Seeing a threat to their profitability at the hands of merchant model Internet sites, Hilton Hotels Corp., Carlson Hotels Worldwide and other hoteliers this month moved to regain control of their inventory online, in effect protecting the primacy of rates negotiated with travel buyers. In a related development, merchant model site HoteLeaders.com continued to make inroads into the managed travel arena, this month announcing a deal with travel agency network Radius, whereby Radius agencies will book HoteLeaders inventory.
Hilton this month issued a mandate to all of its owned, managed and franchised hotels, stating that the rates the hotels provide to merchant sites must be consistent with those available through the global distribution systems, Hilton's reservation call centers, the hotels directly, as well as Hilton's own proprietary Web sites.
Meanwhile, Carlson Hotels Worldwide this month became the latest hotel company to sign on with Travelweb, to which Hilton, Marriott International, Starwood Hotels & Resorts Worldwide, Hyatt Corp. and InterContinental Hotels Group all provide inventory. With the exception of Carlson, the hotel companies, along with Pegasus Solutions and Priceline, own Travelweb. As such, the site gives them more of the control they found lacking in the merchant sites, since rooms do not have to be allotted in advance and at heavily discounted prices.
According to Hilton senior vice president of sales Steve Armitage, the step to mandate was taken to ensure travelers receive the best price, regardless of which channel they book through. He also acknowledged that Hilton's corporate clients are unhappy when negotiated rates get undercut.
"From our standpoint, we're not trying to work against our corporate travel partners. We want to work with them," he said, explaining that "we make less money when the booking goes through the consolidator merchant sites."
Travel buyers for months have expressed frustration that rates available on the merchant wholesaler sites often undercut their negotiated rates, thereby undermining the integrity of their hotel programs. Specifically, buyers complained that rooms booked at reduced Web rates made it harder for them to get credit for these stays, thereby weakening their negotiating leverage
(BTN, Jan. 20)."An issue for us is having our travelers spend a lot of their time on the Internet searching for deals," said Connie Cirillo Freeman, director of global travel management and human resources procurement at Pitney Bowes in Stamford, Conn. "One of the big plusses of a managed travel program is that it's a one-stop-shop. Now you've created a situation where travelers go to one site for their air and another site for their hotel. If you add up all the time this takes, and the fact that in many cases the travel manager has lost the ability to track what people are doing, you have a fairly unmanaged situation, which isn't good for anyone."
Freeman also cited the restrictions that tend to come with these bookings, mostly affecting such things as cancellation policies. "There are usually a lot of strings attached and travelers don't fully understand that," she said.
Hilton's mandate affects all of its brands as well as hotels that the company itself owns and manages, including Embassy Suites, Hampton Inn, Hilton Garden Inn and Homewood Suites brands along with the core Hilton brand. While hotel companies typically dictate pricing to company-owned and managed properties, it's rare that they try to exert this control over hotels owned or managed by others. Yet, Hilton is not setting prices, only requiring that the price set by the owner be consistent across all channels.
Hilton is the first major hotel company publicly to issue such a mandate, but other hotel companies also have moved in this direction. Starwood, for example, earlier this year introduced a Best Rate Guarantee on its branded Web sites intended to bring about rate integrity.
"The cornerstone of how we believe we best need to get back in control of the situation was the launch of the rate guarantee program, where we made it clear that Starwood's own Web sites would not be undersold," said Robert Cotter, Starwood COO.
In its effort to regain control of its Internet pricing, Hilton also has singled out one third-party Web site for special access to its inventory. In return for this preferred status, Expedia this month agreed not to offer rooms at Hilton hotels at rates that undercut rates on Hilton's proprietary sites. Hilton, thereby, gets the rate integrity assurance for which it was looking.
To make this kind of access possible, Hilton is using a direct connection between its central reservation system and Expedia's database. This will give the hotels much more flexibility in assigning rooms to the site and at what price than what they had working with merchant sites generally.
Yet, even in negotiating the Expedia deal, Hilton has hedged its bets, anticipating that merchant sites will lose steam once the economy strengthens, business travel returns to prior levels and hotels, consequently, have less excess inventory they are seeking to dispose of at discounted prices. Accordingly for now, the Hilton-Expedia agreement is only slated to span two years.
The merchant model overall is a relatively new phenomenon, according to Cotter. "The sites are a product of today's business environment, but that is not to say they are going away when demand improves. It is something that is evolving, but we believe the Internet as a distribution channel is still going to be the primary booking vehicle going forward," he said.
Regarding Travelweb, Geoff Heuchling, Marriott director of B2B e-commerce strategy, said: "With the others, you cannot yield-manage the number of rooms you have on the site. On Travelweb, by contrast, hotels can put rooms on and take rooms off automatically and coordinate them with the remainder of their inventory."
In addition to Travelweb's founders and Carlson, Omni Hotels and Fairmont Hotels & Resorts are among the brands that provide inventory to the site. As in the Hilton-Expedia deal, these companies provide real-time access to their inventory directly through the CRS. For Christine Brosnahan, Carlson vice president of reservations and distribution services, the typical "blocked room" merchant site is "outdated and restrictive."
In its agreement with HoteLeaders.com, Radius was clear that it did not want to exacerbate its relationship with travel buyers by offering travelers rates through the merchant site that conflict with negotiated corporate rates.
"Our agents won't refer the HoteLeaders rate, if there's a negotiated rate for that corporate account in the system," said Alan Slan, executive vice president at Radius. "The agencies have a duty to manage the client negotiated rates, whether it's air, hotel or car."
Slan noted, however, that the significance of there being an applicable negotiated rate isn't always clear. "It's not always a black-and-white situation. There could be times on a particular day at a particular property when one or the other rate might be more advantageous to the client. It's incumbent on the agency to bring their clients the most favorable rates," he said.
"Our intention is to complement existing rates, not displace them," said Zara Stassin, CEO of HoteLeaders.com.
Many cost-conscious buyers, in fact, may want travelers to book the cheapest rate, negotiated rates notwithstanding.
"The positive side of this is that, if a more favorable rate exists through the merchant model program, agencies now have an additional tool to take to their customers," Slan said. "Yet, if the buyer only wants travelers to book the negotiated rate, that's what the travel agency will do."
According to Slan, instructions to this effect are part of Radius' quality control mechanism at the agency level.