What Is An Online Travel Agency And How Do They Work?

Wondering what an online travel agency is? Arival defines an OTA in its “Sales & Distribution Trends & Outlook 2020” report: “Contract tour and attraction products from operators, market them online, and resell them on their websites for commission.” Below, we’ll provide additional definitions and examples of online travel agencies.

We’ll also cover how an online travel agency earns money, their roles in the travel industry, and the disadvantages of online travel agencies.

What Is An Online Travel Agency?

An Online Travel Agency (OTA) is an online or app-based marketplace where consumers can browse, book, and pay for hotel rooms, transportation, lodging, airfare, restaurants, and experiences. Customers book directly with the OTA and the OTA confirms with the service provider. Therefore, the OTA has a relationship with the customer, not the service provider. OTAs differ. While some target a specific audience, others may be broader.

This is a straightforward way for travelers to find activities in the area they’re visiting without having to do a ton of research. While it makes it easier for travelers to find an activity in the area they’re staying in, going through an OTA is more of an impersonal experience.

The allure of OTAs is that they have millions of monthly visitors and offer a depth of travel inventory that covers a wide variety of experiences, geography, and groups of travelers.

OTAs – One-Stop-Shop

OTAs have become a one-stop-shop for travelers. From bookings airfare to hotels to experiences, consumers no longer have to spend hours researching or calling to plan their adventures. OTAs also provide reviews that have become increasingly popular and more important in this technological age.

Online Travel Agency Examples

Notable examples of OTAs are Expedia, TripAdvisor/Viator, GetYourGuide, and Klook. Consumers visit websites like these to book their guided tours, hotels, and airfare because of its ease of use. OTAs are the intermediary between tour operators and the customer. Because they operate not just as an agent for outfitters but as a marketing arm, guiding companies pay them a commission. 

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How An Online Travel Agency Works

Getting Started

  1. Some online travel agencies require tour operators to apply to be a supplier on their site, while others only request guides to make an account and they’re automatically approved.
  2. When the OTA approves the tour operator, they can create a listing. Usually, the OTA prompts for answers to help the operator complete fields relating to their listings.
  3. Once a tour operator finalizes their listing, it goes live immediately, soon thereafter, or following the OTAs review.
  4. There is a possibility of finding new customers through the OTA because they can reach and advertise to places a small or new operator cannot.

The Marketplace

  1. Consumers visit the marketplace and browse for their next adventure, hotel, or airline ticket. Not only are tour operators competing with other tour operators but they’re also competing with OTAs that offer their own options, like GetYourGuide.
  2. Some OTAs offer “curated marketplaces” instead of “open marketplaces.” This means they choose what providers to show on their platform. Some operators fear that OTA’s will curate towards ‘best-selling, high-capacity’ companies (i.e. large companies preferenced over smaller operators). Let’s remember that the best-selling does not always equate to the best quality or best guest experience.
  3. When a consumer signs up on the OTA platform, their contact information and review stay on the OTA platform and are not pushed to the operator’s website.
  4. Depending on an OTA’s cancellation policy, if the consumer cancels their reservation, your business could lose money.

How An Online Travel Agency Earns Money

Whenever a customer books an activity through an OTA, the tour operator must pay the OTA a commission, which can range anywhere from 15 to 30% of a booking. OTAs and tour operators negotiate the commission rate.

Bigger companies can negotiate a lower rate because of their size. According to Arival, this is one of the primary reasons operators won’t work with OTAs. As a small operator, their commission fees could be too costly and you could end up losing money.

Disadvantages Of Online Travel Agencies

Not Necessarily The Best Deal Through An OTA

Many consumers visit online travel agencies for deals, but what ends up happening is that they end up paying the same, if not more than if they booked directly with the tour provider. 

OTAs Keep Customer Contact Information

For tour operators, most, if not all, OTAs own the customer data and do not share it with tour operators. This means there is no relationship between tour outfitters and the people who go on your excursions.

Lack of Inventory Tracking

In order to keep track of inventory, tour operators will likely have to have a connectivity channel provider. A connectivity provider is a communication line between the tour operator’s website and the OTAs website. This keeps inventory numbers accurate and prevents outfitters from having to track inventory manually.

If a tour outfitter does not use a connectivity channel provider, it is up to them to track their inventory by hand. Manually tracking inventory often leads to overbooking or double booking reservations.

Tour Operators Become Overreliant On OTAS

It might make sense for a new tour operator to use an OTA to reach a new market they wouldn’t otherwise. The extensive database of customers on an OTA platform provides the possibility of more bookings an operator could receive as opposed to marketing to a new audience on their own.

What we’ve heard happen is that these operators become too reliant on OTAs for new customers. Should this happen, an operator is at the mercy of any changes made by the OTA, like commission fees, for example.

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