I recently dug up an article from October 2010 on HotelInteractive.com that analyzed the cost to hotels of different distribution channels. The focus of the piece was on the cost of online travel agencies (OTAs) relative to other distribution channels. That comparison covered web direct, GDS and OTAs, as well as what each transaction would net out to the hotel based on different costs.

The least amount of revenue to the hotel came through the OTAs with web direct coming out on top. Of course, it’s easy to come out on top with web direct when you don’t factor in what it costs to actually get the customer to the website to make the booking. That’s called marketing, the cost of which wasn’t discussed in this article, as it should have been since it’s a far higher cost than the actual reservation fee listed. Indeed, when you actually look at the various costs that the article examined, and account for marketing costs in the direct model, it’s easy to see why travel agents come out ahead or darn close to it in these examples.

According to Expedia, the average transaction for consumer affiliate sites is $135, while the average for agent affiliates is $193.

One other thing that the article does is level the playing field by giving every model the same revenue number when in fact the travel agent sells a decidedly higher yield customer, which translates into greater revenues and indeed greater profits for hotels that embrace this channel. In the case of Expedia, the numbers between what travel agents sell and what consumers book directly are indicative of this fact. According to Expedia, the average transaction for consumer affiliate sites is $135, while the average for agent affiliates is $193. The average length of stay for consumer bookings is 2.34 room nights versus 2.44 for agents. This translates into an average transaction of $302 for Expedia versus $423 for the agent’s sites.

How can that be? Well it’s actually quite simple since the consumer is shopping for the lowest price while the agent is looking for the best value. They could each end up booking the same hotel in the same location, but the travel agent more likely to “upsell” the client to a better room category that might add some valuable inclusions for that customer.

The OTAs cost hotels $2.5 billion in the last year alone…that’s a sizable amount of money in relation to the revenues generated.

According to another article in HotelNewsNow, the OTAs cost hotels $2.5 billion in the last year alone. That’s a sizable amount of money in relation to the revenues generated, making it the costliest channel for hotels to distribute their rooms. In addition to this baseline finding, the article goes on to discuss the damage that is done as more market share shifts to the OTAs. “A regression analysis performed by Tourism Economics revealed that for every 10 percent the OTAs gain in market share, the U.S. hotel industry as a whole would experience a revenue decline of 4.4 percent.”

How should hotels be dealing with these facts? They might start by dusting off that old travel agency marketing handbook and explore the agency distribution channel. They might think about developing a more diversified approach to growing revenues as well getting higher yields by refocusing on travel agents as their preferred method of distribution.

Mark Murphy is president and CEO of Travalliance, parent of TravelPulse.com, Agent@Home magazine, Vacation Agent magazine, TravelTribe.com, Travel Agent Academy and Virtual Travel Events.