Expedia/Orbitz merger colored by optimism and suspicion

This article is part one of a two-part series on the Expedia/Orbitz merger. Look to Tuesday’s technology newsletter for the second part.

In mid-September, Expedia acquired Orbitz Worldwide for roughly $1.6 billion, seeking to create a larger online travel agent enterprise to insulate itself against newcomers to the space, such as Google.

Roger Bloss, founder, president and CEO of Vantage Hospitality Group, is looking at the deal positively in one aspect, saying he expects transactional costs with Orbitz to either decrease 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.

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"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, according to Bloss. 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 Worldwide, Marriott International, Starwood Hotels & Resorts Worldwide and InterContinental Hotels Group combined at over $3 billion. Even then, Bloss is unsure of the marketing potential Google and other companies 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," he said.

Similarly, Corey Chambers, VP & chief revenue officer at Hospitality Ventures Management Group, said Orbitz is a relatively small player in the OTA market, but any further consolidation will constrain competition in the space.
“We are already faced with a duopoly in the space,” Chambers said. “Ultimately, if OTAs do not work with the supplier side to create an affordable cost structure, incremental costs will need to be passed on to the consumer.”

Neal Jackson, VP of Jackson Hospitality Services and president of Vimana Franchise Systems, said that in some ways the merger may make dealing with OTAs easier because there will be one less entity to manage, but said hotels may also be threatened by the possibility of losing more and more control over the market.

"The situation does make you wonder, with one company controlling all the largest OTAs; it seems like a monopoly," Jackson said. "You feel a little helpless because hotels can't avoid using OTAs. The big brands are working to drive travelers to branded websites and push direct bookings, but I don't think hotels can avoid using OTAs in the future."

From a marketing standpoint, Jackson said Expedia provides a spotlight many properties find necessary to reach their intended guests. Because of this necessity, Jackson said to speak with revenue managers at Expedia to see how the merger will affect your hotel, and if you belong to a brand he said to ask them about future plans to drive direct bookings.

“Hopefully both sides will win, in a way,” Jackson said. “As an owner, I want business coming from everywhere, but you want to avoid paying excess commission where possible. Even if you don’t want to use Expedia, you still want the exposure they bring by getting you on other sites. You have to play their game because everyone is playing it.”

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."

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