The Change Mariner

Hotels Attempt to Plug $1 Billion Leak

Canada.com:

After haphazardly building an Internet sales pipeline, the lodging industry sprang a $1-billion US leak - and major hotel chains are now aggressively working to plug the hole.

...The hotel chains' current revenue leakage, as the industry refers to it, stems from the fragmented way in which they began doing business with third-party sites in the late 1990s.

With Marriott, Hilton Hotels Corp., Hyatt Corp. and other chains slow to establish their brands on the Internet, hotel franchisees eager to tap this new marketing channel had little choice but to rely on fast-growing travel websites. So the sites signed lucrative deals with thousands of hotel operators desperate to fill rooms during the U.S.-wide travel slump. And because the owners had little expectation of getting customers otherwise, they made their inventory available at extremely steep discounts, allowing the third parties to charge whatever they wanted.

Online shoppers snapped up bargains, property owners got some extra business and travel websites routinely pocketed 25 per cent to 40 per cent of the money collected from each sale. It was much more than the 10 per cent commission traditional travel agents received, but amid weak travel demand and the relative lack of customer traffic at the hotel chains' own websites, it seemed reasonable at the time.

"They definitely didn't have things under control a couple of years ago," said Jake Fuller, a hotel analyst at Thomas Weisel Partners in New York.

That is beginning to change, although Fuller said that in 2003, the hotel industry would have earned an extra $960 million had sales through third party websites been processed at traditional travel agency rates, and even more if customers had booked at hotel-owned websites. Smith Travel Research, which tracks hotel prices and occupancy rates, put the figure at slightly above $1 billion, or about one-sixth of the total value of hotel rooms purchased online last year.

Posted by Jennifer King at March 16, 2004 06:52 PM | TrackBack
Related Categories: Industry - Internet | Industry - Travel | Quadrant - Technological | Theme - 'Digital Impact'

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