|By Jennifer Davies, The San Diego Union-Tribune|
Knight Ridder/Tribune Business News
July 25, 2004 - The defining experience for many online consumers, the moment in which the Internet finally lived up to its hype, came when they saved a huge amount on a hotel room. Imagine five-star accommodations for a two-star price. It seemed too good to be true. Turns out, it was. Gone are the days of the post-Sept. 11 travel slump in which hotels, desperate to fill up vacant rooms, flooded online travel sites such as Expedia and Travelocity with discounted rates.
"There are far fewer bargains on those sites," said Jerry Morrison, a La Jolla hotel consultant. "Hotels try to give as little inventory as possible to sites like Expedia."
It is not just supply and demand that has changed the pricing dynamics of online hotel bookings. Hotel companies also got wise to the fact that travel sites were cutting into their profits as well as challenging customers' loyalties.
By selling rooms on the cheap to third-party sites, the hotels undercut their ability to keep their own rates up. Also, consumers drawn to the third-party sites tended to be more interested in price than the brand of the hotel, and by booking on a site like Expedia did little to create repeat business for the hotels.
Much like other businesses, hotels were slow to grasp the power of the Internet. Now, hotel chains have set up their own Web sites and are working to get consumers to reserve rooms directly through them rather than third-party travel sites.
Hotels also jumped into Internet booking because they could no longer ignore the medium. According to PhoCusWright, a travel industry research firm, online bookings have grown from about 8 percent of the total in 2001 to 15 percent in 2002 to 20 percent in 2003. By 2006, PhoCusWright predicts one-third of all U.S. hotel rooms will be booked online.
"Just a few years ago, it was just the brave souls who booked online. Now, it's everybody," said Pam Richardson, president of the San Diego Hotel-Motel Association and general manager of the Hilton on Harbor Island. To get consumers to book on their own sites, hotel companies have come up with incentives, such as best-rate guarantees, promises of complimentary breakfasts, even free nights as well as bonus loyalty points that can translate into airline miles or other perks.
Best-rate guarantees, in particular, mean that third-party travel sites are no longer the place to look for the best discounts. A recent survey by Consumer Reports found that rates were comparable between third-party sites and hotel-operated sites and the best deals often could be had by calling a hotel's on-site reservations desk and negotiating with the sales representative. Morrison said individual hotel reservations representatives -- not the agents answering calls to the toll-free numbers -- are more acutely aware of a hotel's vacancy rate and are more prepared to give a price break if they are desperate to fill rooms.
"The people at the hotel are really motivated," he said. "They know what the occupancy is, and they are watching the general manager walking around with blood in his boots."
A recent survey of five local hotels found that most of the rates were closely matched on the various travel Web sites. The Red Lion Hanalei Hotel in Mission Valley listed the rate for a superior king room at $139 on its Web site. On Travelocity, the rate for the same type of room was $144, and on Expedia it was listed at $145. The hotel's on-site phone reservations quoted superior, or deluxe rooms, at $149.
With rates being equal, customers appear to be more willing to book online directly with hotels.
Tom Botts, vice president of distribution strategy and operations for Starwood Hotels and Resorts, which runs such well-known chains as Sheraton, Westin and St. Regis, said online bookings are the fastest growing segment in its reservations. Of those Internet bookings, 80 percent are made on Starwood's branded sites and the other 20 percent come from third-party travel sites, such as Expedia.
Wyndham International also has made a heavy push for customers to book online with a best-rate guarantee. In its first-quarter results, Wyndham said that Wyndham.com revenue exceeded that of all third-party Internet sites for room reservations.
Encouraging customers to book online is important for Starwood because it is a way to create customer loyalty, Botts said. His company aggressively markets such perks as Westin's Heavenly Bath or Heavenly Bed and doesn't want it to be usurped by customers going to Expedia or Hotels.com looking for the lowest price.
"At the end of the day, do I want a customer to be loyal to Westin or to Expedia?" Botts said.
Also, hotels make less money on rooms that are sold through Expedia or Travelocity than they do on rooms they book themselves. For the most part, hotels make a block of rooms available to Expedia at a discount price. Expedia sets the price for the hotel and then gets a commission if it sells that room. The result: Rooms sold by third-party sites provide less revenue. Wyndham said bookings through its site yielded an average daily rate, which is revenue divided by rooms sold, of $131.37 versus $82.69 for third-party Internet site bookings.
In the past, hotels didn't mind getting less money for those rooms because it was viewed as better than nothing. Hotels always are trying to figure out how to boost occupancy because the business has such high fixed costs, Morrison said. Whether the hotel is full or empty, many costs -- including utilities, staffing and insurance -- remain the same.
Because of that, hotels are willing to cut deals on rates, especially in hard times. After the Sept. 11, 2001, terrorist attacks, that meant cutting prices drastically and providing plenty of rooms to third-party sites. Now with the travel industry rebounding, rock-bottom deals are few and far between.
Spencer Rascoff, vice president of hotels for Expedia and Hotels.com, said that for the most part its prices are on par with the hotel sites. Because of that shift, the sites go after consumers who are looking to comparison shop among hotel chains and independent operators. Rascoff compared the role of third-party sites to that of Macy's and the role of hotels to that of a specific designer such as Calvin Klein. Visitors to Expedia and Hotels.com "are brand agnostic, not brand loyal," he said. Because of the price parity, Expedia increasingly has offered packages that provide consumers with one-stop shopping for vacations and also give price breaks for bundling air, hotel, rental car and activities. Rascoff said a "healthy tension" exists between hotels and third-party sites, but hotels always will look to Expedia and other sites to help market their properties.
Hotels, especially independent ones that can't rely on a brand name such as Hilton or Sheraton, agree they cannot ignore the third-party travel sites because they bring in too much business. Expedia and Hotels.com, which are owned by Barry Diller's InterActive Corp., estimate that they book about 5 percent of San Diego's hotel rooms on any given night. Kimpton Hotels, which operates boutique properties such as the Hotel Monaco in San Francisco, estimates that 5 percent to 13 percent of its bookings come through third-party sites.
"We absolutely view Expedia, Travelocity and similar third-party sites as cooperative partners," said Jimmy Suh, Kimpton's vice president of revenue management and distribution.
Jenny Mendoza, director of revenue management for The Dana on Mission Bay and the Pacific Terrace Hotel in Pacific Beach, said her hotels look to third-party travel sites to serve as an "instant brochure" and provide marketing heft. They also help fill rooms at the last minute. That's where deals can still be had -- especially if consumers go through travel sites such as Hotwire.com or Priceline.com in which the name of the hotel is not revealed until the reservation is booked. But such deals are subject to the laws of supply and demand. For instance, trying to get a good deal on Hotwire, which InterActive also owns, in New York City around the Republican National Convention isn't going to happen, Rascoff said.
"Hotwire tends to procure distressed inventory," he said. While there might not be as many deals on Expedia, that could change if the tourism industry hits a rough patch.
Robert Rauch, director of San Diego State University's Center for Hospitality & Tourism Research, said supply and demand is what drives hotel rate deals.
"It's all about negotiations," Rauch said. "When times are good, hoteliers control the negotiations. And when times are not, the travel sites do."
SHOPPING AROUND: A survey shows a comparison of online prices for selected local hotels. Rates were compiled July 16 for bookings the weekend of Aug. 6-8.
--Good Nite Inn, Mission Valley
Expedia: Standard Room, $195
Travelocity: Deluxe Queen, $72.95;
Deluxe King, $87.95
Orbitz: Deluxe Queen, $72.95; Deluxe King, $87.95 (rated three-star)
Hotel Web site: Deluxe Queen, $72.95;
Deluxe King, $87.95
--Red Lion Hanalei Hotel, San Diego
Expedia: Standard Room, $132; Premium Room, $145
Travelocity: Standard Room with one Queen, $131; Premium Room with two
Queens, $141; Superior Room with one King, $141
Orbitz: Standard Room, $131; Superior Room, $144
Hotel Web site: Standard Queen, $131; Premium King, $141
--Sheraton San Diego Hotel and Marina
Expedia: Traditional Room, $199
Travelocity: Traditional Room, $179
Orbitz: Room with Balcony, $179
Hotel Web site: Traditional Room, $179;
Deluxe Room, $199
--Omni San Diego Hotel
Expedia: Deluxe Room, $179
Travelocity: Deluxe Room, $179;
Premium Room, $199
--Orbitz: No rooms available
Hotel Web site: Deluxe Room, $179;
Premium Room, $199
--The Lodge at Torrey Pines
Expedia: Signature Room, $369
Travelocity: Signature Room, $400
Orbitz: Room with garden view, $369
Hotel Web site: Signature Room, $400;
Palisades Room, $625
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