a direct connection between travel agents and airline inventory without going through GDS. As a result, they are deprived of the resource they need to reward OTAs that provide a significant portion of bookings. And, finally, environmentalists are waging a frantic hunt for low tariffs, guilty of polluting the entire earth.

In short, the future looks bleak for OTAs whose major activity is in air transport. They will have a hard time differentiating themselves from traditional travel agencies because airlines will reserve access to low fares and a significant part of their revenue will dry up since the GDS will no longer be fed.

And finally, if their sales volume decreases, the amount of premiums paid at the end of the year by carriers will certainly be affected. To survive, they will have to evolve their model by sophisticating their performance. It will cost them more, but they have a big asset, their brand, that they have been able to impose over time in the markets. Expedia, Lastminute.com and Orbitz still have a little time to renew a largely weakened model that has also seen the first bankruptcies.

Basically, the big winners will be the consumers. They will finally find reasonable rates and services that are steadily improving over the next few years.