Hilton deal shows pressure on Web booking fees (Reuters)
LOS ANGELES, - Cheap hotel rooms have been a boon for online travel sites, but a radical deal struck on Monday between Hilton Hotels Corp.
Hilton struck what it called "the best deal in the industry," lopping off about a third of the commission paid to Expedia, which in return gets direct access to Hilton's computer reservation system and preferred status.
The deal, which follows a similar one between Expedia and Holiday Inn owner Six Continents Plc (London:SXC.L - News), illustrated the muscle that big hotel chains can flex in talks with Web suppliers, analysts said.
That has been a source of concern for investors in
USA is buying the shares it does not already own in both companies, and shares in both have been trading at levels that imply investors expect extremely fast growth.
The hotel industry is stagnant, but online reservations are booming and will account for about 20 percent of all hotel bookings by the end of 2005, up from 10 percent now, industry researcher Phocuswright predicts.
GROWTH DRAWS COMPETITION
Those sorts of growth forecasts, coupled with fat margins -- up to 35 percent or more of what customers pay for a room -- have not gone unnoticed by potential competitors who are offering new technology to replace the surprisingly simple and inefficient system of faxes that established booking sites have relied on.
"That is a hell of a lot of money for an electronic reservation," said Eric Christensen, president of Web travel company WorldRes.
Most hotel reservations made on the Internet until recently have been confirmed by fax, but WorldRes, Expedia and others are putting in computers end-to-end, effectively linking travelers with hotel front desks.
As a result, Christensen said the 10-percent commissions charged by brick-and-mortar travel agents could become more tenable for online travel charges.
Travelweb, a site set up by leading hotel companies, also aims to take a smaller slice of the pie than the major incumbents. "Their business model is not good for hotels. And that's what we are here to change," said Joe Humphry, Travelweb chief executive, in a recent interview.
CHEAPER, MORE FLEXIBLE
Hilton struck a deal for an 18 percent commission from Expedia, compared with 26 percent to 28 percent previously, said Gerald Chase, President of New Castle Hotels, which owns inns flying the Hilton flag and others.
The deal also offers New Castle more flexibility in changing rates and room availability than it could have negotiated on its own, Chase said.
Hilton also has required owners to offer consistent rates across vendors and platforms.
That is meant to slow the cutthroat price competition that has gone hand in hand with the economic downturn.
Individuals and hotel-owning corporations control the vast majority of U.S. hotels, even though many fly flags of big brand names, and hotel owners have generally set online rates on their own.
If and when the economy improves and technology allows competing Web vendors to all tap into a brand's computer reservation system, owners will have more freedom to maintain prices, said Phocusright analyst Lorraine Sileo.
But the top Web travel sites and Sileo say there is plenty of growth to compensate for margin pressure from hotel chains and that smaller hotels lack the leverage to win back margin from Web suppliers.
Europe, where the hotel industry is even more fragmented than the United States, should keep margins strong, and technology will make online operations cheaper, Bob Diener, president of
"What counts most is demand. We have a huge chunk of demand," he said. "The bottom line is over time we believe the margins are sustainable," he added.
Reuters