Let’s talk online travel industry: 1. Two main business models

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Where are you planning to travel this weekend? Then how would you make your reservation? Are you accessing through Hotels.com? Or are you searching for cheap airline tickets via Kayak?

How are these players are making the money? On this post, Techrux team would like to explain on the business model of these companies.

Online Travel Agencies (OTAs) are travel websites that provide online booking facilities for hotels, airlines, cars and other travel related services to users. OTAs are based on B2B2C system.

In a B2B2C system, the owner of the website or the sellers upload their products. The customers will book the products either from the owner or seller directly from the website. In this process, the owner can have a commission from the seller. This kind of system is also known as Marketplace.

They have various business model such as;

1. Merchant Model
It is very simple. The contract between OTA and hotels sign to sell base on number of rooms. Usual margin for OTA is 20~30% due to bulk purchase. It usually depends on contract by OTA, and OTA may not have obligation to sell all rooms. Expedia or Agoda are operating OTA business model as Merchant Model.

These are the advantage and disadvantage of the merchant model.

2. Agency Model
This model is based on commission. OTA makes money based on per room they have sold. As the price in merchant model is being decided by OTA, this model gives hotels to decide the final price to customer. Booking.com is making its revenue based on the Agency model.

These are the advantage and disadvantage of the agency model.

Even Expedia is known as Merchant model, they are now evolving and expanding its business to Agency model as well such as Expedia Traveler Preference. Moreover as Merchant model is not good for the hotel itself, hotels are making its own online booking such as IHG and SPG application and website.

And new type of business are coming such as AirBnB and Meta Search business model. This will be discussed on next post.

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