For a lot of tours and activity providers, working with online travel agencies is an essential part of doing business. These have strong, well-known branding, can reach guests in new markets and have marketing budgets that most operators could only dream of. But what is an online travel agency?
An online travel agency, or an OTA, is an online marketplace for travel that sells products to consumers. There are a large number of these, and many focus on specific segments or markets. The big 3 OTAs, according to Skift, are Trip.com, Booking Holdings, and Expedia. For tour operators, some of the main ones are GetYourGuide, Viator, Expedia and Musement.
A brief history of OTAs
OTAs have become the way that most consumers purchase travel products. The first were founded in the mid-90s, with Travelweb selling hotels, the Internet Travel Network for flights, and in 1995, Viator launched for experiences. Since then, the OTA market has grown to $475 billion and is predicted to be $1 trillion in 2030. Two-thirds of all travel revenue is spent with an OTA.
Despite Viator being one of the first OTAs, tours and activities have always lagged behind airlines and hotels when it comes to online sales. In part, this is because many of the companies that operate in the sector are smaller and lacked the resources to come online. Cost-effective reservation systems changed that, as did the ability to stop and work on different parts of businesses during the pandemic. Phocuswright and Arival say that online bookings jumped from 17 per cent of all bookings in 2019 to 30 per cent in 2021.
In 2019, OTAs only accounted for three per cent of all bookings for experiences, according to the same research. By 2021, this was four per cent, and by 2025, it is expected to be seven per cent. This represents a jump from $8 billion in revenue to $20 billion by 2025. In 20 years, OTAs have come a long way.
Travellers use OTAs for several reasons. In 2020, Arival found that these were because of price, ease, best ticketing options and where the consumer first found the trip. Operator websites performed better when it came to providing the best options and finding what they wanted. However, 45 per cent of travellers said that OTAs had the best price and, since the survey, their marketing budgets will have ramped up, meaning that these are where consumers will discover products.
Difference between online and offline agencies
The main difference between an OTA and a brick-and-mortar travel agency is that the consumer is expected to do some of the work. Offline agencies contain a huge amount of expertise and contacts that should give travellers a worry-free holiday. They will book the flights, hotels and sometimes experiences so that the traveller doesn’t have to.
OTAs are cheaper because they turn this on its head. They offer do-it-yourself travel to their customers. On an OTA, a traveller will find the contacts and content they need but must rely on their own ability to book the right trip. The traveller also uses reviews provided by others to judge the quality of their trip. All the knowledge and experience of the in-person travel agent has been outsourced.
OTAs are also able to reduce costs because they do not need to rent a high-street location or spend money on other associated costs. However, they do need to spend more on customer service for those customers who have problems and on marketing. The difference in cost is the main reason that most consumers are happy with a DIY approach to travel, although there are a lot of people who love researching and making their holiday plans.
Offline travel agencies still exist, and many of the larger brands have moved to a hybrid model. In this case, they offer the full-service, high-street experience while also offering their own OTAs. For example, TUI’s office can still be found in town centres, while their website offers packages and DIY options. TUI is also the owner of the European tours and activities OTA, Musement.
Types of OTA for experiences
There are as many different types of OTA for tours and activities as there are types of trips. Operators who work in the adventure or wellness spaces will be able to find OTAs that work specifically in their niche. Some OTAs focus on specific geographic markets or languages, such as Civitatis for the Spanish-speaking segment. KKDay and Klook have different approaches to the Asian market. Then there will be those that focus on a specific segment and language.
The largest OTAs do not do this. They cast their net wide — both in terms of the activities they offer and the customers they wish to sell to.
Operators wishing to expand their sales reach should connect to both the main players and choose other OTAs who fit their niche and market. This can be made easier with a channel manager, such as TourCMS, which offers a range of connections to different OTAs, resellers and a marketplace.
What OTAs do
OTAs will use different techniques to sell tours and activities and will take a percentage of each sale. These will include consumers searching for a tour on the OTA’s site, on a search engine, and targeted marketing on social media.
When a traveller searches for an activity on an OTA, they will be shown a range of results that have been decided by the company’s algorithm. This will be based on the type of search, as well as other factors such as review scores, relevance and popularity. A general search for experiences in Monte Verde, Costa Rica, will display the OTA’s ranking of all the experiences in that area for the guest to choose from. A more specific search for walking tours in Paris will do the same, but just for that segment. The traveller will be able to filter the results, but they will always be ranked by the algorithm.
However, that’s not how most searches made by those planning their travel begin. This will happen on a search engine, almost certainly Google. Because of their size, the large OTAs will often show up in the first results organically due to their search engine optimisation. Guests will click through and see the trips they offer. The OTAs will also feature in the Google Things To Do section for that destination.
The very first results shown on a lot of searches are sponsored. These are adverts where a company has paid to appear next to a certain set of words that have been searched for. OTAs target these words so that they appear as the very first link, with their price showing, on that search. The results of this will be constantly monitored and optimised.
OTA advertising will work slightly differently on social media platforms, particularly Facebook and Instagram. These have access to so much information about their users that it is possible to send targeted adverts that aim for a traveller to see exactly what they want when they want to buy it (which doesn’t always happen in practice). This traveller may also have visited the OTA’s site for research, in which case they will receive highly specific retargeting ads that are based on exactly what they have looked at.
This is why some tour operators consider the commission they pay OTAs, which can be 30 per cent of the total price, as a marketing cost. It means the operator can reach customers in source markets and in-destination that are actively looking for things to do, and who they would not have been able to advertise to themselves.