Will Expedia’s Wotif buyout burden hoteliers?
13 OCTOBER 2014 6:01 AM
A super-sized Expedia in the Australian market could drive commission and room rates higher, reduce competition for bookings and muscle smaller operators out of the market.
REPORT FROM AUSTRALIA—Competition watchdog the Australian Competition and Consumer Commission has approved the $703-million-Australian-dollar ($613-million) takeover—in which home-grown travel booking website Wotif.com will become a sub-brand of Expedia—expected to be finalized by December.
The Australian Hotels Association fears the move is one toward a mega online-travel-agency “oligopsony”—dominated by a small amount of sellers—with the burden to be offloaded to hoteliers and consumers.
Many members, according to AHA (Western Australia) CEO Bradley Woods, are concerned about the repercussions of the sale on their businesses. A super-sized Expedia in the Australian market could drive commission rates and room rates higher, reduce competition for bookings and muscle smaller operators out of the market.
Woods said the hotel lobby also is apprehensive about the ability of small and medium accommodation providers to negotiate fair terms and reasonable commission rates up against the OTA giants.
“Hotels and motels often have less capacity to offer rates different to those of the powerful online players,” he said.
Under “rate parity” clauses, Woods noted, hoteliers cannot offer lower room prices on their websites than those offered by major booking sites.
These travel booking giants could demand much higher commissions than Wotif—about 18% to 25% instead of the current 11% to 12%, Woods said.
Expedia has declined to say whether it will raise commissions in the region. “The ACCC decision is an important step in the acquisition process,” a representative said. “Its completion remains subject to approval by the shareholders of Wotif.com Holdings Limited, the New Zealand Commerce Commission and other customary closing conditions.”
ACCC Chairman Rod Sims brushed off concerns of diminished competition in the marketplace while acknowledging commission levels could be at stake.
“Commission rates charged by Expedia and Booking.com in Australia are lower than the rates charged by those companies in other parts of the world. The presence of Wotif may be a contributing factor to this difference,” he said in a news release.
Brisbane-based Wotif is the dominant OTA player in Australia with about 36% of the online accommodation booking market, according to InvestSmart Financial Services.
Woods predicts the acquisition will lift Expedia’s market share from 10% to 45%.
“Another major player, Priceline, has approximately 40%,” he said. “So the two companies may net up to 85% of the Australian market.”
The takeover is unlikely to affect the dynamic nature of the industry, according to ACCC’s Sims, because “disruptive developments” from smaller OTAs and metasearch providers such as TripAdvisor and Google Hotels Finder would constrain Expedia in coming years.
“Metasearch websites increasingly facilitate hotels’ ability to promote themselves alongside online travel agents and transact directly with consumers,” Sims said.
But Woods believes metasearch sites, which allow consumers to compare hundreds of hotel deals, do not bolster competition.
“They just compare offers,” he said. “Furthermore, they may wind up in a monopoly market situation offering deals from five online travel agencies all owned by the same company. With two major OTAs dominating the market, the metasearch sites may be comparing various brands from the same company, without the consumer realizing it.”
The hotel lobby had argued this case to the ACCC, Woods said. Industry bodies claim the takeover flouts Australian competition and consumer laws, and plan to pursue the matter further with the federal government. They believe smaller hotels and rural operators will be hit hardest by the market domination, as they rely more wholly on OTAs such as Expedia.
Such consolidation by global OTA heavyweights follows the global pattern, according to PhoCusWright research. The Expedia-Wotif takeover paves the way for Expedia to gain a similar lion’s share of the Australian market as it has in the United States, with an estimated 40% of the country’s OTA bookings.
Many large hotel chains from Pan Pacific Hotels to the Australia-based Mantra Group are refusing to comment.
“The topic is sensitive as we still work very closely with OTAs,” said a representative for Accor Pacific in Sydney, adding that the group’s executives are subjected to a media blackout.
Hoteliers prepared to speak to Hotel News Now voiced a general readiness to face the revolution of market forces.
“We’re not concerned; it’s just another change in the market,” said Clive Scott, GM of Sofitel Melbourne on Collins. “In the last 10 years, the changes in Internet sales and players in the market haven’t stopped. It’s an ever-changing model that the hotel industry adapts to and works with. Don’t forget Australian hotels have lived through airline collapses, (Severe Acute Respiratory Syndrome), bird flu, the growth of the Internet as a selling tool. In the end, the OTAs are in the same business as we are, and we need to work together.”
Scott said there is no indication that the acquisition will lead to higher commissions, and any move in that direction would backfire.
“Expedia wanted Wotif’s business model. If they just hike up commissions, the cost will be passed on to the consumer, and the business model will fail,” he said.
Russell Durnell, GM of the newly opened Next Hotel Brisbane also believes Expedia will maintain Wotif’s ways, at least in the short term.
“In the long term who knows what they will do to enhance the business model, but no doubt they are using the acquisition to capture greater market share,” Durnell said.
Durnell is happy to submit to new market dynamics. “OTAs are integral partners in our global distribution plans, and most OTAs have sub-brands to meet the demands of the market. We have already seen shifts in market share landscape between the OTAs depending on their brand positioning, marketing and pricing.
“Three years ago, Booking.com did not have a large presence in Australia and was considered the premier site for European travel. With what they have achieved in the market, it keeps competition healthy and delivers choice to both providers and consumers alike.”
Paul McMurray, director of sales and marketing at the Shangri-La Hotel Sydney, expressed a similar upbeat attitude to the marketplace mutations, despite some minor concern of less competition.
“We will learn to adapt. Ten years ago many hoteliers were cautious about the introduction of the OTA model; they have adapted to that change, and it is now the norm,” he said.
“Perhaps this will even open to the doors to further competition to enter the market with something new, and incite hoteliers to introduce something innovation in the way we work,” McMurray added.
Apprehensive of the merger, and an “all eggs in one basket scenario,” Claire Huang, GM of Traders Hotel Brisbane, believes Expedia must now prove its worth in the Australian market, “with wider reach, bigger coverage, different products—inbound and outbound.”
For global hotel brands at least, the upheavals are clearly not the make-or-break business issue.
“It is inevitable big players in the market will take over the small,” Scott said. “In no way do I think this means we are dictated to. Expedia is not the only player to start up in the market recently. There is still consumer choice and other avenues in which we can sell our rooms.”
“For sure we are facing many new challenges in this growing age of technology and mega global OTA consortiums,” said Steve Finlayson, GM of Radisson on Flagstaff Gardens Melbourne, “but the basics of great service, value and hospitality help us stay ahead of the game.”
“At Next Hotels we ensure we offer parity across all channels, and Wotif and Expedia have been provided with the same rates,” Durnell said. “I have always worked with OTAs as industry partners—and never been dictated to by them. So for us it is business as usual.”