Web To See More Hotel Res

By 2005, an estimated one in five hotel bookings will be made on an Internet site, up from one in 12 in 2002, according to a report this month by the Cornell Center for Hospitality Research that showed the extent to which the Internet is reshaping hotel distribution. Online intermediaries will capture approximately 50 percent of those bookings, while hotel chains' own Web sites will control the other half. The dollar value of these reservations is expected to jump from $18 billion this year to $33 billion in 2005.

In addition to direct bookings, an estimated 55 percent of travelers who use the Internet regularly will use the various sites to research hotels. Typically, these "lookers, not bookers" then call either a travel agent, central reservation system or the property itself to make the reservation.

Statistics released this month by TravelClick, which consults on Internet booking strategies, suggested Internet usage even was greater. For the first half of 2003, it found approximately 26 percent of bookings were made on the Web, with the branded sites capturing twice the bookings.

Originally intended as a distribution channel for leisure travel, discount Web sites now have gained acceptance among business travelers, who prefer their cut-rate pricing, speed and ease of use. Travel managers, by and large, have objected to travelers going outside the traditional distribution channels. Their arguments focus mostly on the discrepancy between Web rates and negotiated rates. Buyers also have been frustrated at being unable to get credit for Web bookings toward the volume projections they've made to the property. Another bone of frustration are the restrictions often attached to Web bookings, which, for example, make it difficult, if not impossible, for business travelers to cancel reservations.

"With the migration of hotel room distribution to the Internet, a host of players, old and new, are vying to gain—or retain—control of distribution channels," said Bill Carroll, a professor at the Center of Hospitality Research's parent, the Cornell University School of Hotel Administration, and co-author of the study. Carroll and fellow author, Professor Judy Siguaw, noted that, up to now, these channels primarily have used price as their principal point of distinction. Yet, this strategy ultimately won't work in hotels' favor, since most of the third-party intermediaries are merchant model sites that are able to offer rooms at deeply discounted prices.

"Hotels need to find ways to avoid having price be customers' main or only consideration for booking a room," Siguaw said.

They recommend shifting the emphasis to guest services and amenities. "One chief way to offset the trend toward commoditization is to provide customers with considerable information that distinguishes properties based on their level of services."

As the use of the Internet has surged, hotel companies and the third-party intermediaries have locked horns as to whose sites will wield greater control over hotels' inventory. With this objective in mind, hotel companies have invested heavily in improving the ease of use of their Web sites. Yet, an analysis released last month by the Customer Respect Group Inc., a market research firm, found hotel sites ranking below airline and travel management company/intermediary sites in overall customer satisfaction. In addition, only 91 percent of hotel sites respond to online inquiries, as opposed to 100 percent of airlines and TMCs. In terms of ease of accessing their sites, hotel companies and TMCs fell woefully behind airlines. Using keyword search capability as a measure, the study found 67 percent of airline sites offer the functionality, compared with only 33 percent of hotel sites and 30 percent of TMC sites.

Looking to the future, Carroll and Siguaw said they expect hotel companies to find more ways to promote their sites vis-à-vis the major third-party intermediaries, including the merchant model sites. Buyers can expect hotel chains not only to continue investing in Web site enhancements, but also to offer direct links to selected accounts.

Likewise, the global distribution systems will join the hotels in challenging the third-party intermediaries. The Cornell team speculated on the role Travelweb might play in challenging the others. Travelweb, which launched last year as the hotel industry's response to merchant model sites, was founded by five major hotel companies that have a vested interest in driving bookings to their own sites, Hilton Hotels Corp., Hyatt Hotels Corp., InterContinental Hotels Group, Marriott International and Starwood Hotels & Resorts Worldwide.

Robert Cotter, Starwood COO, doesn't see a conflict. "Deciding to participate in Travelweb was a strategy that said, 'We don't expect that Starwood's sites can meet everybody's hotel needs every day,' " he said (BTN, March 24), "but we do expect we can control what pricing we're putting into the marketplace."

Compared with traditional merchant model sites, Cotter pointed out that Travelweb allowed hotels to yield their rates, as opposed to selling them on a block basis for contracted rates.

Carroll and Siguaw also addressed whether merchant model sites would continue to thrive once the economy strengthened and demand for hotel rooms rebounded.

"Rising occupancy will reduce the markups required by these wholesalers," Carroll said, "along with the need for wholesaling in general."