By Chris Kirkham
Major hotel chains are engaging in an online turf war with the
very travel sites that have helped drive their businesses.
Marriott International Inc., Hilton Worldwide Holdings Inc. and
InterContinental Hotels Group are using extensive marketing
campaigns to claw back business from Expedia Inc., Priceline Group
Inc. and other travel-booking sites, which steer customers to hotel
properties but also take commissions of up to 30% for each
reservation. The chains are starting to treat these sites less as
valuable business partners and more as gatekeepers standing between
them and their customers.
Many large hotel brands are offering lower nightly rates and
other perks to loyalty members who book directly through their
sites instead of online travel agencies.
The industry effort faces an uphill climb, however, as travel
portals have become ubiquitous tools for planning a trip. Online
travel agencies were responsible for $99 billion worth of
world-wide hotel bookings last year, according to travel
industry-research group Phocuswright.
A survey conducted by travel-data firm Adara Inc. showed that
52% of U.S. travelers between the ages of 18 and 34 prefer booking
hotels through online search engines as opposed to brand websites,
compared with 37% age 35 and older. Younger travelers are also less
likely to participate in hotel-rewards programs, the survey found,
raising questions about how much brand loyalty matters to
price-sensitive customers. Many prefer third-party sites because
they show an array of options and allow customers to package
airfare or car rentals.
"I always want to find the good deal, and see what all my
options are first," said Nicole Leffew, 28 years old, a bartender
and fashion blogger from Ohio. She said she rarely consults the
hotels' websites because she feels "they don't have that much."
The new battle is the latest episode in a two-decade
"frenemy"-style relationship between online travel agencies and the
hotel industry. Sites such as Expedia and Priceline were crucial
for hotels during down periods such as after 9/11, but they have
gradually eaten into the share of overall bookings ever since.
For major airlines, the battle with booking portals isn't as
pronounced since there are far fewer airlines than hotel chains.
But hotels are facing a conundrum that frustrates many industries
in the internet age, from Hollywood to the music industry: Online
middlemen deliver a vital stream of customers, but end up taking a
cut of profit. The 10% to 30% commissions that online travel
agencies charge for each night represent an expensive customer
pipeline for hotel owners who already pay fees to major brands such
as Hilton and Marriott.
Commissions associated with online travel agencies cost the U.S.
hotel industry an estimated $4.5 billion for the 12 months ending
last June, according to research from hotel industry consultant
Kalibri Labs.
"It's always been a thorn in our side," said Mark Ricketts,
president and chief operating officer of McNeill Hotel Co., which
owns and operates more than a dozen Hilton- and Marriott-affiliated
hotels in seven states.
Chris Silcock, Hilton's executive vice president and chief
commercial officer, said a goal has been "educating customers" and
changing their behavior. "There had been this perception that to
get the best price, you book through a different channel than going
direct," he said. "That's never actually been the case."
Hotel bookings are the biggest source of growth for online
travel agencies. Last year, the value of hotel bookings through
third-party travel agencies in the U.S. grew to $31.4 billion,
surpassing direct hotel online bookings for the first time since
the data was tracked beginning in 1998, according to Phocuswright.
The sites spend heavily on marketing: The more than $8.5 billion
spent globally on sales and marketing by Expedia and Priceline
Group alone last year is likely on par with the entire world-wide
hotel industry, the group estimated.
Hotels have responded with advertising campaigns such as "Stop
Clicking Around," Hilton's largest-ever marketing effort, and
Choice Hotels International Inc.'s "Badda Book. Badda Boom"
effort.
Brands have been tweaking their loyalty programs to extend
immediate benefits to casual travelers, not just frequent business
travelers.
Hilton earlier this year began allowing its points to be used
toward Amazon.com Inc. purchases, and Choice Hotels, which operates
the Comfort Inn and Quality Inn chains, allows customers to redeem
points for Starbucks gift cards and gas discounts. Brands are also
offering certain services, such as free Wi-Fi or the ability to
choose a room, only to customers who book direct.
Brian King, global sales officer at Marriott International, said
the goal is to convert casual customers into loyal guests who "stay
the most, and they pay the most."
Online travel agency executives said their platforms draw
customers who might not otherwise think to book with a particular
chain.
"Free is best. Everyone would like people to come direct to
their business," said Glenn Fogel, chief executive of Priceline
Group. "That's not the way the world works, though."
Expedia CEO Dara Khosrowshahi added: "We just want to get you to
the right hotel, whereas the chain wants to get you to their
hotel."
Kerry Ranson, chief development officer of HP Hotels, which
manages more than 40 hotels for Hilton and others, said the biggest
unknown is whether new loyalty members actually return. "Do those
become truly active members, or are they one and done? They did it
just to get the cheap rate," he said. "That's what's still left to
be played out."
Write to Chris Kirkham at chris.kirkham@wsj.com
(END) Dow Jones Newswires
May 28, 2017 08:46 ET (12:46 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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