DILEMMA WORKS
Erik on Product Management and such
(2024)
The most obvious shift in this relationship is the end of the price parity clause and the now decade old strategy from hotel groups to build their own loyalty programs, that have now reached 200 million members for Hilton and Marriot.
They offer numerous benefits to members of different tiers, with the most important for the booking decision being free cancellation and member discounts. The second is hard for online travel platforms like Booking to match, and the second close to impossible to match, for a majority of the OTA’s inventory.
The size of the loyalty programs allows hotels to increase their direct bookings, and drive demand for their new hotels as they expand into new markets, especially Asia, that previously were not a focus. This way, hotel groups are becoming digital platforms in their own right, with some even expanding into verticals beyond accommodation.
OTAs in turn are going to have to evolve into something different than what they are today, which is most explicitly expressed in Booking’s strategy called the “connected trip”.
On the history and evolution of hotel groups
Hotel groups like Hilton, Marriott, and IHG have long, storied histories that began with a focus on owning and operating individual properties. Originally, these brands were both the owners and operators of their hotels, which meant that growth was limited by the capital required to build and maintain each location. The shift began in the latter half of the 20th century as these brands moved towards an asset-light business model, relying more on franchise agreements and management contracts to expand globally. This approach allowed them to leverage brand recognition and operational expertise without the heavy financial burden of property ownership, setting the stage for rapid expansion.
Over the years, these hotel groups evolved from simple hotel operators into powerful brand entities, managing a vast portfolio of properties worldwide through franchise models. By focusing on building strong brand identities and standardizing guest experiences, they built customer loyalty that transcended geography and ensured high occupancy rates across diverse regions.
Today’s major hotel brands function as hybrid organizations that operate both as hospitality service providers and as technology-driven travel platforms. Many own only a small percentage of the hotels under their brand, with the majority of properties being franchised or managed by third-party operators. This allows hotel groups to scale efficiently, especially into emerging markets such as Southeast Asia, where demand for branded accommodations has surged.
In recent years, these hotel groups have also become direct competitors to online travel agencies (OTAs) by developing comprehensive digital platforms. Through proprietary websites and apps, they offer a seamless booking experience, personalized recommendations, and access to exclusive benefits, positioning themselves as more than just a place to book a room. The enhanced digital presence not only helps them retain customers but also allows for direct engagement, resulting in valuable data collection and insights into guest preferences and behaviors.
Online Travel Agencies and their evolving relationship with hotel groups
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Loyalty programs, size and benefits
One of the most significant assets in the arsenal of hotel groups is their loyalty programs, which have grown into powerful customer retention tools. Marriott Bonvoy and Hilton Honors, for example, boast substantial membership bases, each with over 170 millionand 150 million members respectively. These figures highlight the vast reach and influence these brands have over global travel behavior.
These loyalty programs offer tiered benefits ranging from discounted rates and room upgrades to complimentary amenities like late check-out and lounge access. Two of the most crucial perks impacting booking decisions are free cancellations and exclusive member discounts, benefits that OTAs often struggle to match due to varying cancellation policies and limitations imposed by individual property agreements. Such perks incentivize travelers to book directly through the hotel’s platform rather than a third-party site, securing customer loyalty and fostering a sense of exclusivity among repeat guests.
Growth of direct to hotel bookings
Hotel brands’ strategic investments in loyalty programs, coupled with exclusive discounts and user-friendly apps, have driven significant growth in direct bookings at the expense of OTAs. As travelers increasingly seek flexibility and personalized experiences, booking directly through hotel apps and websites has become more appealing. Members can easily check availability, access promotions, and make modifications to bookings directly through the hotel’s digital channels.
This shift has proven beneficial for both consumers and hotels. Customers enjoy streamlined processes, fewer fees, and better perks, while hotels save on the commission fees paid to OTAs, ultimately boosting profit margins. This trend suggests a growing preference among consumers for booking directly, as they gain better benefits and transparency compared to third-party booking platforms.
New markets and verticals
Beyond traditional accommodations, hotel groups are expanding into new verticals to diversify revenue streams and tap into evolving consumer preferences. Many have entered the vacation rental market to compete with platforms like Airbnb, offering branded, high-quality alternatives that appeal to loyal customers seeking a unique experience without sacrificing the trust associated with established hotel brands.
Additionally, some groups have ventured into adjacent hospitality markets, such as co-working spaces, wellness services, and even luxury residential properties. For example, Marriott's Homes & Villas platform offers luxury rental properties under the Marriott brand, catering to high-end clientele looking for extended stays with a consistent service standard. This diversification allows hotel groups to appeal to different customer segments, capitalize on changing travel trends, and capture a broader share of the travel and lifestyle market.
In the Asia-Pacific (APAC)region, which represents one of the fastest-growing travel markets globally, brands like Hilton, Marriott, and IHG have expanded aggressively. Hilton, for instance, announced plans to double its footprint in Chinaby 2025 and open over 1,000 new hotels across APAC in the coming years. Marriott has similarly expanded, with nearly 900 hotels in APAC and commitments to launch hundreds more, particularly in Southeast Asiawhere tourism and business travel are booming.
In the EMEA region, demand for luxury and mid-tier accommodations has encouraged groups like Marriott and Accor to build stronger presences, especially in countries like Saudi Arabia, the United Arab Emirates, and South Africa. For example, Marriott operates nearly 600 hotels across EMEA and has plans to open over 200 more by 2025. Accor, which has a particularly strong presence in Europe and Africa, is also adding properties, particularly in North Africa and the Middle East, to meet the growing interest in branded hotels and lifestyle accommodations.
By prioritizing expansion in APAC and EMEA, hotel groups tap into significant growth potential, as these regions are home to some of the world’s highest rates of travel and tourism growth. The expansion has also strengthened these brands' global portfolios, allowing them to cater to diverse cultural preferences and travel habits in local markets.
What’s next for hotel groups and OTAs
As hotel groups continue to solidify their direct-to-consumer strategies, OTAs are being pushed to innovate and expand into new markets and services to remain competitive. Both sectors are seeking ways to differentiate their offerings, leveraging technology, and partnerships to appeal to an increasingly savvy and diverse traveler demographic.
Hotel Groups’ Expansion Strategies
Hotel groups will likely continue to pursue aggressive expansion, not only in terms of geographic reach but also through diversifying their offerings to meet evolving traveler needs. Key strategies include:
- Enhanced Brand Portfolio and Geographic Reach: Major hotel groups like Marriott, Hilton, and Accor are already focused on expanding their property portfolios across high-growth regions like Asia-Pacific (APAC) and Middle East and Africa (MEA). Marriott, for example, aims to open over 200 new hotels across EMEA and nearly 100 new properties annually in APAC by 2025, catering to both luxury and budget-conscious travelers. This geographic expansion will solidify their presence in emerging markets and attract new users from regions with rapidly increasing tourism.
- Lifestyle and Alternative Accommodation Options: To compete with platforms like Airbnb, hotel groups are expanding into the vacation rental market with branded offerings such as Marriott’s Homes & Villas and Accor’s Onefinestay. These properties appeal to travelers seeking unique accommodations while benefiting from the trust associated with established hotel brands. This move not only broadens their market but also taps into the growing trend of extended stays and experiential travel.
- Integration of Wellness and Sustainable Travel: With a growing demand for wellness-focused travel, hotel groups are investing in offerings like on-site spas, fitness facilities, and sustainable practices to attract health-conscious and eco-friendly travelers. Accor’s ALL - Accor Live Limitless program, for instance, includes curated wellness experiences and initiatives that reduce environmental impact, appealing to a modern traveler base focused on well-being and sustainability.
OTAs’ Expansion and Diversification Strategies
Online travel agencies (OTAs) are also evolving to stay competitive, using innovative strategies to capture new user segments and offer services beyond simple booking platforms:
- Expansion into Travel and Lifestyle Services: OTAs like Booking.com and Expedia are expanding into areas such as car rentals, flights, and experiences. By becoming one-stop shops for all travel-related needs, they’re positioning themselves as comprehensive lifestyle brands that can accommodate a traveler's entire journey. Booking.com’s Attractions and Expedia’s Things to Do offerings allow users to book everything from museum tickets to guided tours, aiming to attract travelers seeking convenience and curated experiences in one place.
- Strengthening Loyalty Programs and Exclusive Offers: To compete with hotel loyalty programs, OTAs are enhancing their own rewards systems, such as Expedia’s Expedia Rewards and Booking.com’s Genius program. These programs offer benefits like discounts on select properties, early access to deals, and special pricing on car rentals and flights. By offering rewards that apply across multiple services, OTAs hope to build a loyal customer base that sees value in booking repeatedly through their platforms.
- Targeting Business Travel and Corporate Partnerships: With business travel rebounding post-pandemic, OTAs are increasing their focus on corporate travel solutions. Companies like Booking.com and Expedia are investing in platforms tailored to business travel needs, including flexible booking options, dedicated support, and analytics for corporate clients. This approach allows them to tap into a lucrative segment and build long-term partnerships with businesses seeking cost-effective, flexible travel solutions.