• Choice and Expedia sit-down to talks

Choice Hotels and on-line travel agent Expedia are back around the negotiating table. Both sides seem to accept they have more to lose by going hostile than if they reach an amicable settlement.

Talks had finally broken down last month as Choice accused Expedia of trying to take advantage of the delicate economic situation. Expedia removed Choice hotels from its site claiming it had granted numerous extensions to negotiations in "the hope of securing a mutually acceptable deal".

However, speaking at his US group's third quarter results announcement, Choice CEO Steve Joyce told analysts the two companies were in fact back in discussions.

In response to analysts' questions regarding the current situation with OTAs, Joyce made a measured response without repeating any of the inflammatory statements attributed to him in recent months.

"OTAs are an expensive channel, but they play a role. They're not a big part of our business. Expedia is the largest OTA we use and it's 3% of our business. However, for a number of our hotels that are in resort or destination markets they can be a much higher percentage than that. And so they are an important channel.

He continued: "We want to do business with them, but we believe they are expensive channel. We prefer to be able to yield and manage the channels that we utilise and that in part lies at the heart of the discussion. However I can tell you we're in negotiations with Expedia today and we hope to be able to utilise their channel because particularly in today's environment, anywhere were you can get revenue is a good place to go."

In the past few weeks Joyce has accused Expedia of wanting 100% access to its inventory all of the time and last room availability, regardless of market strength, which Joyce claimed would turn the OTA into Choice's "revenue manager" rather than its supplier.

Expedia hit back claiming that Choice had already operated under these terms during the prolonged extended negotiation period and the conditions were in any case commonplace throughout the industry. And at the beginning of this month Expedia claimed removing Choice Hotels from its inventory was having a "minimal to none" financial impact. It has also showed no signs of making concessions to Choice – instead offering to negotiate directly with Choice franchisees.

Aside from the ongoing Expedia saga, Choice Hotels was up-beat when reporting its third quarter results last week. Joyce told analysts that despite the most challenging lodging environment for 60 years Choice Hotels was in fact faring better than some of its competitors based on its "strong well-known brands, ability to deliver guests to franchisees hotels and an unrelenting focus on hotel owners' return on investment".

During the quarter the company also saw the opening of its 6000th hotel and by the end of the quarter there were 6006 hotels in the Choice portfolio representing 485,000 rooms in US and 35 other countries and territories worldwide.

The group turned in EBITDA of $51.7m for the three months ending September 30 compared to $64.4m for the same period in 2008, while domestic, system-wide revpar declined by -15.9% compared to 2008. Joyce pointed out that this outperformed industry-wide revpar by 190 basis points mainly on account of its hotels operating in the mid-tier and economy segments.

Joyce said the group was continuing to build on its key strategies of expanding its distribution while at the same time protecting the equity of its brand.

And in what appears to be protection against another breakdown in negotiations with Expedia, Choice is continuing to improve its central reservation system and expand the Choice Privileges Programme.

Joyce stressed that making guests aware of the central reservation system was key, as was the loyalty programme which attracted 1.75m new members in 2009 – boosting overall membership to an expected 9m by the end of the year. To the end of August this year members of the scheme accounted for 24% of domestic gross room revenues – 200 basis points higher than last year.

The group also continued to attract more corporate travellers, said Joyce, adding that last year it picked up by roughly a third and this trend had continued in 2009.

When it came to development, the number of domestic hotels under construction, awaiting conversion or approved for development declined 22% from September 30 last year to 744 hotels representing 59,121 rooms. The worldwide pipeline declined 20% over the same period to 860 hotels representing 68,541 rooms.

Joyce reiterated what many other hoteliers have said over the past few weeks – that a lack of finance in the market is holding up conversions and construction. He said credit was expected to "loosen up" next year and when that happened the number of conversion opportunities would increase.

"We think the next 18 to 24 months will be all about conversions and there's no company better positioned to take advantage of conversions than we are," he said.

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