Maximizing Profitability: Understanding Hotel Distribution Channels

Thanks to technology, it’s never been easier for hotels to reach potential guests around the globe. But with greater options for reach comes a critical question: Are all hotel distribution channels equally profitable? As hotels tap into new markets and platforms, hoteliers must consider the costs and benefits of each channel to determine their true impact.

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Savvy hoteliers know that the path to lasting profit lies in optimizing the right channels for their needs. In this guide, we’ll break down the distribution channel strategies to help you drive revenue and stay competitive, while simultaneously focusing on long-term sustainability.

The 2 Types of Hotel Distribution Channels

In broad terms, there are two types of hotel distribution channels: direct and indirect. To maximize profitability, hoteliers must navigate both with consideration for their cost, reach and business impact.

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Direct channels

Direct channels are those that result in reservations that come straight to your hotel without third-party involvement, which naturally minimizes costs. Here are a few examples of direct channels:

 
• Walk-In: Once an extremely common form of booking, walk-in guests arrive without having booked in advance. When the front desk agent finalizes the reservation, they manually input it into their Property Management System (PMS), meaning no additional overhead is required.
 
• Phone: Phone bookings are either handled by front desk or reservation staff with access to the PMS, or may be routed through call centers in larger chains.
 
• Website: A reservation through your hotel’s website is processed by an integrated booking engine. Chain-affiliated hotels often use a central reservation system (CRS) to connect online bookings on the brand’s site to the hotel’s PMS.

Indirect channels

Indirect channels connect guests to your hotel through third-party platforms, and typically have extra costs associated with them. Here are the most common types:

 
• Global Distribution System (GDS): Originally developed to support travel agents, a GDS such as Amadeus, Sabre, Apollo, Galileo and Worldspan, connect to numerous third-party platforms. GDS providers charge a monthly connection fee and a per-booking transaction fee, and if a travel agent is involved, there’s also a commission.
 
• Online Travel Agents (OTAs): OTAs (like Booking.com and Expedia) are a major source of reservations for most hotels. However, they also come with a commission fee, usually ranging from 10-25%. In 2019, Skift had the average cost of OTA bookings pegged at 17%, resulting in a $12B cost for the industry annually.
 
• Wholesalers and Tour Operators: These partners may work through a GDS or operate independently to secure hotel inventory through pre-negotiated rates and pass those along to customers after adding fixed fees.

By balancing the mix of direct and indirect channels, hotels can optimize distribution expenses and maximize profit. The key is understanding the unique costs and benefits each channel brings to your revenue strategy.

Optimizing Your Hotel’s Distribution Strategy

Every hotel’s ideal distribution mix should be unique. Each hotel will attract a distinct guest profile with individual booking preferences — and any winning strategy will align with the needs of these guests while keeping costs in check.

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The ideal hotel channel management strategy maximizes visibility in the right places, supports your revenue goals and allows flexibility as those goals evolve. This is especially true if your plan is to move guests who booked through OTAs to book directly for future stays.

Informing Your Hotel Distribution Channel Strategy

From a cost perspective, a fully direct strategy may seem appealing. But, it’s crucial to balance that with where travelers are actually researching and booking. That’s why it’s important to understand your standing in the market and what your guests want. Here’s how:

 
• Evaluate your market share: If 50% of local bookings are coming from OTAs, a hotel receiving 60% might be over-relying on this channel, which results in higher commissions and losing direct bookings.
 
• Set goals for direct bookings: If 10% of reservations in your area come through hotel websites and yours captures 20%, that’s a win! Direct bookings not only cut costs but also signal a healthy market position, especially if occupancy is strong.
 
• Use data for market insights: Staying informed about market trends helps you strike the right balance. Whether through publicly available data, industry news reports or networking, understanding the local landscape is invaluable for creating a sustainable channel mix.

Use Technology to Master Hotel Distribution Channels

Managing distribution channels can feel a bit like herding cats. Every platform needs the same information, all inventory must be kept in sync and overbookings need to be avoided at all costs. This is where hotel distribution technology steps in, not only to simplify these complex tasks but also to help you strategically direct guests toward your preferred hotel booking channels.

What Tools Do You Need to Manage Multiple Distribution Channels?

The more distribution channels you use, the more there is to manage. Each channel requires up-to-date content, such as descriptions, photos, and accurate hotel inventory management. Once a room is booked, it needs to be immediately marked as unavailable across all other channels to avoid double-booking. Without technology, managing this manually is a non-stop juggling act. Luckily, there are tools that help you navigate this process:

 
1. Channel Managers: These platforms are a hub to connect your hotel to all distribution channels, ensuring information, rates and inventory stay in sync across the board. By automating these tasks, channel managers reduce manual work and help avoid costly errors.
 
2. Time-Saving Tech: By investing in guest-facing tech like Mobile Check-In and Mobile Check-Out, you free up your team to focus on channel management and improving the guest experience. For example, streamlining checkouts not only reduces lines at the front desk and automates billing and reviews, but it’s also preferred by over half of today’s guests.

Technology that Drives Hotel Direct Bookings

The goal of many distribution strategies is to increase direct bookings in the most profitable way possible. To do that, you’ll need tech that makes booking directly as easy and appealing as possible. Here’s how:

 
• Price Parity Tools: Ensuring consistent pricing across all platforms eliminates the “better deal” effect, preventing guests from turning to OTAs or other channels for a lower rate.
 
• CRM Systems: Customer Relationship Management (CRM) tools enable targeted campaigns that encourage direct bookings. With rich guest data, you can intelligently offer exclusive rates or perks to those who book directly.
 
• AI-Powered Web Chat: Engaging potential guests begins even before a booking has been made. AI-powered chatbots on your website can engage with potential guests in real time, lowering staff workload and boosting conversion rates on your website.

For an additional incentive, hotels that skillfully employ hospitality tech to enhance their guest experience can turn the modern experience they provide into a unique selling point. This often reflects positively in guest reviews and reputation, giving you an edge in the competitive market.

Investing in Your Profit Margins Through Distribution Channels

Regardless of what strategy you use, investing in distribution channels is a vital way to enhance your bookings. For maximum success, proactively define the distribution mix that aligns with your hotel’s unique goals, optimize each channel and make the most of every booking. When you balance direct and indirect channels thoughtfully, and employ technology skillfully, you set the stage for sustainable growth and greater profitability.

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