The coronavirus pandemic changed the world as we knew it and also brought about a so-called “new normalcy.” To adapt to this new situation and optimize your holiday rental business (and prepare it to survive potential future health or economic crises), you must act now. The first step I would recommend you to take is to raise your prices and implement a stricter cancellation policy on the Online Travel Agents (OTA) portals.
Become more expensive and stricter on OTAs to generate more direct bookings
Without any doubt, OTAs are here to stay, so you will need to work with them to help you generate more reservations. However, you need to keep in mind that you are doing all the hard work behind the scenes; they only advertise your inventory. So remember that when you upload said inventory on their platform, you have many options at your disposal to retain a certain level of control by setting rates and cancellation policies.
By raising your prices and applying a stricter cancellation policy on the OTAs, you make it more attractive for guests to book directly on your website, where they will be saving money and getting more flexibility. Moreover, by driving direct bookings to your website and handling all payment transactions yourself (both reservation fees and balance payments), you also keep better control of your cash flow.
You probably remember what happened during the start of the pandemic when certain OTA operators such as Airbnb left many homeowners and property managers high and dry. Without any warning or prior consent, they completely changed their cancellation policies, putting a massive dent in our income flow. We certainly don’t want this situation to repeat itself in the future.
Some guests want to book direct, give them more reasons to do so
It is a fact that many travellers remain faithful to the OTAs. Still, it is also true that an increasing number of them have become street-smart and started to use the OTAs as a mere search engine to get in touch with the property manager directly. For instance, we noticed that potential guests are getting more and more creative on Airbnb to get in contact with us. The latest effort we saw was a guest who wrote their phone number in Roman numbers to bypass Airbnb’s encryption algorithm (the site does not allow guests and property owners to exchange contact details until such time a reservation is actually confirmed to avoid guests speaking to owners directly.)
How Solaga generated 50% of its bookings direct by raising its OTA prices
In July 2015, the European Union ruled that the OTAs could not prevent hotels or holiday accommodations from advertising a lower price on their website than on their platform. It means that you are free to set your rates as you see fit. At Solaga, our target is to get to 50% of direct bookings, a figure we almost reached in 2019. Booking.com made up 19% of our bookings, Airbnb 17%, Homeaway 9%, and the remaining was divided between other smaller portals.
These online portals work in different ways and apply various commission structures. Up until now, the most expensive place to advertise costs approximately 21%, including VAT. As a result, back in 2019, we decided to raise all prices on OTAs 25% to cover all costs.
Using this pricing strategy, we managed to make approximately 50% of our reservations with a price that was 25% higher and also managed to cover the costs of the OTAs. The power of the OTAs on the market is massive, and you simply can’t afford to not advertise on industry giants’ sites such as Booking.com, Airbnb, VRBO (formerly Homeaway), and Expedia.
2021 tactic: Prioritising cash flow by raising prices the highest on the OTAs that pay the slowest
Keeping the aforementioned in mind, and in light of the new situation post-COVID-19, we decided to apply a new strategy for 2021. It is widely accepted that more than ever, guests will be paying more attention to rates, cancellation policies, and cleaning protocols. Could you imagine if we could manage to rent our own properties 25% more expensive than the OTAs currently do? Just imagine that…
So, we decided to raise the rates on our website and provide guests who book directly with us a 10% discount by using a discount coupon code. By doing this, we try to encourage guests to make direct bookings. When a potential guest visits our website, they see the following pop-up advertisement:
As cash flow is currently vital for all of us, we also closely looked at how OTAs work in terms of payouts. It is not our intention to exclude any of the OTAs we currently work with, but we would like to reduce the number of bookings that we receive from said portals where the payout is not executed until after the date of check-in. All OTAs work in different ways, and the way Solaga works with the OTAs might be different from the way you do. What we did in our case was to apply a different percentage increase on the different portals depending on their specific payout structure: we increased the rates by 15% for portals with a payout after check-in, and we increased the prices by 10% for portals with payouts before check-in.
It is worth mentioning that we also offer a 30% discount for stays longer than 14 days and a 40% discount for stays longer than 30 days.
All in all, a customer who makes a booking on our website using our coupon code will save 20 to 25% compared to the OTAs.
Stricter cancellation policies on OTAs and the strictest when payout is after check-in
As mentioned in an earlier article, it is also important to have a flexible cancellation policy in place during these post-pandemic times. We implemented a more flexible cancellation policy on our website than the ones available on the OTAs. On our own website, we offer free cancellation up to 15 days before arrival; on most OTAs, we offer free cancellation up to 30 days before arrival.
And once again, we looked at the OTAs and their payout terms. In case they make the payout after the guest arrives, we applied a stricter cancellation policy. In the case of Airbnb, we also took an extra step as we are really not sure whether they will respect their own terms and conditions in the future; in their case, we applied a stricter cancellation policy.
We’ve also been following closely the successful Airbnb IPO and the new initiatives they are implementing that sound interesting. Having said that, we cannot forget that we lost a huge amount of income at the start of the pandemic as a result of their sudden change of policy; even though they may consider us a partner, we do not really see ourselves as such. But let’s see if they can build up the trust again. Until then, our properties will remain more expensive on their site and with a stricter cancellation policy than on any other OTA.
To summarize, guests who book directly through Solaga’s website save 20-25% in price and enjoy a much more flexible cancellation policy.