• Choice row with Expedia

It's too early to tell just what effect the breakdown in negotiations between Choice Hotels and on-line booking agent Expedia will have on the hotel group's business.

But as world economies are only just beginning to show the first hints of green shoots, it's probably not the best timing – even if, as Choice states, booking through Expedia only represents 3% of the groups' overall business.

Expedia, which claims to host a directory of more than four million hotel rooms worldwide and is also the owner of hotels.com, released a statement last week saying it had withdrawn all Choice Hotels' properties from its websites because of an "inability to reach an agreement on the terms of the new contract with Choice, despite numerous extensions granted by Expedia in the hope of securing a mutually acceptable deal."

Choice CEO Steve Joyce however has accused Expedia of trying to take advantage of the delicate economic situation the hotel industry still finds itself in to insist on unreasonable terms.

In an interview with Hotels magazine, Joyce said Expedia was in effect asking for 100% access to its inventory all of the time: "They were asking for outrageous things. They demanded last room availability, meaning regardless of strength of market, if we don't expose the last room to them at that discounted price, we are not in good standing….They would no longer be our supplier – they would become our revenue manager."

For its part Expedia said many of the issues under discussion were principles that both parties had been operating under during the ‘prolonged extension period' and were commonplace throughout the hotel industry.

This current stand-off is not new to the industry. As far back as 2004 InterContinental Hotels said it was severing its relationship with Expedia and sister sites such as Hotels.com. This long-running dispute centred around third party websites, such as Expedia, buying up room allocations at knock-down prices after the world travel market collapsed in the wake of the terror attacks in 2001. The online travel agents used their superior distribution and marketing muscle to sell on the rooms at mark-ups of as much as 30% or even 40%.

A statement from IHG at the time said intermediaries were not to "engage in confusing and potentially unclear marketing practices" and had to "respect IHG's trademarks". This final part in particular referred to IHG annoyance with third-parties which bought up website names and keywords that were similar to those of hotel brands and diverted traffic to the third party's own website.

The IHG/Expedia dispute was finally resolved in 2007 when the two signed a multi-year agreement which saw IHG pay both per booking and for clicks on its hotels made by visitors to Expedia's sites.

Choice's Joyce told Hotels magazine his group was ready to come back to the negotiating table as soon as Expedia was prepared to give some ground.

However, there are those in the industry who believe Choice could be cutting off its corporate nose to spite its face.

Writing on Hospitality Net, hotels consultant Neil Salerno calls Choice's decision naive. He says there seems to be a belief that online travel agents are in direct competition with hotels for the same business. "This belief fosters the notion that the big bad OTAs are stealing business which would normally book your hotel directly through your franchise website or your own website. Fat chance."

Salerno's advice for hotel operators is clear: "Stop worrying about how much Expedia earns, look at your individual situation. Attempting to demonize Expedia because someone resents the size of their commissions, or their rules of partnership, is plain wrong."

HA Perspective: This is a show down that Choice cannot afford to lose. As a pure-play franchiser, if it allows Expedia to dominate the relationship with its franchisees it risks being pushed around at Expedia's whim.

Expedia is currently writing directly to the franchisees and is in effect seeking to secure a direct relationship with them. If Expedia succeeds in attracting a significant number of Choice's franchisees, it will only be a matter of time before these franchisees start questioning the value of their franchise fees.

During the last hotels downturn following the 9-11 attacks, some senior figures in the industry warned that Expedia could become the hotel brand of the future. This is the first major face-off between Expedia and a significant hotel brand since that time.

Expedia spends far more on marketing than hotel companies and has far bigger reach to consumers. And it is picking a fight during a period when the hotel industry is again at its most vulnerable.

Hotel brands need to see off this threat or risk being commoditised. Losing this battle will see hotel brand owners left as price takers rather than price setters.

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