Marriott's New Contract With Expedia Signals a Shift in the Direct Booking Wars

With Marriott International and Expedia Group finally completing their contract negotiations, the deal they've struck could have an impact on the relationship between hotels and online travel agencies more broadly going forward.

The months-long contract negotiations, which began in November, have resulted in a new multi-year deal between the hotel and online travel agency behemoths that includes some key features that give Marriott and its hotel owners more control over their distribution relationship with Expedia, but also positions Expedia as more of a partner to Marriott and its owners.

Now that Marriott is the world's largest hotel company — it opened its 7,000th property this week — many industry observers expected Marriott's increased scale following its $13.3 billion acquisition of Starwood Hotels & Resorts would help the company obtain a much lower commission rate from Expedia.

While there is no specific information available about the much-discussed commission rate that Marriott hotel owners would pay to Expedia whenever a customer books one of their rooms through one of Expedia's multiple channels, the deal does include some features in it that benefit owners.

Some reports, including one from CNBC however, suggested Marriott was able to lower that rate from an approximate 12 percent to 10 percent. CNBC has since removed that reported 10 percent rate from its original article.

Specifically, Marriott and its hotel owners can decide when and where to distribute room rates and inventory and to be able to differentiate among Marriott's own direct channels, thereby reducing the overall costs they pay to sell their rooms online. In other words, Marriott hotel owners don't have to offer the same rooms or inventory to Expedia as they would to Marriott's own direct channels, and Marriott and its owners continue to be able to offer special room rates and offers for Marriott Bonvoy loyalty members.

The deal positions Marriott and Expedia not as enemies, but more as partners. In a letter Marriott International sent to its hotel owners and obtained by Skift, Marriott Chief Commercial Officer Stephanie Linnartz described the deal as one that "redefines our relationship with Expedia beyond transient retail bookings by leveraging Expedia as a technology solution provider."

Perhaps the most interesting part of the deal, however, is that Expedia and Marriott are developing "an innovative distribution solution that will address challenges in other leisure segments beyond transient retail bookings." This is expected to debut in the fourth quarter, and is noted in the joint statement issued by both companies on Thursday morning. It states:

"Marriott International has signed a new, multi-year agreement with Expedia Group. The agreement continues Marriott's long-standing distribution arrangement with Expedia Group for transient bookings, expands Expedia Group's role related to Vacations by Marriott, the company's leisure packaging platform, and leverages Expedia Group's technology capabilities for an innovative distribution arrangement beyond transient retail bookings expected to launch in the fourth quarter. Under the new, expanded relationship, Marriott and Expedia Group have reached mutually beneficial economic terms that advance each company's strategic objectives."

More Details on the Deal

The letter Marriott issued to its owners details more immediate business opportunities its owners will now have with Expedia, including an agreement with Expedia's opaque booking channel, Hotwire that allows owners to "drive sales of distressed inventory within clearly-defined central revenue management controls." The company said that details about this particular part of the contract will be revealed over the next few weeks.

Both companies are also expanding their existing Vacations by Marriott partnership that was established in 2016 and leverages Expedia to run Marriott's leisure travel package business, Vacations by Marriott.

Under the new deal, Vacations by Marriott will be expanded to more languages and countries and Expedia will also develop more tools that "help to drive loyalty of leisure guests to Vacations by Marriott, a Marriott Direct Channel."

Marriott hotel owners have until May 1 to opt out of the new agreement with Expedia.

What This All Means

The hotel and travel industry has been keeping an eye on the deal between the two companies for some time, anticipating that Marriott's new scale would give it some leverage in negotiations with one of the world's largest online travel agencies.

David Katz, an equity analyst for Jeffries, said, "Without knowing the commission rate, I guess it's hard to have a view. We presume that it's better."

Dan Wasiolek, a senior equity analyst for Morningstar who covers gaming and hospitality companies, pointed out that the details we do have on the new deal more broadly reinforce the idea that both companies need one another.

"Hotel scale matters, but Expedia's reach of 750 million monthly visitors to its platform versus only 35 million that visit Marriott.com each month also matters. Both have leverage in negotiations."

Wasiolek also estimated that Expedia bookings likely account for "low single digits of total Marriott bookings" and that, conversely, Expedia gets approximately the same in terms of bookings from Marriott. According to Marriott, approximately 13 percent of its global bookings in 2018 were made via online travel agents.

And as Skift has reported previously, the deal was never just about commission rates.

Flo Lugli, principal at Navesink Advisory Group, told Skift earlier this year that Expedia might be seeking to have its customers gain loyalty points or status when booking a Marriott property on Expedia, and might be willing to trade commission concessions for advertising dollars, or preferred rates and inventory.

"It's not just about the commission, but the total value being driven to either party," Lugli said.

Michael Bellisario, senior research analyst with RW Baird, said previously he'd heard that on nights with high occupancy, Marriott wanted to negotiate a way for operators to reduce or turn off the online travel agency channel, for example, and the new deal hints that this may be a possibility going forward.

In a note to investors today, Bellisario wrote, "This is the first time Marriott has renegotiated its agreement with Expedia since the Starwood merger was completed in 2016, and we believe Marriott's significantly increased scale played a key role in its ability to achieve a lower commission rate for owners, among other qualitative improvements."

What is most interesting about the new agreement between Expedia and Marriott, however, is what awaits to be revealed later this year.

"The new innovative distribution agreement launching in Q4 is the most interesting piece in all of this, in my opinion," Wasiolek said. "I'm not sure what that will involve. Perhaps its partnering with Expedia's corporate brand Egencia, but everything I could say on that matter is pure speculation."

Further, he wondered if that distribution solution may involve the sharing of inventory among the two companies.

"Sharing of inventory, now that would be pretty interesting and potentially more material to the potential landscape," he said. But it would also, possibly, threaten Marriott's relationship with its hotel owners.

"But then that invites potential cannibalism to potential hotel franchisees," he added. "But it is mitigated, at least by the increased traffic and strength of the loyalty membership program that might trickle down. If you have more content for loyalty members direct, that would lift demand and trickle down to traditional hotel franchisees."

Whatever ultimately is revealed later this year, the new agreement between Marriott and Expedia does seem to be an improvement, thus far, for Marriott and its owners, even as they contend with the massive global scale and reach of online travel agencies like Expedia and Booking.

"I think the complete aggregation, globally, that Expedia and Booking have as OTAs [online travel agencies] is extremely tough to replicate," Wasiolek said. "It takes a lot of time and costs. I don't think Marriott direct will be any kind of platform that gets anywhere near the network advantage they have, but this [new agreement] certainly strengthens it and helps them grow these verticals on their platform globally."

Skift Editor's Note: Read our analysis of who's actually winning the direct booking wars between hotels and online travel agencies here.

This article was also updated to reflect that CNBC has updated its original article regarding the reported new negotiated commission rate between Marriott and Expedia.