By Louise Hibbert, Director of Business Development, Africa and Middle East, at SHR
The battle for direct bookings in the hotel industry may be raging in some parts of the world but in Saudi Arabia it’s only just getting started.
The Kingdom’s hotels have always been overly reliant on third party channels, particularly the online travel agents (OTAs). This has led to Expedia and Booking.com doing very well in the territory, as hotels have steered away from the more balanced lead generation strategies of other world markets.
The OTAs invest heavily to attract traffic and control the flow of bookings and we’ve tracked this relationship year after year.
But how did Saudi Arabia end up here? The answer lies in the trajectory of the Kingdom’s tourism sector. KSA attracted 27.4 million international tourists in 2023 — 65% up on 2022, and 56% up on 2019 (OECD). That’s such strong growth that, combined with domestic travellers, the country attracted over 100million tourists last year, smashing the country’s Vision 2030 target seven years early.
These visitors have all got to stay somewhere, so that means Saudi Arabia’s rapid hotel growth is likely to continue. The number of rooms rose from 201,600 in 2008 to about 421,600 in 2022 (Statista), and earlier this year Saudi Arabia was named the fastest-growing G20 country in the latest UN World Tourism Barometer report.
This is partly what has driven reliance on OTAs. Hotels have been springing up so fast that only they have been able to fill the beds fast enough.
Larger chains in KSA have the brand power and scale to leverage loyalty to drive direct bookings, particularly in the cities, but the problem is so acute that even they still generate between 70% and 90% of their business through OTAs.
This is significantly higher than in the US or Europe, where hotels are far less dependent on them. In fact, a recent H2C/SHR report on Empowering Direct Bookings found that in the Americas and Europe, reducing OTA share is a top priority. In stark contrast, hoteliers in Asia Pacific and the Middle East & Africa still plan to increase OTA share. This would shock a lot of hotel operators and investors in more mature markets.
It illustrates how these regions are at completely different stages of life when it comes to tourism, revenue strategies and technology. The Saudi tourism scene is younger and has had less time to develop. Overdependence on OTAs is one of the growing pains that appears when a market expands this fast. Adoption of property management technology has been slow but, in a way, that’s very exciting. It means there’s lots of room for the KSA hotel sector to become more balanced, efficient and more profitable.
While larger chains might find it easier to reduce OTA reliance, it’s important smaller operators aren’t left behind. Larger chains represent only about 6.7% of hotels in Riyadh, 11.1% in Jeddah and 12% in Dammam (source Hotel Chains).
The territory’s independent hotels and smaller chains have not had the appetite to invest in the sort of loyalty programmes that drive direct bookings because they haven’t felt they’ve got enough properties to justify the time and money it would take to build them. Now OTAs are pushing their own loyalty schemes hard, any attempt to rectify the situation has been made even more difficult.
But with OTA fees approaching 20% a lot of the time and increased competition now starting to bite, hotels need to start looking at their direct channels a lot more seriously. KSA has been characterised by a very domestic tourism market in the past. You’d think that would have made rolling out the sort of loyalty schemes that drive direct bookings easier but that hasn’t been the case.
Cultural differences in the region have meant that the OTAs have been far more favoured by guests than in other markets. The reason?
The first instinct of many domestic tourists in KSA is to use an OTA, and not just out of habit. Domestic travelers in Saudi Arabia are less likely to want to put their credit card details in and pay up front on a hotel website and many enjoy booking two or three accommodation options and cancelling all but one of those options right before their stay. This is extremely common, and the OTAs have been able to capitalise on this because this is something they make quick, free and easy. You don’t see this anywhere else in the world in quite the same way.
Increased international arrivals in future will therefore help hotels drive direct bookings as the country’s tourism appeal grows. International travelers are keen not to overpay, are used to using loyalty schemes and don’t need the convenience and cancellation policies offered by the OTAs to book multiple properties at once.
The only thing hoteliers need to do to capitalise on this opportunity is to ensure they have the technology to market themselves effectively, capture guest details and execute effectively on upsells and remarketing, bringing a level of personalisation that the OTAs are unable to match.
Many hotels will have further to go than others. Some hotels in KSA still don’t even have an internet booking engine (IBE) or customer relationship manager (CRM) of their own, because they’re originating such a tiny fraction of guests themselves. But they’re going to need one if they want to improve their profit margins in the future and remain competitive.
For now, hotels are using lots of different systems that don’t talk to each other, and guests are booking and communicating in lots of different ways. This is a recipe for poor service and an uphill struggle in raising the share of direct bookings.
Tech companies have noticed how much the hotel market is growing in the region and are flocking to sell their wares. This will hopefully help educate operators on how much they can easily do themselves. CRMs, booking engines and loyalty programmes will need to be part of this conversation. Hotels will never be able to give up the OTAs entirely but there’s plenty of room to make these channels more evenly matched and enough extra profit to be made that a lot of this innovation will pay for itself.
