Travel costs

In a world where almost anything can be purchased online, it makes sense to seek help from Google to book a place to stay while on holiday.

Typing your destination into the search engine will bring up a raft of accommodation options; many boasting the best rates available. It’s likely the sites offering attractive details and popping up first on the search engine are for online travel agents (OTAs) based overseas.

It’s a modern and convenient approach for the consumer, but the AA estimates close to $140 million a year is being sent offshore to OTAs by New Zealanders booking accommodation online.

Motel and hotel owners also have issues with advertising through an international medium due to increased commission rates and money being fed into buying advertising priority on Google.

A Whitianga motel owner, who wishes to be anonymous, has experienced the issues first-hand.

He jumped on board with an OTA two years ago and says the rate parity clause in the booking contract is unfair.

The clause means accommodation owners must advertise rooms on their own website at the same price listed by the OTA, which is bumped up because of added commissions. 

“For example, a studio unit at my motel was initially listed on my website for $115 a night,” he explains. ”On the OTA site, it’s listed as $129, which includes the 15% commission placed on it.”

This motel owner chose to increase room rates in order to maintain the same profit, while other businesses may opt to keep room prices the same and absorb the commission rates themselves. 

But because he’s being forced by the rate parity clause to advertise that rate too, it becomes inflated. 

“I’m being murdered by lifting the rates. Suddenly people are thinking ‘that’s too expensive for a room’ and they’re right, it is. My 1970s motel is good, clean and tidy. But with increased rates, people look at it and think it’s very expensive for what it is. It’s put into another league and people aren’t happy. I wouldn’t be either.”

The OTA model began in the 1990s when it took a commission of no more than 10% from hotels and motels. It was worthwhile selling rooms through this medium and a good relationship was formed between the accommodation provider, the OTA and guests. But over the years commission rates have crept higher.

It’s money that could be fed into other business areas, like staff wages, the motel owner says.

“My cleaners come in and do a wonderful job for $16 an hour. I’d love to pay them more but can’t because so much of my money is going into the extra commission.”

One of the biggest OTAs is Amsterdam-based Booking.com with more than 3,000 New Zealand properties and more than 850,000 world-wide accommodation providers listed on its site.

Area manager of Booking.com New Zealand Tracey Foxall says the rate parity clause benefits all parties involved and is fair to hotels as “they don’t need to worry about us competing for better prices directly with customers.

“Most importantly we believe rate parity is fair to the consumer who does not have to worry about missing out on a better deal on another site,” she says. “Parity ensures that we can continue to give our customers the best possible prices through a service they love, as well as continue to help our hotel partners fill their rooms and grow their businesses.”

Ms Foxall says Booking.com takes a commission of between 12 and 15% and receives the money once a room has been stayed in and paid for.

“The commission is what supports our business model and allows us to continue to keep the content on our sites fresh and globally relevant.

“We invest heavily in optimising our website and mobile apps to meet customers’ ever-changing needs, so properties can rely on our expertise as a highly efficient digital marketing channel. We give small, local accommodation providers such as a bed and breakfast in Russell access to the world, a global reach otherwise impossible for many properties that may not have large advertising budgets, through the most innovative digital distribution channels,” Ms Foxall says.

Heritage Hotels General Manager of Sales and Marketing Tony Howlett says although OTAs offer international exposure, it puts the money from commissions into improving its own position on Google search.

“We’re bidding on our own name (in online searches) and it costs us more to advertise because OTAs are directly competing with us.”

Mr Howlett says Heritage Hotels is focused on driving direct reservations on its website. It also advertises rooms on radio and the AA Traveller website. He says hotels and motels need to come together and look into ways to restrict the control OTAs have on local business.

“We’re not an international brand, the exposure is important to us.

“We have to work with OTAs as they play an important part in our business, but it’s about regaining control. Where does it stop? What’s there to regulate how much an OTA can charge?”

Director of New Zealand Chambers of Commerce Michael Barnett agrees that motels and hotels need to regain control of their “own destinies” before businesses in the tourism sector become “unsustainable.”     

Mr Barnett is also a member of the Grow Rotorua Board and says although online booking technology has helped boost local tourism, it’s also having detrimental effects.

“The leakage overseas of an excessive amount of commission means local businesses, especially painters, plumbers, electricians and furniture shop owners miss out on work to improve properties. The opportunity to invest in employment areas like staff training and better pay is also being held back,” he says.

He’d like to see a system of more direct bookings via the motel or hotel and OTAs charging fairer fees as well as signing up to the New Zealand tax system. “Otherwise this problem will continue to plague the industry, not just in Rotorua but nationally and with significant flow-on impact to our tax system,” he says.

AA Travel and Tourism General Manager Grant Lilly says each year close to $140 million is being sent offshore to OTAs.

“Why should someone overseas be clipping the ticket and taking money out of the country?”

Mr Lilly says the AA Traveller website aims to represent a loyal, reliable channel for customers to book accommodation.

“We have a commission rate of 10% or nothing if businesses advertise with us enough, and everything we are paid stays in the country. We hope people will consider booking local and think twice before feeding a global enterprise.”

Further Information

See aa.co.nz/travel to book online accommodation.

Reported for our AA Directions Autumn 2017 issue

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