In separate deals last month, Marriott International and Starwood Hotels & Resorts Worldwide aligned with third-party Internet distributors as an additional way of driving Web bookings to their brands. The deals come in the wake of Hilton Hotels Corp.'s landmark agreement in April with Expedia, which gave the online travel agency special access to Hilton's inventory through its central reservations system.
This latest round of deals has left buyers concerned with how potent a force Web rates eventually are going to be for business travelers and whether the traditional negotiated rate model might change as a result.
Working with the WorldRes network, Marriott properties now can be booked at WorldRes' PlacesToStay.com Web site through an XML direct connection to Marriott's CRS. "The direct connection means hotel availability, rates and inventory are automatically updated," said Don Smith, WorldRes vice president of sales. As part of the agreement, Marriott gets still other Internet outlets to market its properties, which belong to the WorldRes network. These include America Online, Yahoo and Verizon SuperPages.
Starwood's partner is Cendant Travel Distribution Services, a division of Cendant Corp. that is separate from Cendant's hotel business. According to the terms of this deal, preferred rates and special promotions at various Starwood properties can be booked directly through Starwood's CRS to such Cendant merchant model sites as CheapTickets.com and Lodging.com. In addition, these Starwood rates will be available through Galileo, the Cendant-owned global distribution system.
Similar to the deal Hilton struck with Expedia, the Starwood-Cendant arrangement gives Starwood hotels more input over pricing and yield management than it has had up to now on the merchant sites. "We have much more flexibility," said Steven Hankin, president of Starwood's technology and revenue systems unit. "The hotels should be better able to drive profits and manage inventory."
The increasing popularity of such merchant sites as Hotels.com is the underlying force behind these latest deals. The growing appeal of the sites' heavily discounted rates among business travelers—as well as the leisure travelers to whom they were targeted originally—has left hotel companies on the defensive.
Faced with a weak economy and a precipitous drop in business travel last year, hotel companies initially saw the merchant sites as an efficient way of disposing excess inventory. They quickly realized, however, that the sites were not the white knights they envisioned. Since then, the hotels have struggled to come up with ways to regain control of their inventory. As Sam Galeotos, president and CEO of Cendant Travel Distribution Services, noted, they simply realized industry dynamics had changed.
Further complicating the online distribution picture, Marriott, Starwood and Hilton encourage travelers to book at their own branded Web sites. In addition, each of the three is a founding member of Travelweb.com, described as the hotel industry's own discount Web site.
Travel buyers, seeing their hotel partners scramble to cover as many Internet bases as possible, remain disconcerted. Travelers continue to book properties in their hotel programs at rates that undercut negotiated rates. Adding insult to injury, hotel companies have only just begun implementing technology to enable buyers to get credit for stays booked online toward their volume projections
(BTN, April 28)."The widespread availability of Web rates remains a pain in my side," said Kevin Maguire, travel manager for Tokyo Electron America and a persistent critic of that distribution channel. "In a lot of cases, we've been successful in getting hotels to concede that if a lower Web rate is available at checkin, our travelers get that rate—and the company gets credit for the stay." Some hotels have resisted. "Consequently, we're taking a serious look at removing them from the program," Maguire said. "When the discrepancy between the Web rate and the negotiated rate can be as great as $40-$50 a night, there's too much money at stake to ignore."
For Miriam Moscovici, corporate travel manager at Deloitte Consulting, a critical issue is the restrictions that typically come with discount Web rates. Bookings usually need to be prepaid and are nonrefundable or only partially refundable, which poses a problem for business travelers forced to postpone or cancel at the last minute. "What's happened is that hotel pricing is being de-simplified due to all the new restrictions. On the airline side of the business, pricing structures are being simplified, but the opposite is true with hotels," she said.
The first line of defense against the merchant sites for Hilton, Marriott, Starwood and other large hotel companies was to implement a best rate guarantee. This ensured that the best Web rates would be found on their own branded sites.
"The cornerstone of our efforts to get back in control was to make it clear that Starwood's sites wouldn't be undersold," Robert Cotter, COO of Starwood, told Business Travel News this spring
(BTN, March 24). At the time, Cotter projected that Web sales eventually would account for 70 percent to 80 percent of all travel purchases, business travel included.
While hotel companies easily could mandate pricing policies on company-owned hotels, the matter became more problematic at managed and franchised properties where the owner retains final say on pricing.
What the hotel companies could demand is that owners set a rate and then apply it consistently, so that the rates for that property available on the merchant sites wouldn't undercut the company's branded sites.
"We're not setting prices, only requiring that the price be consistent across all channels," said Steve Armitage, Hilton senior vice president of sales.
Hilton's deal with Expedia was significant because it was the first to single out a third-party site for special access to a company's inventory. According to the agreement, Hilton branded hotels weren't required to commit a specific amount of rooms to Expedia. Yet, to the degree that company-owned hotels utilized third-party merchant sites, they would be required to use Expedia and/or Travelweb.
Hilton strongly encouraged managed and franchised hotels to do the same. Financially, this would be beneficial because Expedia agreed to charge the properties a lower commission than usual for each room booked.