Russo said additional demand is a possibility but also said the amount of incremental demand is hard

REPORT FROM THE U.S. When it comes to hotel room distribution strategy comparing the cost of each channel and shifting mix accordingly the conversation often involves hotel managers, brands and third-party distributors. However, one group of hoteliers is beginning to raise its voice in the matter, particularly when it comes to an evident shift from merchant to agency model.
Hotel owners are speaking up, fearful that decreasing profit margins aren t being sufficiently addressed during third-party contract negotiations. Specifically, motels or hotels modesto california the terms of Expedia s newly introduced agency model are being worked out in board rooms between brands, managers motels or hotels modesto california and Expedia and owners are left out in the hallway waiting to hear the results.
In August, Expedia introduced its Expedia Traveler Preference program, which will allow travelers to choose whether to pay Expedia at the time of booking on the site (merchant model) or pay the hotel upon checkout (agency model). Expedia said it has more than 13,000 hotels signed up for the ETP program, including motels or hotels modesto california brands such as Hilton Worldwide, Marriott International, Melia Hotels, Iberostar Hotels Resorts, La Quinta Inns Suites, as well as many independent hotels.
There are three constituents that are affected: Expedia, brands and owners, said Michelle Russo, president of HotelAVE, an asset management and ownership company. The group that ends up with the additional cost load with no additional revenue or profit benefit is the owners. But the other two groups are the ones that negotiated the agreement.
At the heart of the profitability issue is the fact that when travelers pay at the hotel rather than up front on the site, commissions motels or hotels modesto california and fees are paid on the retail rate rather than the wholesale rate. This potentially leads to additional management fees, brand fees, marketing fees and credit motels or hotels modesto california card commissions all paid by the owner, Russo said.
Russo conducted some financial analysis of Expedia s shift to an agency model and while she admits it might not be 100% accurate because commissions may change and some figures aren t available to the public she released motels or hotels modesto california a white paper that concluded the move will reduce expenses for Expedia by approximately $23 million while creating an additional $24 million in revenue for management companies. Combined, that leads to a $47-million loss in profit for owners, she said.
Russo s figures were calculated assuming 100% of bookings from Expedia will shift from merchant to agency model. Expedia expects agency versus merchant bookings to eventually be closer to 50-50, a spokesman told HotelNewsNow.com.
Russo told HotelNewsNow.com that the negotiation process between third parties motels or hotels modesto california and brands/management companies brings into question the fiduciary responsibilities of management companies to be making agreements that are not in the best interest of owners they represent.
Russo said most brands have owner advisory councils that are usually consulted before decisions like this are made. She is not part of any but said there has been confusion over when franchisees have been informed about the results of third-party negotiations.
I think owners generally hoped that these renegotiations were an opportunity to corral all the travel agencies whether motels or hotels modesto california online or brick and mortar into a more travel-agent-like commission, she said. Expedia did make adjustments motels or hotels modesto california to their commission, but it doesn t bridge the entire gap of the costs.
There s a lot of frustration with the ownership community on what this does for profitability, he said. Yes, the hotel recognizes a higher motels or hotels modesto california average rate, but there are incrementally more credit motels or hotels modesto california card fees, incrementally more management fees, incrementally more (furniture, fixtures and equipment), incrementally more administrative burden on the hotel, franchise fees.
We have full faith the operators are doing their analysis and good faith with Expedia to make sure those agreements whatever they may be will keep us whole, he continued. But we need to know what keep us whole means. motels or hotels modesto california It s that we deliver dollar for dollar, hopefully and have a business motels or hotels modesto california case that delivers dollar for dollar.
Since the program was introduced, Expedia has touted motels or hotels modesto california the additional demand motels or hotels modesto california it will bring to hotels because travelers especially international ones will be more inclined to book if they can pay later at the hotel rather than up front.
We regularly talk to owners about our programs and services, their wants and needs, and industry issues and opportunities, Expedia s Anderson said. When we work on a contract with a brand, the brand represents the interests of their franchisees. That said, we want the owners to know that they can benefit significantly from the ETP program.
Russo said additional demand is a possibility but also said the amount of incremental demand is hard to forecast, and brands and management companies should be more focused on the increased cost of existing business.
That transfer of lost profit is going to Expedia, brands and managers, she said. What we ve been saying to our hotels is this makes a revenue manager s job a lot harder because now you really have to ask, How do you get that incremental business that is not dilutive to more affordable channels?
Brand.com s advantages were points and you can pay at checkout. Now they just have the points, she said. I m not sure how they are going to prove that the incremental business cost justifies the additional cost and also the qualitative risk of moving share from historically less expensive channels to more expensive channels.
motels or hotels modesto california From the revenue management perspective, including more agency-model demand simply means learning how to best take advantage of a new demand model, said Greg Cross, senior VP of revenue management for Hyatt Hotels Corporation.
I remember trying to convince motels or hotels modesto california Expedia to dump the merchant model back in 2002, when we wanted them to move to an agency model and they said absolutely not. Ten years later now, everybody has forgotten that era and everybody is very comfortable working with the merchant model, and now we want to move that piece of cheese and everybody feels very uncomfortable about that, Cross said.
More rooms are being sold online now than any other channel, he said. Expedia has a competitor that s doing extremely well in Europe and Asia with an agency motels or hotels modesto california model and is now creeping into market share space in North America. So what do you do? Do you just sit there and let that happen? Or do you decide that you re going to change with the times and give the customer what the customer wants, which is more choice options?
TAGS: technology impact report , online travel agencies , OTA , expedia , agency model , expedia traveler preference program , Michelle Russo , HotelAVE , Brian Berry , Host Hotels & Resorts , Greg Cross , Hyatt Hotels Corporation
Well written article Jason. Unfortunately, the agency model serves the best interest of all parties EXCEPT the franchised hotel owner, and it is high time that this (heavily invested) group be heard on this matter. In addition to the various concerns raised in the article and comment above, hotel owners also need to recognize that this program will serve to remove their ability to yield out this high cost distribution channel due to rooms being booked through this program at retail rates, motels or hotels modesto california not discounts, which most franchised hotels have the option not to accept.
Like those interviewed for this article, I find it troubling that the brands talk about taking back distribution from the TPIs, then then negotiate behind closed doors to further erode their own distribution leverage, and their profits of their main stakeholders, the franchisees.
When will the lodging industry wake to a brisk smelling morning coffee and gather other brands to form an alliance against participating on 3rd party websites. Aggregators are a competitor, period! They say we want to help your property with occupancy so lets have your pricing (so we can drive rates down for the consumer) and then we will charge you a fee and commission...to get their customer back. If this is not a bunch of B.S. The travel industry needs to remove motels or hotels modesto california themselves from these bottom feeders.
Could there be further profit loss caused by a shift from brand.com to expedia? My guess is that Expedia sees a very high abandonment rate at the point where the guest has to commit to making the prepayment. Many guests motels or hotels modesto california will switch over to the brand.com channel and book there. With that barrier removed, this model will actually shift share from one channel to another. This part of the equation has been largely ignored by ALL parties (Expedia, Brands, Owners, the media) and it really could be the largest impact.
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