Online Travel Agency Participation: An Empirical Investigation of Its Financial Contribution to U.S. Hotel Profitability

Online travel agencies (OTAs) have become an important driver of business, although their utility remains controversial. While hotels appreciate the resulting bookings, many resent the resulting commissions. While extensively debated in the literature, considerable uncertainty remaining as to whether OTA participation is beneficial or detrimental to hotel profitability. To address this gap, we adopt a transaction cost economics approach, analyzing property-level data from the income statements of 644 U.S. hotels from Smith Travel Research. Findings suggest that OTA participation is positively and significantly related to occupancy, REVPAR and EBITDA at a macro level, with each dollar increase in commission resulting in a 1.123%, $20.20 and $7.08 increase, respectively (2019$s). However, analysis by class reveals that while working with intermediaries drives top-line revenues for all hotels, it is associated with lower profitability for economy properties, implying that OTA participation is not universally good.