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Orbitz New Strategy is Focusing on Hotels, not Airlines, as its Hotel-room
 Nights Sold Are a Distant Third to Expedia and Priceline

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By Julie Johnsson, Chicago TribuneMcClatchy-Tribune Regional News

August 08, 2010 -- Orbitz Worldwide Inc. is rolling out search tools Monday aimed at taking the mystery, and nasty surprises, out of Internet hotel reservations.

Online travel agencies have long allowed consumers to sort hotels by price range and luxury rating. But Chicago-based Orbitz is adding a host of new filters that will allow travelers to compare lodgings by what matters most to them.

For a family headed to Walt Disney World Resorts that might mean viewing swimming pools at a half-dozen Magic Kingdom hotels side by side.

Business travelers bound for an unfamiliar city may want to view a hotel's surroundings before booking: Is that a Starbucks across the street or a pawn shop?

New CEO Barney Harford is spearheading Orbitz's push in the hotly competitive hotel arena, which is more lucrative than airline travel, on which Orbitz built its business.

Since joining Orbitz in early 2009, Harford says his focus has been "hotel, hotel, hotel."

Harford has made it easier for smaller hotels to display their rooms on Orbitz and is using new technology to provide consumers with an array of information on hotels and their environs, as well as to speed up transactions.

He's trying to close the gap between Orbitz and market leaders Priceline Group of Cos. and Expedia Inc., where he worked from 1999 to 2006. Then there's the threat posed by Google Inc., which is testing new hotel search tools and has made online travel players uneasy with its pending acquisition of ITA Software, a leading travel software developer.

"Google is just so big that anything they initiate on their own is always a cause for concern by intermediaries," said Henry Harteveldt, travel industry analyst with Forrester Research Inc.

Harford is also playing catch-up. Founded by United Airlines and four other large U.S. carriers a decade ago, Orbitz emphasized air travel, while Expedia and Priceline amassed huge inventories of hotel rooms around the globe.

"Orbitz has traditionally been really challenged," said Carroll Rheem, director of research at online travel research firm PhoCusWright Inc. "They've always been air-centric by nature of how they came about, and air is not nearly as profitable as hotel."

Airline bookings remain the largest source of online travel sales and are projected to reach $50.4 billion this year, according to PhoCusWright. Hotels, the second-largest sales generator in the travel category, should top $27.7 billion.

But aggressive contracting by U.S. carriers has steadily driven down the profit collected by online merchants on airline tickets.

The average fees per booking paid by the airlines and global ticketing clearinghouses are below $10 combined, said Jake Fuller, senior research analyst at PhoCusWright. Hotel sales typically have a 15 percent to 20 percent margin that online travel agents mark up over a wholesale rate, he added.

Comparing the size of the hotel business at the three online firms is difficult since they use different measures to report sales. Expedia reported that it sold 70 million hotel-room nights in 2009, while Priceline sold 61 million hotel-room nights. Based on the hotel revenue Orbitz reported for the year, PhoCusWright estimates it sold 8 million room nights in 2009. An Orbitz spokesman said the actual sales were far higher but declined to provide specifics.

But despite the agencies' interest in boosting hotel sales, their generation of Internet tools makes it difficult for consumers to evaluate rooms and budget for travel, said Forrester's Harteveldt.

Terms like "standard, premium, superior, deluxe mean nothing to the traveling public," Harteveldt said. "Is a superior room better than deluxe? I've worked in the hotel industry and I don't know the answer."

Although price, luxury rating and location are the biggest factors determining online hotel bookings, agencies are also struggling to bridge the gap between expectations and reality, he added.

A frequent consumer gripe is that they have little way of knowing whether a hotel lives up to the gleaming photos it provides on travel Web sites.

Khalil Khamaneh of Vernon Hills said he's been leery of booking hotels through Internet travel agencies after a disastrous vacation five years ago.

"The hotel looked very nice on the site," he said, but the photos were misleading, and the accommodations were ghastly. "After one night, we moved out."

Since then, Khamaneh peruses online agencies to compare prices but makes hotel reservations directly with the luxury hotel chains that he trusts: Marriott and Hilton Hotels.

Still, bargains remain an irresistible lure for many shoppers. Priceline has grabbed the global hotel lead this year with robust international sales and a U.S. product that offers up to 50 percent discounts on blind purchases. Priceline.com's consumers know the luxury rating of a hotel but not its name until after they strike a deal.

"I think Priceline provides the most distinctive position among online travel agencies," said Priceline CEO Jeffrey Boyd.

Harford sees opportunity for Orbitz.com at the other extreme: providing greater disclosure to online shoppers than his competitors.

Orbitz is the only online travel agency to reveal upfront the full cost of a hotel reservation, a feature that executives conceded cost the Internet firm some customers who base their purchases on hasty price comparisons.

Then there are the new tools built into Orbitz's search matrix. The idea is to give consumers a virtual tour of a prospective vacation haven, said Harford, "so consumers can almost predict what they're getting at the hotel."

Orbitz customers can quickly locate all of the hotels with a desired price point or luxury rating within a given neighborhood, then zoom in on a destination and "walk" up and down its surrounding streets via full-screen Google Street View.

They can also narrow their search based on hotel amenities, such as spa services or swimming pools. Or they can scan offerings based on review scores or photos provided by other Orbitz customers, another powerful antidote to unpleasant vacation surprises.

Expedia, meanwhile, has developed a separate and highly successful business for consumer reviews, TripAdvisor Media Network, in addition to its travel agency sites, said spokeswoman Katie Deines Fourcin.

Priceline is also constantly updating and innovating its travel sites, said Boyd, a reminder that competition in the sector will continue to be based on technology as well as bargains.

"I think having the best rates and availability is ultimately the most important aspect of it," he said. "There are a lot of sites that have the scale to have good content, photographs and consumer reviews. But you've got to have the best rate, and the hotel has to be available when the customer is searching on it."

jjohnsson@tribune.com

Google could jump into hotel bookings

Internet search giant Google, a longtime Orbitz partner, could become a quasi-competitor. Since March it has been testing search tools that include hotel prices and supplier links.

Google says it intends to stay out of the business of selling airline tickets despite its purchase of ITA Software, which developed the search software that Orbitz uses to find and display airline offerings.

"Google won't be setting airfare prices and has no plans to sell airline tickets to consumers," the company said in a statement.

Google officials and ITA executives have provided similar assurances to Orbitz, said Orbitz Chief Executive Barney Harford said.

"It is very clear that they are very committed to continue working with us as partners," Harford said.

But Google's richer travel tools may connect shoppers directly with suppliers, bypassing online agencies. ITA is developing hotel search tools that will likely be unveiled after the merger closes, said Henry Harteveldt, travel analyst with Forrester Research Inc. An ITA spokeswoman didn't return a phone call.

"What Google wants is for more people to go to Google.com and stay on Google.com longer," Harteveldt said. "There is a risk that some players, whether intermediaries or suppliers, could see some of that traffic diverted to Google."

Expedia will be closely watching how traffic flows on Google following the ITA transaction, CEO Dara Khosrowshahi told investors last month.

"The way that we've seen them operate in general has been fair, but we think they would be wise not to favor their own internal products over external products and create an unfair playing field," Khosrowshahi said. "And if they do, we think that the government will have something to say about that." -- Julie Johnsson

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