Jul. 6, 2003 - Brett Deckard wants customers to think twice before using Web sites like Expedia.com or Hotels.com to book a stay at one of the four hotels he manages in New York City. 

Deckard, who is area general manager for The Franklin, The Mansfield, The Roger Williams and The Shoreham, said he is trying to persuade customers to book rooms directly with the hotel or through the hotel's Web site. The reason is money. 

"The commissions that are paid to those two organizations are driving down the revenue of the hotels drastically," Deckard said. 

"We're trying to move our clients away from them." 

He's doing that with perks like frequent-flier miles, complimentary breakfast, room upgrades and cash back. He will match a room rate found on a third-party site if it's lower than what he's advertising. 

Hoteliers once welcomed companies like Expedia as a way to sell hotel rooms that would otherwise be empty. These third-party sites, which offered hotel rooms at a discount, gained prominence in recent years. The economy was bad, and fears of terrorist attacks, war and even disease put a cap on travel. Many hotels became increasingly desperate to sell unoccupied rooms. 

"You've had little demand, low occupancy and a bad economy that's stopped corporate travel," said John F. Davis III, president of Dallas-based Pegasus Solutions. "You have hotels that are willing to do almost anything to put heads in beds." 

Anything meant selling blocks of hotel rooms to third-party Web sites for heavily discounted prices. Expedia.com, Fort Worth-based Travelocity.com and Dallas-based Hotels.com are the biggest, controlling 73 percent of online hotel sales, according to PhoCusWright, a consulting firm based in Connecticut. 

Those sites would then mark the room prices up as much as 30 percent for the public and pocket the difference. 

"Where Expedia will add value is where customers want to compare," said Jenne Pierce, director of planning, hotels and packaging for Expedia. "When they go to town, they are looking for options and they are looking for information and they are looking for good rates. We're giving exposure to millions of users. That moves a whole lot of inventory." 

Early on, some of the sites required hotel companies to provide a large number of rooms with no way to change their sale price should market conditions change. 

"After 9-11, the hotels were really put in a situation where they needed to do what they could do to put heads in beds," said Fred Bean, vice president of hotel sales and relations for Travelweb, a new site founded by several hotel chains. "Folks were running in single-digit occupancies. The 'legacy' dot-coms were able to take advantage of this." 

But now that people are slowly starting to travel again, hotels want more control over how many rooms they sell through the sites and at what price. So they are fighting back by beefing up their own Web sites, creating loyalty programs and offering perks that guests won't get if they book through third-party Web sites. 

They've also created their own online booking systems. 

The new Travelweb site, for example, is owned by Dallas-based Pegasus, which processes the majority of the electronic bookings in the travel industry. Partners include Hilton Hotels, Hyatt, Marriott International, InterContinental Hotels Group, Starwood Hotels and Priceline. 

Travelweb limits its markup to 15 percent to 20 percent, which allows hotels to price the rooms a little higher. The site also lets hotels change the pricing and inventory of rooms for sale if demand in a particular market changes. 

And it connects directly with a hotel company's central reservation system. Other hotel-booking sites have only recently started to move away from a bulky process of faxing reservations back and forth to the hotels, where they must be manually entered into a hotel company's central reservation system. 

"One of the reasons hoteliers want to get control back is the current model," said Michelle Peluso, chief operating officer for Travelocity. "The processes are so cumbersome." 

Lorraine Sileo, analyst with the Connecticut-based travel consultant PhoCusWright, said the growth potential of the Internet is also driving more hotels to try to capture bookings through their own Web sites. 

"They found they were losing out on some of the direct consumer sales and allowing the Expedias and Hotel.coms to come in and take a direct role," she said. "The margins got bigger in terms of what they were making, and the rates were getting smaller. Once online penetration passed 10 percent, hotels realized, 'This is a real important channel to us.' " They also realized that they were losing control of their rates, Sileo said, which prompted hotel companies to launch new initiatives luring customers to book directly with the hotel, either through its own Web site or over the phone. 

Mandalay Resort Group has gotten agreement with the third-party Web sites not to undercut the prices on Mandalay's Web site. Mandalay went so far as to stop doing business with Hotels.com because the site kept undercutting the resorts' prices, said John Marz, senior vice president of marketing and events for Mandalay. The company's Mandalay Bay Resort now no longer works with any of the dot-coms. 

"It was time to take control," he said. "It was time to start the process. This process hasn't ended." 

He said that in Mandalay's core market, cities west of Denver, the company tells people that the lowest prices for its rooms are found on the Mandalay Web site, not with the dot-coms. 

Other hoteliers, like Wyndham, Melrose and Cendant, guarantee that guests will find the lowest prices for their properties on their corporate sites. Some chains have started a policy of matching any price found on sites like Expedia and Travelocity, with some even offering guests the difference in price plus an additional 10 percent of the difference. 

Even as the hotels are fighting to take back their customers, and control over their prices and inventory from the third-party sites, some hoteliers concede that they will never succeed in wooing back all their customers. But that's OK, they say. 

"They [third-party sites] definitely have a place," said Chris Heinz, senior vice president of distribution and revenue management with Wyndham. "We really look at a couple of different kind of customers out there. One who likes to buy at the mall, which is the Internet. Then we have, perhaps, a discerning customer." 

Though hoteliers concede that the third-party sites aren't going to go away, and that they can even be useful by helping to book hard-to-fill rooms during slack periods, both parties say they will continue to try to increase their share of what has become a growing online market. 

According to a recent report by PhoCusWright, 9 percent of hotel bookings in 2002 were made online, either through hotel sites or third-party sites. By 2005, 20 percent of hotel bookings will be online. 

"It's a $400 billion a year industry worldwide, and we barely scratch the surface," said Bob Diener, president of Hotels.com. 

"We'd expect to see growth from hotel bookings online. I think there's going to be great growth on both sides from the hotel sites and sites like ours." 

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