Online travel agencies like Expedia, Kayak and Hotels.com are prevalent in the travel industry. While you might not be familiar with the term OTA, you have likely used one to make a reservation. These websites have user-friendly websites, offer competitive prices and allow you to compare multiple flight, hotel and rental car options in one place.
However, a significant difference exists between booking a flight and reserving a hotel room through an OTA. When you book flights via these third-party sites, you typically earn points or miles with the airline loyalty program. But when you book a hotel through an OTA, you usually won’t earn points or enjoy elite perks with the hotel loyalty program.
Many TPG readers have discovered this the hard way. They booked a hotel from a chain like Marriott or Hilton through an OTA only to find out upon arrival that they cannot earn points or use their elite status benefits.
This discrepancy has raised the question: Why don’t you earn hotel points when booking through an OTA?
I consulted Henry Harteveldt, a travel industry analyst and president of Atmosphere Research Group, a strategic market research and advisory firm. He provided insights into the history of OTAs, their current relationship with hotels and the reason behind the lack of point accrual when booking a hotel stay through them.
History of OTAs
OTAs originated from the need to improve the efficiency of flight reservations in the late 1950s. As air travel became more popular with the advent of jet engines, the existing card-based booking systems became inadequate to handle the increased number of passengers and routes. These systems were slow and required manual processing, resulting in flight reservations taking over an hour to complete.
To address this issue, American Airlines collaborated with IBM in 1961 to develop a groundbreaking software called SABRE (Semi-Automatic Business Research Environment). SABRE revolutionized the booking process by automating flight reservations. It enabled approximately 7,000 flight bookings per hour and allowed American Airlines’ reservation agents to check flight availability in seconds. This innovation significantly improved the efficiency and speed of travel bookings.
In the following years, after the introduction of SABRE, American Airlines continued to use it while other airlines developed their own computer reservations systems. These systems allowed travel agents to book flights directly from their computers.
During the next two decades, global distribution systems were developed, which enabled people booking travel to check availability across various computer reservation system platforms. This technology became the foundation for OTAs, with SABRE launching the first OTA called Travelocity in 1996.
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Microsoft introduced Expedia later in 1996, and investments from American, Continental Airlines, Delta Air Lines, Northwest Airlines and United Airlines led to the creation of Hotwire in 2000. In 2005, Hotwire, Hotels.com and Tripadvisor — three popular OTAs — merged with Expedia.
How OTAs make money
OTAs, like traditional travel agencies, earn a commission from travel bookings. Flights generally offer low or no commission, but the large volume of flight reservations provides significant revenue potential for OTAs.
For hotels, commission rates are often higher, ranging from 5% to 25%. This means an OTA could earn a substantial amount, sometimes hundreds of dollars, for a customer’s $1,500 hotel reservation. Additionally, OTAs enable customers to make travel arrangements online for various properties (including some you can’t book directly online), reducing labor costs and allowing quick room bookings.
The competition among hotels and the need to fill rooms has led to higher commission percentages. Hotels are willing to work with travel agencies despite the cost because an unsold room represents a missed revenue opportunity.
Why hotels fought back
During the early 2000s, the rise of online travel agencies led to a significant increase in third-party bookings for hotels, as opposed to direct bookings. Hotels needed to pay commissions to OTAs on these bookings while still reimbursing affiliated loyalty programs for points earned by their members during stays. As a result, hotels experienced a noticeable decrease in their profit earnings.
Hotels implemented various measures to control the reservation process to address this issue and reduce overhead expenses. They started by gradually reducing OTA commissions and introduced exclusive member rates and perks to incentivize travelers to book directly. Marketing campaigns were launched to promote the benefits of direct bookings, and hotel loyalty programs stopped awarding points for bookings made through OTAs.
The reason behind these changes was that while points and elite perks have a cost, they are often less expensive to award than paying a large commission to an OTA. Because of this, you won’t earn hotel points or obtain elite status benefits when booking a hotel through an OTA.
Does it make sense to book hotels through an OTA?
While booking through an OTA may not allow you to earn hotel points or elite status benefits, there are still a few reasons why you might consider booking your next stay through an OTA.
Some OTAs have rewards programs like Expedia One Key that allow you to earn reward nights, points and sometimes even perks similar to elite status benefits for stays at listed properties.
Certain online travel agency loyalty programs also provide benefits for booking vacation rentals, flights, rental cars and more. If you aren’t loyal to any particular hotel program, focusing on an OTA rewards program can be advantageous.
Whether you book through an OTA or directly, you’ll earn points and miles through the credit card you use to pay for the reservation. You can enhance these earnings even further by booking through a credit card travel portal, which functions similarly to an OTA.
For instance, the Capital One Venture X Rewards Credit Card awards 10 miles per dollar spent on hotel and car rental bookings made via the Capital One travel portal. That’s an 18.5% return in Capital One miles at TPG’s valuations. Similarly, Chase Sapphire Preferred Card holders earn 5 points per dollar when booking through the Chase Ultimate Rewards travel portal. American Express, Bilt and Citi offer similar programs for their cardholders.
However, it’s important to note that the value of the points you earn and the benefits offered at higher elite status levels through hotel loyalty programs may outweigh what you receive from an OTA. Therefore, it’s always recommended to compare nightly rates and the benefits you’ll receive before deciding whether to book a hotel room through an OTA or directly.
OTAs have transformed the travel industry and enabled the convenience of online booking. However, it’s important to recognize that hotels incur costs when bookings are made through these platforms.
When you book a hotel through an OTA, the hotel typically pays a substantial commission. To offset this expense, hotels often choose not to award points or provide elite status benefits for stays booked through OTAs.