Following the news of the DOJ’s decision to allow Expedia’s purchase of Orbitz Worldwide, members of the hotel industry are wary of what’s next, particularly when it comes to commissions.
Those are some of the concerns hoteliers have a day after the U.S. Department of Justice announced it wouldn’t challenge Expedia’s acquisition of Orbitz Worldwide on anti-trust grounds. From brands to independent properties and CEOs to GMs, the question behind their worries is no longer if but when.
Chris Harvey, GM for the Crowne Plaza Charleston Airport & Convention Center, said online travel agencies are an important part of the hotel reservation landscape.
“We need them, sometimes more than others, to generate revenue for our properties,” he said. “But our biggest concern is the merging of those two companies creates far too much leverage for Expedia. They take a much larger cut for room rates than their competitors. This has any owner or manager naturally concerned.”
Expecting commissions to rise
First Hospitality Group already was trying to gain better control of its inventory because of the proliferation of third-party sites when this merger happened, said Bob Habeeb, president and CEO of FHG.
“It seems like we had reached some acceptable level,” he said. “And now, the fear is these mega-agencies control such a large part of the market, they’ll start dictating terms to the hotels, and there goes the bottom line.”
Habeeb said he worries that “the bargaining power of the new combined agencies is going to drive commissions back up.”
Habeeb said that is disheartening for hoteliers after years of negotiating more favorable commission structures. Though commissions are still high compared to other delivery channels, they’re more acceptable now, he said.
As an independent hotel, the Shores Resort & Spa in Daytona Beach, Florida, relies on OTAs more for reservations than a branded property would, said GM Jason Kern. He’s concerned about the commission structures that may develop for independent hotels. Expedia is a giant already, he said, and it could control the margins and commission structures.
When the two OTAs were separate, he said, he would have one commission rate with one and another with the second. Now that they are combining he’s not sure what Expedia will do.
“If I have a better commission structure in one or the other, will they give you the better structure for both or not?” he asked. “Will they get 20% for all the bookings, or will they move it to the higher bracket?”
A surprise decision
The Department of Justice’s decision was disappointing, Habeeb said. The American Hotel & Lodging Association was wise to launch a fairly aggressive campaign against the acquisition, he said, and his company supported the AHLA’s opposition by writing letters.
The department’s decision came as a surprise to Harvey, who believes it will harm consumers by dramatically decreasing the competition among OTAs. With Orbitz joining Expedia, he said, will now control three-quarters of all OTAs. Adding in The Priceline Group for another 20% of the market, those two agencies will make up 95% of OTA business.
“The consumer who is not clued in or aware of this thinks all of the sites are operating under independent ownership,” he said. “They’re actually operating in concert. They can leverage that to take larger cuts.”
Read full article at: Hotel News Now
