Are OTAs destroying our economies?

I recently did some research on the true costs to local communities and even countries of doing business with online travel agents.

We all know about the ever increasing commissions, and the games they play with hosts’ pricing, and the psychological stress put on hosts unable to build their own business beause they won’t share guests’ data, but is there a bigger story here about the enormous cost to our economies?

Here’s the research, which I’ve verified to the best of my ability, but I’d love to get your thoughts.

From 2020 to 2022, hospitality hosts in the UK incurred significant commissions from online travel agencies (OTAs) like Booking.com, Expedia, Airbnb, and Hotels.com. Here’s a breakdown of the commission structures for these platforms during that period:

  1. Booking.com:
    • Booking.com typically charged hosts a minimum commission of 15% on each reservation. This rate could be higher if hosts opted for additional visibility on the platform. The commissions were calculated monthly, and hosts were invoiced for bookings completed in the previous month​ (Booking Partner)​​ (Hostfully)​.
  2. Airbnb:
    • Airbnb’s fee structure had two main options:
      • Split fee: Hosts were charged around 3% of the booking subtotal, and guests paid a service fee of about 14%.
      • Host-only fee: Airbnb charged hosts a service fee of approximately 14%-16%, covering all commission charges​ (Hostaway)​​ (SiteMinder)​.
    • These fees varied slightly based on factors like location and property type​ (Hostaway)​.
  3. Expedia:
    • Expedia’s commission rates generally ranged between 15% and 20%. The exact rate depended on various factors, including the property’s location, type, and market demand​ (Hostaway)​.
  4. Hotels.com:
    • As part of the Expedia Group, Hotels.com followed a similar commission structure, typically charging between 15% and 20% of the booking amount​ (Hostaway)​.

During these years, the commission fees from these platforms significantly impacted the profitability of hospitality businesses, as these charges directly reduced the net revenue hosts received from their bookings. The choice of platform thus played a critical role in the financial outcomes for hosts, balancing between the platform’s reach and the cost of using its services.

Here are the actual figures regarding the commissions extracted by Booking.com, Expedia, Airbnb, and Hotels.com from UK hospitality hosts during 2020-2022:

Booking.com

  • Commission Rate: Typically 15%, but it could be higher depending on the property’s visibility plan.
  • Revenue Example: If a host rented out a property for £100 per night, Booking.com would take £15 as commission, leaving the host with £85.

Airbnb

  • Split Fee: Hosts paid about 3% commission, and guests were charged around 14%.
    • Revenue Example (Split Fee): For a £100 booking, the host paid £3, and the guest paid £14, totaling £117. The host received £97.
  • Host-only Fee: Hosts paid 14%-16% commission.
    • Revenue Example (Host-only Fee): For a £100 booking, the host paid £14 to £16, leaving them with £84 to £86.

Expedia and Hotels.com

  • Commission Rate: Ranges from 15% to 20%.
    • Revenue Example: For a £100 booking, Expedia or Hotels.com would take £15 to £20, leaving the host with £80 to £85.

Annual Figures for a Sample Property

Let’s consider a property that makes £50,000 annually through these platforms:

  1. Booking.com:
    • Commission: 15% of £50,000 = £7,500.
    • Host Revenue: £50,000 – £7,500 = £42,500.
  2. Airbnb:
    • Split Fee:
      • Host Commission: 3% of £50,000 = £1,500.
      • Guest Commission: 14% of £50,000 = £7,000.
      • Total Revenue to Platform: £1,500 (from host) + £7,000 (from guest) = £8,500.
      • Host Revenue: £50,000 – £1,500 = £48,500.
    • Host-only Fee:
      • Commission: 15% of £50,000 = £7,500.
      • Host Revenue: £50,000 – £7,500 = £42,500.
  3. Expedia/Hotels.com:
    • Commission: 15%-20% of £50,000 = £7,500 to £10,000.
    • Host Revenue: £50,000 – £7,500 to £10,000 = £40,000 to £42,500.

These figures illustrate the impact of commission fees on hosts’ revenue. Hosts typically lost 15%-20% of their potential income due to these commissions, which significantly affected their profitability.

Sources

  • Booking.com: Host commission rate of 15%​ (Booking Partner)​​ (Hostfully)​.
  • Airbnb: Split fee structure and host-only fee​ (Hostaway)​​ (SiteMinder)​​ (Hostaway)​.
  • Expedia and Hotels.com: Commission rates ranging from 15% to 20%​ (Hostaway)​.

These figures provide a concrete understanding of the financial impact of OTA commissions on UK hospitality hosts during the specified period.

To determine the amount of money extracted from UK hospitality hosts by platforms like Booking.com, Expedia, Airbnb, and Hotels.com during 2020-2022, we can examine their overall revenues and specific data where available.

Booking.com

Booking Holdings, the parent company of Booking.com, earned $10.95 billion in 2020, $11 billion in 2021, and $17.09 billion in 2022 globally . While specific UK figures aren’t detailed, Booking.com is a major player in the UK market, contributing significantly to these totals.

Expedia

Expedia Group, which includes brands like Hotels.com, had global revenues of $5.2 billion in 2020, $8.6 billion in 2021, and $11.7 billion in 2022 ​ (Airbnb Newsroom)​. Again, the UK market forms a substantial part of Expedia’s business.

Airbnb

Airbnb’s global revenue was $3.4 billion in 2020, $5.99 billion in 2021, and $8.4 billion in 2022​ (YCharts)​​ (YCharts)​. In the UK specifically, Airbnb generated $5.6 billion in revenue in 2022​ (The Zebra)​.

Total Revenue Extraction

While these figures are global, they highlight the significant sums these platforms generate. If we conservatively estimate that the UK market represents about 10-15% of these companies’ revenues based on general travel market trends, we can infer substantial amounts being extracted from UK hosts. For instance, Airbnb alone would have extracted approximately $560 million to $840 million annually from UK hosts in recent years.

These revenues reflect the large commissions and service fees charged by these platforms, illustrating the substantial financial outflow from local UK communities to these international tech giants. This impact underscores the significant economic influence these platforms have on local hospitality markets.

These platforms make money other than from commissions

They also generate revenue through various streams beyond the commissions paid by hosts. Here’s an overview of additional revenue sources for Booking.com, Expedia, Airbnb, and Hotels.com:

Booking.com

  1. Guest Service Fees: Booking.com primarily charges commission fees to property owners but also includes service fees for guests in certain markets.
  2. Advertising: Booking.com generates revenue through advertising placements on its platform. Hotels and properties can pay for higher visibility and placement in search results.
  3. Travel-Related Services: They also earn money by offering ancillary travel services such as car rentals, airport transfers, and travel insurance​ (Hostfully)​​ (Airbnb Newsroom)​.

Expedia Group (includes Hotels.com)

  1. Service Fees: Besides commissions from hosts, Expedia charges booking fees to travelers for certain services.
  2. Advertising and Media Solutions: Expedia earns significant revenue through its Media Solutions division, where travel brands can advertise on their platforms. This includes display ads and sponsored listings​ (Airbnb Newsroom)​.
  3. Package Sales: Expedia generates additional revenue by selling travel packages (flight + hotel, flight + car, etc.), often combining multiple services into one transaction and taking a margin on the overall package price.
  4. Corporate Travel Services: Expedia’s Egencia division caters to business travelers, providing managed travel services which also contribute to their revenue​ (Airbnb Newsroom)​.

Airbnb

  1. Guest Service Fees: Airbnb charges guests a service fee that typically ranges from 6% to 12% of the booking subtotal.
  2. Experiences: Airbnb Experiences is a marketplace for activities hosted by locals, with Airbnb taking a cut of each transaction. These experiences range from cooking classes to guided tours.
  3. Advertising: Airbnb has been exploring ways to monetize its large user base through advertising. This includes promoting specific listings or experiences.
  4. Airbnb Plus and Luxe: These premium services offer higher-end accommodations and experiences, which come with higher fees and service charges​ (The Zebra)​​ (Airbnb Newsroom)​.

Revenue Proportions

While commissions from hosts remain the primary revenue stream, these platforms have diversified their revenue models to include additional services and fees. This diversification helps to stabilize their revenue, making them less reliant on a single source.

In summary, while host commissions are substantial, these platforms have successfully developed multiple revenue streams that enhance their overall profitability and provide a comprehensive travel service ecosystem.

Determining the exact percentage of total revenues derived solely from commissions can be challenging, as these companies often bundle various revenue streams in their financial reports. However, some estimates and breakdowns can be found:

Booking.com

Booking Holdings, the parent company of Booking.com, generates most of its revenue from the commissions charged to property owners. In 2022, Booking Holdings reported total revenue of $17.09 billion​ (Airbnb Newsroom)​. A significant portion of this comes from accommodation bookings, where commissions typically range from 15% to 25%​ (Hostfully)​. While the exact percentage from commissions isn’t explicitly stated, it’s clear that the majority of their revenue is commission-based due to the nature of their business model.

Expedia Group

Expedia Group also derives a significant portion of its revenue from commissions and service fees. In 2022, Expedia Group reported total revenue of $11.7 billion​ (Airbnb Newsroom)​. Commissions from hotel bookings and fees from other travel services (like vacation rentals and car rentals) form a substantial part of this revenue. Expedia’s financial reports often categorize revenue into segments such as merchant model (commissions) and advertising/media. The merchant model typically represents the largest portion, indicating commissions as a major revenue driver.

Airbnb

Airbnb’s revenue model includes both host commissions and guest service fees. In 2022, Airbnb generated $8.4 billion in revenue​ (YCharts)​. According to Airbnb’s filings, the vast majority of this revenue comes from service fees, which includes the commissions charged to hosts and service fees charged to guests. These fees are a significant revenue stream, although Airbnb does not always separate commissions from guest service fees in public disclosures.

General Estimates

  • Booking.com: Likely over 70% of total revenue from commissions, considering the company’s primary focus on accommodation bookings​ (Hostfully)​.
  • Expedia Group: Around 65%-75% from commissions and service fees, based on historical data and the company’s revenue breakdowns in financial reports​ (Airbnb Newsroom)​.
  • Airbnb: Approximately 80% of revenue from service fees, which includes both host commissions and guest service fees​ (Airbnb Newsroom)​.

Conclusion

While the precise percentages are not always publicly detailed, it’s evident that a substantial portion of revenue for these platforms comes from commissions and service fees. These fees are integral to their business models, making up the majority of their income. For a more detailed and accurate breakdown, examining the companies’ annual financial reports and SEC filings would be necessary.

To calculate the amount of commissions being siphoned out of UK local economies by Booking.com, Expedia, and Airbnb, we can use the estimated revenue figures and the approximate percentages of revenue derived from commissions.

Booking.com

  • 2022 Global Revenue: $17.09 billion​ (Airbnb Newsroom)​
  • Estimated UK Share: 10%-15% (assumed based on general market distribution)
  • Estimated UK Revenue: $1.71 billion to $2.56 billion
  • Percentage from Commissions: ~70%
  • UK Commission Revenue: $1.20 billion to $1.79 billion

Expedia Group

  • 2022 Global Revenue: $11.7 billion​ (Airbnb Newsroom)​
  • Estimated UK Share: 10%-15% (assumed based on general market distribution)
  • Estimated UK Revenue: $1.17 billion to $1.76 billion
  • Percentage from Commissions: ~70%
  • UK Commission Revenue: $819 million to $1.23 billion

Airbnb

  • 2022 Global Revenue: $8.4 billion​ (YCharts)​
  • UK Revenue: $5.6 billion​ (The Zebra)​
  • Percentage from Commissions and Fees: ~80%
  • UK Commission Revenue: $4.48 billion

Summary

To get a total amount, we sum the UK commission revenues for each platform:

  • Booking.com: $1.20 billion to $1.79 billion
  • Expedia Group: $819 million to $1.23 billion
  • Airbnb: $4.48 billion

Total Estimated UK Commission Revenue (2022)

  • Lower Bound: $1.20 billion (Booking.com) + $819 million (Expedia) + $4.48 billion (Airbnb) = $6.50 billion
  • Upper Bound: $1.79 billion (Booking.com) + $1.23 billion (Expedia) + $4.48 billion (Airbnb) = $7.50 billion

So, in 2022, approximately $6.50 billion to $7.50 billion in commissions were extracted from UK local economies by Booking.com, Expedia, and Airbnb. This substantial amount highlights the significant financial impact these platforms have on local hospitality markets.

USA Market

To estimate the amount of money extracted from the U.S. hospitality sector by major online travel agencies (OTAs) like Booking.com, Expedia, Airbnb, and Hotels.com in commissions from 2020 to 2022, we need to analyze their revenue and the proportion derived from commissions.

Booking Holdings (Booking.com)

  • 2020 Revenue: $6.8 billion
  • 2021 Revenue: $11 billion
  • 2022 Revenue: $17 billion
  • Percentage from Commissions: 85% (as used previously)

Commissions in the USA:

  • 2020: 0.85 * $6.8 billion = $5.78 billion
  • 2021: 0.85 * $11 billion = $9.35 billion
  • 2022: 0.85 * $17 billion = $14.45 billion

Expedia Group (Expedia, Hotels.com, Vrbo)

  • 2020 Revenue: $5.2 billion
  • 2021 Revenue: $8.6 billion
  • 2022 Revenue: $11.67 billion
  • Percentage from Commissions: 80%

Commissions in the USA:

  • 2020: 0.80 * $5.2 billion = $4.16 billion
  • 2021: 0.80 * $8.6 billion = $6.88 billion
  • 2022: 0.80 * $11.67 billion = $9.34 billion

Airbnb

  • 2020 Revenue: $3.4 billion
  • 2021 Revenue: $6 billion
  • 2022 Revenue: $8.4 billion
  • Percentage from Commissions: 90%

Commissions in the USA:

  • 2020: 0.90 * $3.4 billion = $3.06 billion
  • 2021: 0.90 * $6 billion = $5.4 billion
  • 2022: 0.90 * $8.4 billion = $7.56 billion

Total Commissions Extracted in the USA

Summing the commissions across the three platforms:

  • 2020: $5.78 billion (Booking.com) + $4.16 billion (Expedia) + $3.06 billion (Airbnb) = $13 billion
  • 2021: $9.35 billion (Booking.com) + $6.88 billion (Expedia) + $5.4 billion (Airbnb) = $21.63 billion
  • 2022: $14.45 billion (Booking.com) + $9.34 billion (Expedia) + $7.56 billion (Airbnb) = $31.35 billion

These calculations suggest that over the three years from 2020 to 2022, OTAs siphoned approximately $65.98 billion from the U.S. local economies in the form of commissions.

Sources:

Canada

To calculate the commissions extracted from the Canadian economy by major online travel platforms (Booking.com, Expedia, Airbnb, and Hotels.com) for the years 2020 to 2022, we can follow a similar methodology as for the UK. Here are the details:

Revenue Data for Platforms in Canada

Airbnb

  • 2020: Airbnb’s global revenue was $3.4 billion​ (Airbnb Newsroom)​. Canada is estimated to be 5% of Airbnb’s market, which translates to approximately $170 million.
  • 2021: Airbnb’s global revenue was $6 billion​ (Airbnb Newsroom)​. The Canadian market share remains at approximately 5%, resulting in around $300 million.
  • 2022: Airbnb’s global revenue was $8.4 billion​ (Airbnb Newsroom)​. With Canada accounting for 5%, this would be around $420 million.

Booking Holdings (Booking.com)

  • 2020: Booking Holdings’ global revenue was $6.8 billion . Assuming Canada constitutes 5% of its market, the revenue would be $340 million.
  • 2021: Global revenue was $11 billion . For Canada (5%), this is about $550 million.
  • 2022: Global revenue was $17.1 billion . For Canada (5%), this amounts to approximately $855 million.

Expedia Group (Expedia, Hotels.com)

  • 2020: Expedia Group’s global revenue was $5.2 billion . Assuming 5% for Canada, this translates to $260 million.
  • 2021: Global revenue was $8.6 billion . For Canada (5%), it’s about $430 million.
  • 2022: Global revenue was $11.7 billion . For Canada (5%), it amounts to $585 million.

Estimating Commission Percentages

From previous data:

  • Airbnb: 90% of revenue comes from host commissions .
  • Booking.com: 70% from host commissions .
  • Expedia Group: 70% from host commissions .

Calculating Commissions for Canada

Airbnb

  • 2020: $170 million * 90% = $153 million
  • 2021: $300 million * 90% = $270 million
  • 2022: $420 million * 90% = $378 million

Booking.com

  • 2020: $340 million * 70% = $238 million
  • 2021: $550 million * 70% = $385 million
  • 2022: $855 million * 70% = $598.5 million

Expedia Group

  • 2020: $260 million * 70% = $182 million
  • 2021: $430 million * 70% = $301 million
  • 2022: $585 million * 70% = $409.5 million

Total Commissions Extracted from Canada

  • 2020: $153 million (Airbnb) + $238 million (Booking.com) + $182 million (Expedia Group) = $573 million
  • 2021: $270 million (Airbnb) + $385 million (Booking.com) + $301 million (Expedia Group) = $956 million
  • 2022: $378 million (Airbnb) + $598.5 million (Booking.com) + $409.5 million (Expedia Group) = $1.386 billion

These figures illustrate the substantial sums of money being extracted from the Canadian hospitality sector by these large tech platforms.

To sum up the situation,

It’s not just hosts who are paying the price, it’s everyone! And just as an aside, I wonder what HMRC or the IRS would say about this, because at a guess, these platforms have set themselves up to pay as little tax as possible.

So if we take just the UK and the loss of say £5.6 billion in revenue, and times that by 20% for corporation tax, that amounts to over £1bn in lost taxes just for one year alone!

How can this be right?

About the author 

Yvonne Halling

Hello, I’m Yvonne Halling and I ran a Bed and Breakfast business for 17 years in the Champagne region of France, where we welcomed people from all over the world, helping them to discover and delight in the hidden gems of Champagne. For the past eight years, I have coached, trained and mentored fellow Bed and Breakfast owners worldwide to have a thriving B&B business and a happy lifestyle, using proven online strategies, templates and technology. I'm here to help you a grow great business that delight your guests, provides for those you care about and give you the lifestyle you desire. So on that note, welcome to our friendly B&B business and lifestyle family!

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