Thanks to technology, it’s never been easier for hotels to reach potential guests around the globe. But with greater options for reach comes a critical question:
NB: This is an article from Canary Technologies
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Are all hotel distribution channels equally profitable? As hotels tap into new markets and platforms, hoteliers must consider the costs and benefits of each channel to determine their true impact.
Savvy hoteliers know that the path to lasting profit lies in optimizing the right channels for their needs. In this guide, we’ll break down the distribution channel strategies to help you drive revenue and stay competitive, while simultaneously focusing on long-term sustainability.
The 2 Types of Hotel Distribution Channels
In broad terms, there are two types of hotel distribution channels: direct and indirect. To maximize profitability, hoteliers must navigate both with consideration for their cost, reach and business impact.
Direct channels
Direct channels are those that result in reservations that come straight to your hotel without third-party involvement, which naturally minimizes costs. Here are a few examples of direct channels:
- Walk-In: Once an extremely common form of booking, walk-in guests arrive without having booked in advance. When the front desk agent finalizes the reservation, they manually input it into their Property Management System (PMS), meaning no additional overhead is required.
- Phone: Phone bookings are either handled by front desk or reservation staff with access to the PMS, or may be routed through call centers in larger chains.
- Website: A reservation through your hotel’s website is processed by an integrated booking engine. Chain-affiliated hotels often use a central reservation system (CRS) to connect online bookings on the brand’s site to the hotel’s PMS.
Indirect channels
Indirect channels connect guests to your hotel through third-party platforms, and typically have extra costs associated with them. Here are the most common types:
- Global Distribution System (GDS): Originally developed to support travel agents, a GDS such as Amadeus, Sabre, Apollo, Galileo and Worldspan, connect to numerous third-party platforms. GDS providers charge a monthly connection fee and a per-booking transaction fee, and if a travel agent is involved, there’s also a commission.
- Online Travel Agents (OTAs): OTAs (like Booking.com and Expedia) are a major source of reservations for most hotels. However, they also come with a commission fee, usually ranging from 10-25%. In 2019, Skift had the average cost of OTA bookings pegged at 17%, resulting in a $12B cost for the industry annually.
- Wholesalers and Tour Operators: These partners may work through a GDS or operate independently to secure hotel inventory through pre-negotiated rates and pass those along to customers after adding fixed fees.
By balancing the mix of direct and indirect channels, hotels can optimize distribution expenses and maximize profit. The key is understanding the unique costs and benefits each channel brings to your revenue strategy.
Optimizing Your Hotel’s Distribution Strategy
Every hotel’s ideal distribution mix should be unique. Each hotel will attract a distinct guest profile with individual booking preferences — and any winning strategy will align with the needs of these guests while keeping costs in check.
The ideal hotel channel management strategy maximizes visibility in the right places, supports your revenue goals and allows flexibility as those goals evolve. This is especially true if your plan is to move guests who booked through OTAs to book directly for future stays.
