Last week, Expedia acquired Orbitz Worldwide for roughly $1.6 billion, seeking to create a larger online travel agent (OTA) enterprise to insulate themselves against newcomers to the space such as Google and Amazon.
Roger Bloss, founder, president and CEO of Vantage Hospitality Group, is looking at the deal positively, saying he expects transactional costs with Orbitz to either lower or remain the same and is looking forward to open negotiations with Expedia. Even so, the merger means a bigger OTA than ever before, which rubs some hoteliers the wrong way.
"What bothers the industry is that [OTAs] build their company off of hoteliers' real estate," Bloss said. "They don't have any real estate for their own, and so that bothers independents, entrepreneurs and hoteliers."
OTAs are taking a lower commission than ever from hotels, just 16 percent per booking compared to 21 percent in 2009. Despite this, Bloss said Expedia's vast marketing budget, which has only gotten bigger through this deal, is the biggest threat to direct bookings for the industry. According to Bloss, Expedia's marketing spend is larger than Hilton, Marriott, Starwood and IHG (InterContinental Hotels Group) combined at over $3 billion. Even then, Bloss is unsure of the marketing potential Google and Amazon could wield should they enter the fray.
"That is the biggest issue on why we feel [the merger] has created an uneven playing field, and the fact that their marketing dollars come off of hotelier real estate."
At the Red Roof Inn brand conference, held this week in Hollywood, Fla., company president Andrew Alexander addressed the Expedia/Orbitz merger and called on hoteliers to be more aggressive in pushing for direct bookings through loyalty programs and interactions with guests.
"This merger means we need to be more vigilant as we compete with a near monopoly of OTAs," Alexander said in an address to franchisees. "While they draw some business our way it's at a high price. We want guests to book direct."
According to Bloss, hoteliers have to band together if they want to compete with the new breed of OTAs on the horizon. Bloss called on the hospitality industry to once again become an innovator in technology, citing Holiday Inn's Holidex reservation system, which launched in 1965.
"Expedia's CEO once said his mission is to 'revolutionize travel through technology,'" Bloss said. "Our industry is not on the forefront of technology. We have the customers, the real estate and the brand identities. We need to educate consumers on that; it's our responsibility.
"As entrepreneurs, we want to be in more control of our real estate and business model," Bloss said. "We have to unite on these issues and talk, and then create technology to allow us to stay competitive and get ahead. Right now, none of us are."
Hotel Management reached out to Expedia for comment and received the following:
"We’re pleased to officially welcome Orbitz Worldwide to Expedia. The addition of Orbitz brings Expedia an attractive set of well-recognized brands built by a talented team that is passionate about travel. With the acquisition closed, we look forward to enhancing customer experiences, improving the reach for our global supply partners and delivering our great deals to travelers around the world through our growing family of brands.
"We are excited to begin the work of integrating these two companies. We look forward to quickly learning more about each Orbitz Worldwide brand, business unit and team. We are still in the early days of planning and integration, which means it will be business as usual for our suppliers’ relationship with the Expedia and Orbitz teams. We look forward to continuing to grow our relationship with our valued partners."
Not unexpected, its response is vacant any real meaning, but clearance of the deal is no doubt a huge win for Expedia. And while many hoteliers are skeptical, the Justice Department believes the merger won't harm consumers or be unfair from a competitive standpoint.
Bill Baer, head of the Justice Department's Antitrust Division, said that during a six-month investigation, the Antitrust Division found no evidence that consumers would face higher charges if the two booking companies merged.
"The Antitrust Division investigated the concerns that have been expressed about this transaction," said Baer. "At the end of this process, however, we concluded that the acquisition is unlikely to harm competition and consumers."
The hotel industry, meanwhile, isn't buying it.
"As we've said all along, this transaction will result in significant negative consequences for consumers and also the large number of our members who are small businesses and independent hotels," the American Hotel and Lodging Association said in a statement. "It could lead to increased distribution costs for independent hotel owners who risk seeing booking commissions rise by double digits."
In July, lawmakers on a Senate antitrust panel wrote to the Justice Department warning that the deal could end up hurting the industry.
"Increased consolidation among online travel agencies could transform a market that has benefited consumers into one that stifles competition," wrote Sens. Mike Lee (R-Utah) and Amy Klobuchar (D-Minn.).