REPORT FROM THE U.S.—Buzz is growing over Expedia’s new payment model and its potential impact on the hotel industry. While many questions remain unanswered, the Expedia Traveler Preference program could place the relationship between hotels and online travel agencies under an even more intense microscope.
Expedia Traveler Preference is a “preliminary program” Expedia has begun promoting to the industry through its market managers. According to Senior VP of Global Strategic Accounts Melissa Maher, the new technology essentially will allow travelers to choose whether to pay Expedia at the time of booking on the site (and Expedia will pay the hotel) or travelers can pay upon checkout (and the hotel would pay Expedia post stay).
During Expedia’s second-quarter earnings call on 26 July, President and CEO Dara Khosrowshahi said, “If and when rolled out on a broad basis, (the program) would be likely to drive back the growth in our agency hotel business, which could result in blended hotel margins as well as our merchant hotel flow trending down over time.”
“As we introduce further innovation into the global hotel business, you would expect the current bright line between agency model and the merchant model to blur over time,” he said. Khosrowshahi said the program is expected to be fully implemented by the end of the year.
The model is similar to what competitor Priceline Group offers via Booking.com: Travelers reserve a room on Booking.com with a no-fee cancellation policy and then pay the hotel upon arrival. Expedia’s first foray into an agency model was with the purchase of Venere.com in 2008, which has allowed the company to test its success overseas.
Maher said hotels that already have signed up to participate in the program include chains Hilton Worldwide, Marriott International, Melia Hotels International, Iberostar Hotels & Resorts, La Quinta Inns & Suites, as well as “many independent hotels.”
Flo Lugli, executive VP of marketing at Wyndham Worldwide, said in an email Wyndham “welcomes discussions around new opportunities and models that can drive additional value to our franchisees/owners, and we look forward to understanding from Expedia how they view this program can do just that.”
A Marriott spokeswoman declined comment while Hilton, Melia and La Quinta did not return requests for comment by press time.
“The reaction from our hotel partners has been very positive,” Maher said. “We have several of the leading brands already signed up to participate because they believe that this helps meet a consumer demand and therefore will capture incremental customers for their properties.”
Hoteliers weigh in
But some hoteliers remain skeptical, particularly surrounding the model’s commission structure and cancellation fees.
Commissions paid to Expedia by a hotel will be the same whether the traveler pays at time of booking or when he or she arrives at the hotel, Maher said.
“The main issue with the ETP program is Expedia applying a merchant commission to an agency model,” said Max Starkov, president and CEO at Hospitality eBusiness Strategies. “The merchant commission is by default a wholesale commission, and collecting payments from the customer is part of the deal.”
Jennifer Rota, GM at the Distrikt Hotel in New York City, said if travelers choose to pay at the property, hotels will report to data trackers and franchisors a gross rate instead of a net rate (after commission). She predicted reported average daily rate at hotels could go up 20% overnight.
While Expedia sees this as a positive—Maher said, “ETP essentially allows hotels to improve their reported ADR and (revenue per available room)”—Rota points out franchisees will in turn be paying higher franchise and management fees because those fees are revenue-based, and revenues are likely to be higher if a gross rate is paid by the consumer.
Jan Freitag, senior VP of global development for STR, said the impact on hotels’ reported metrics will be case by case as some hotels—particularly resorts and independent hotels—rely more on third-party demand than others. The impact on STR and the industry average “will be negligible,” he said, pointing to the fact that OTAs drive only 8% to 9% of overall demand. STR is the parent company of HotelNewsNow.com.
Also, Maher said Expedia will adopt the partner hotel’s cancellation policy.
“If there’s no additional discount given to the guest to use the prepay model, would you?” Rota said. “The amount of cancellations is going to go up.
“To me it weakens Expedia on the hotel side,” she continued. “Before you would say, ‘I’m taking a hit on my ADR but it’s a guaranteed reservation because so few people cancel on Expedia.’ Now, the flipside is they can cancel every time. It will increase the amount of people who don’t even bother to cancel because they’ve given you a credit card you can’t charge.”
Rota said she is considering suggesting a 48-hour cancellation policy in general at her hotel so she has a two-day lead time to better prepare for additional cancellations.
Expedia Traveler Preference also could create additional on-property headaches, Rota said. Collecting payment on property requires extra effort, resources and many times comes along with extra fees. Also, front-desk clerks will inevitably deal with more guests who arrive and are confused about when they paid or claim they’ve already paid when in fact they haven’t, she said.
Maher said ETP will drive additional demand to hotels because it enables hotels to reach a wider audience of travelers, namely a broader scope of international travelers who are most familiar with the post-pay method.
“People try to avoid pre-paying, especially if it’s under rate parity,” said Robert Cole, consultant and founder of hotel marketing firm RockCheetah. “Free cancellation fees—the U.S. market will love it.”
“There are certain consumers who like to buy merchant, they like to pay upfront, they want to pay in their local currency, they don't want to leave their credit card with a small hotel at the front desk, etc. And there are some consumers who do like to pay at the hotel,” Khosrowshahi said during Expedia’s earnings call. “We think that giving consumers the flexibility to choose is a good thing.”
However, that additional demand will come with a price, Cole said, as it might take demand away from brand.com and on-property bookings. Until now, many travelers have avoided third-party sites and booked directly with brand.com because they were leery about paying upfront, he said.