Independent hotels and chains will all feel the impact of the consolidation of Orbitz Worldwide into Expedia Inc. Independents didn't have much clout before the acquisition, and the chains will feel the pressure, too.
Beyond the sexy headlines and stock gains and losses behind Expedia Inc. seeking to acquire Orbitz Worldwide for $1.6 billion and grabbing Travelocity for $280 million, what does it all mean for a small hotel group in the Midwest?
At a sort of ground zero for these sorts of things, Nick Griffioen, director of revenue management at the four-property AHC + Hospitality group in Grand Rapids, Michigan, says in coming years some of his properties, especially the independent hotels, will be trying to accelerate efforts to get travelers to book directly on their own websites.
It Won’t Be Easy
That won’t be the easiest task because the Amway Grand Plaza Hotel website “isn’t trusted by all of America” like the much-higher-profile Expedia.com might be, Griffoen says, referring to one of the properties in the collection. The others are The JW Marriott Grand Rapids and the Downtown Courtyard by Marriott, and the Peter Island Resort and Spa in the British Virgin Islands.
Why would the push to drive direct bookings be so important for Griffioen and his properties?
Independent properties pay Expedia commissions in the 20-25 percent range, says Griffioen, who has been in his job for more than six years, and that commission level definitely impacts the bottom line.
Expedia, he says, has been the strongest third-party producer for his hotels, although Booking.com has been rapidly gaining ground.
Independent properties such as the Amway Grand Plaza Hotel don’t have much contract leverage with Expedia in negotiating commissions, Griffioen says.
“They tell us what it is going to be,” he adds.
Griffioen says the substantial commission that independent properties pay to Expedia amounts to a big chunk of potential profits.
On the other hand, for Amway Hotel Collection’s Marriott and Courtyard properties, Expedia lowered its commissions a bit in the last round of negotiations, which took place less than a year ago.
Chain hotels generally pay Expedia commission percentages in the mid to upper teens, he says.
With Expedia Inc. acquiring Travelocity and the Orbitz Worldwide purchase pending, Griffioen expects Expedia to demand higher commissions in the next round of negotiations a couple of years from now.
“It’s just the way things go,” Griffioen says.
While Expedia-Travelocity-Orbitz, which could all be part of the Expedia Inc. family later in 2015, have the dominant share of U.S. online travel, Booking.com, powered by its substantial TV advertising campaign over the last couple of years, has been growing rapidly, Griffioen says.
In 2013, the Amway Grand Plaza’s bookings through Booking.com grew 83 percent year-over year while its transactions through Expedia jumped 52 percent, Griffioen says.
Both brands advertised heavily on TV and on search engines such as Google.
The commissions that Booking.com collects, generally in the 15-18 percent range, are often lower than Expedia’s.
With Booking.com, travelers pay at the hotel while with Expedia consumers have the choice to either prepay or pay at the hotel for many properties.
Griffioen says Booking.com’s pay at the hotel model really resonates with consumers.
“I think Booking.com did an amazing job entering the market,” Griffioen says. “It was a path consumers found engaging and it really blew up.”
Getting Travelers to Book on the Hotel’s Website
Under Expedia’s contracts, the hotel can’t take steps to convert Expedia customers into hotel-direct customers.
But Griffioen says hotel staff can actively collect guests’ email addresses at the property, optimize hotel websites, and try to generate “likes” on Facebook.
“You’re never going to really be able to compete on search terms,” Griffioen says.
The largest players in online travel are getting bigger and that leaves independent properties scurrying to find new ways to cope.
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Photo credit: Room service in a king room at the Amway Grand Plaza hotel in Grand Rapids, Michigan. AHC + Hospitality