Dirty little secrets of OTAs
How booking hotels online affects tax revenue and infrastructure, and why homestays need stricter regulation
Click. Reserve. Regret. Are new travel booking trends destructive to our own tourism industry and economy at large? If you buy food from a supermarket using a tablet, order taxis with your smartphone or book hotel rooms online, nobody’s going to blame you. You are merely joining millions of consumers who have switched to modern channels that offer convenience, selection and reliability. Do you care if your decisions have consequences for food producers, taxi drivers, business owners and government policymakers? Probably not.
Nevertheless, you might want to know about those consequences so you can at least make informed choices. Recent news about unauthorised use of Facebook user data reminds us of the cost of complacency. Caveat emptor. And let buyers beware not only of what they buy, but where they buy it.
This is a story about what happens behind the scenes when you book a room for your next holiday. Some of what happens is what you would expect. Some of it, because of the sea change brought by technology and the sharing economy, will be news to you. After you finish reading, you may continue booking your room the same way. But at least you will be making a more informed decision about the trade-offs. This is more important in Thailand than in most places because tourism is such a key part of our economy.
For many years, people booked hotel rooms one of three ways. They called the hotel directly, used a travel agent or booked as part of a group tour. Over the past decade or so, a fourth option — online booking — has become common.
Today, upwards of 40% of bookings are made online. Many younger adults prefer this method. Many of them book travel on their smartphones.
The Thai Hotels Association says about a third of these online bookers use the hotel’s website. The rest use online travel agents, or OTAs, such as Booking.com and Expedia. The use of OTAs is growing faster than any other reservation channel. It may soon account for the majority of bookings.
A few OTAs dominate. For example, Booking Holdings Inc, based in the US, owns Booking.com, Priceline.com, Agoda and Kayak. Expedia, also based in the US, owns Expedia, Hotels.com, Travelocity and Orbitz. But innovation continues. Metasearch engines like Kayak scan other sites for the best room, flight, and car rental deals. Travel sites like TripAdvisor have added online booking to their ratings and destination information. Digital assistants like Siri can find hotels for you.
And of course you are no longer limited to traditional hotels and resorts. Serviced apartments — designed for medium-term guests like an expatriate on a six-month assignment — now bend the rules and beckon short-term guests with competitive rates. Homestays have become popular with the advent of Airbnb.
It all seems so convenient and consumer-empowered. What could go wrong?
A few things, actually.
WHO GETS TAX REVENUE?
OTAs refer customers to hotels. A site like Booking.com helps you find a hotel room that matches your dates and criteria, at the price you want to pay, let’s say a few nights at a resort in Phuket. Most of your credit card payment goes to the hotel, including the same taxes and fees you would pay if you booked directly. For the referral, OTAs used to charge hotels 5-10%, analogous to a travel agent’s commission. Fair enough.
No more. OTAs’ market power has increased and the big companies spend billions of dollars on advertising. Hotels cannot afford to ignore the OTA channel, and OTAs force “rate parity agreements” that prevent hotels from undercutting OTA rates.
Most significantly, their cut of the business has increased to as much as 30% or even higher in some cases. In other words, when you pay 4,000 baht online for a hotel room, the booking website may take around 1,200 baht. That comes out of the hotel owner’s pocket, so perhaps you don’t care.
But consider that the owner pays taxes on his income to Thailand, helping your government pay for the local tourism infrastructure we take for granted. Now that money goes to a corporation like Expedia or Booking Holdings Inc and the tax on it goes to a foreign government.
WHO PAYS FOR INFRASTRUCTURE?
If you book a homestay on Airbnb, you may feel better — your money goes to a local homeowner, right?
Except the commission and service fees that Airbnb deducts are taxed abroad, not here. And Airbnb collects no hotel tax, so the Thai government is not compensated at all for the infrastructure it provides for tourists in this new “sharing economy”.
This is a significant enough problem that many of the world’s most popular destination cities — including the city where Airbnb is headquartered, San Francisco — successfully appealed, and Airbnb now collects local occupancy or tourism taxes on their behalf. On the Airbnb website are pages about its newfound intention to cooperate with communities, along with a list of 41 US states and nine countries where occupancy tax collection and remittance by Airbnb is available.
Unfortunately, Thailand is not yet on the list. This means the growing numbers of tourists using Airbnb homestays are not contributing to airport infrastructure, mass transit, and other services tourists depend on when they visit Thailand.
CAN I PRESUME ADEQUATE REGULATION?
When we stay at a brand-name hotel, we pay for more than just the location, comfort, food and amenities. We assume fire safety. Personal security. Privacy. Our presumptions are not naive; in Thailand, hotels must be licensed. They must register guests, comply with safety inspections and assume certain responsibilities for guests’ security and theft of belongings.
Serviced apartments require building permits but not hotel licences; they are regulated more like condominiums or apartments. Airbnb homestays offer little assurance other than the subjective ratings of previous guests. While guests can rate things like comfortable pillows and cleanliness, few are qualified to inspect for fire, food or building safety. Will your privacy be respected? Who else has a key and can enter unannounced? Some homes are equipped with webcams that allow owners to monitor the premises when they are not there. Homestay guests are not always informed.
SMART CONSUMERS, SMART GOVERNMENTS
The new century so far is a story of technology racing ahead, while business, government, law and culture try to keep up. As consumers, we embrace much of the innovation. It offers convenience, choice and value. Nowhere is this truer than in the new ways we can plan travel.
But we are better off if we make smart, informed choices — both in our individual actions as consumers and collective actions in the governments that represent us. The information you allow social media sites to collect about you makes a difference in how powerful organisations behave.
The type of food you buy makes a difference in whether farmers and fishermen care about sustainability. The way you book your travel also makes a difference, especially in a country where travel is such an important part of the economy.
Thus, two modest proposals. By all means take advantage of the big travel websites to consider destinations, see what’s available and compare. Then, once you decide, use the hotel website. It will provide useful additional information. You won’t pay any more, and you can often get a lower rate by enrolling in a free membership programme. Most importantly, less of what you spend will fly away to foreign corporations and governments.
Support public policy changes that keep up with business and technological innovation. As one of the world’s leading travel destinations, Thailand’s policies should be as up-to-date as those of the top destinations in Europe, Asia and the US. Taxation and regulation policies should protect the public interest and ensure a level playing field for both established and new players.
This is a story about what happens behind the scenes when you book a room for your next holiday.