With rising costs, loss of control (of both valuable data and the guest experience), and price disparity concerns, hotels (of all sizes) are steadily increasing their share and investment in direct distribution channels.

According to Skift Research, by 2030, more gross bookings are expected to come from direct distribution channels than third-party channels.

Let’s examine why we’re seeing this shift in the hospitality industry, how hotels can go direct, and the distinct advantages of doing so.

Why hotels are going direct

Unsurprisingly, cost is one of the surface-level drivers of a move towards more direct distribution. While every situation is unique, indirect channels have become expensive for most hotels.

Skift projected that hotels paid $75 billion to middlemen in 2023. The most expensive channels were indirect, such as OTAs and bed banks, and maximum commissions approached 30% for some OTA relationships.

While these inflated fees are a concern, the motivation to go direct goes beyond cost. Hotels seek to drive loyalty, enhance the guest experience, and unlock new revenue opportunities, initiatives stymied by indirect channels.

Hotels, especially large brands, pay a higher maximum commission for valuable direct channels. In other words, it’s not simply a matter of reducing costs but more a play to increase ROI on distribution efforts.

For example, 80% of hoteliers surveyed by Skift Research found that direct customers were ‘likely’ or ‘much more likely’ to become return guests compared to third-party customers. This is why 93% of those surveyed hoteliers have launched specific initiatives to drive direct bookings in the past five years.

Separate research from Infor also shows the value of returning guests. According to Infor, loyal, satisfied guests are more valuable — repeat guests stay 28% longer and spend nearly 25% more, and just a 5% increase in customer retention can drive profits up by 25% to 95%.

Furthermore, direct distribution allows hoteliers to provide better customer service, build a direct relationship with guests, own their data, control their content, and uphold their brand standards, which are challenging to do/maintain via indirect channels.

How hotels can go direct

While increasing direct distribution is an ambition for every hotel, it’s more challenging for some than others. For example, because of their brand value and resources, large chains are less dependent on OTAs than interdependent hotels.

Skift Research mentions explicitly that “independent hotels struggle with marketing, software integration, and the lack of in-house skilled labor required for effective first-party distribution.”

While these are significant challenges, they are not insurmountable roadblocks to direct distribution (for independent hotels or branded chains) as long as the right partnership is struck.

The Katanox platform makes accepting new direct distribution partnerships from travel buyers such as travel management companies, travel apps, and banks easier. Embedded governance and contracting tools lead to faster deal acceptance for big and small hotels.

With these direct partnership connections, hotels can reduce travel friction, enhance the guest experience, and increase stickiness to drive repeat business.

A successful connection doesn’t solely focus on the distribution of properties but also incorporates the distribution of funds. Streamlining payments is essential to improving organizational efficiency and increasing net profit.

According to Adyen, 31% of hotels said reconciliation and associated administrative work were holding back business ambitions, with, on average, five employees supporting reconciliation and 7 hours of average time per week spent on reconciliation.

Katanox's travel growth engine unifies hospitality distribution and financial infrastructure into one platform. With Katanox, hotels receive net revenue from direct distribution partners through automated direct bank transfers.

The advantages of going direct

As we’ve already touched on, the advantages of hotels going direct are numerous, but let’s dive deeper into the details.

At the top of the list, of course, is the bottom line. By going direct, hotels can increase their net booking value. While it’s difficult to derive an exact figure because of the number of variables to consider, we can roughly estimate that, on average, hotels can increase their net booking value by $15-$20 from a booking with an average daily rate (ADR) of $150-$200.

Another distinct advantage of going direct is hotels can display their inventory without rate-type restrictions. This means prospective guests will be offered various options to meet their accommodation needs, while hotels have more ways to sell their rooms.

Leveraging Katanox’s distribution functionality, 140% more room availability will be opened up (based on the performance of other Katanox hotel partners), including all special rate types, including best available rate (BAR), loyalty, prepaid, consortia, corporate negotiated rates (CNRs) and more.

There are also other ways in which both the guest experience is improved and hotels gain more/better revenue generation opportunities. Katanox Trading automates enrollment and the use of loyalty numbers when guests book, which isn’t always possible through third-party distribution channels.

According to Skift Research, members of loyalty programs contribute between 30% and 60% of room revenue. Hotels can increase their booking volume and revenue through loyalty member transactions.

The customer experience can also be improved by removing payment friction. 15% of all virtual credit card (VCC) payments fail at check-in, which leads to on-stay friction. By increasing acceptance rates, Katanox Finance’s direct payment processing will eliminate this poor guest experience.

Furthermore, Katanox ensures all add-ons are easily applied to a booking (and paid for), meaning franchisees don’t miss out on opportunities to boost their RevPAR and basket values while meeting the needs of their guests.

As we alluded to in the previous section, having the right partner who connects direct distribution to financial infrastructure can boost organizational efficiency and get hotels paid faster, specifically by automating payments and reconciliation processes, which are traditionally tedious and time-consuming.

Depending on a hotel's size and organizational makeup, this can free up a significant amount of labor capital and, more importantly, reduce the cognitive load of hotel employees so they can focus on more strategic tasks.

With the clear advantages and hurdles lower than ever, it’s unsurprising that so many hotels are going direct. Are you ready to take your distribution direct? Let’s chat 🙂