Hotel Chains: Sleeping Well Online
By Christopher Palmeri
Want to know what New Jersey town claims to be the birthplace of baseball, or read the history of the big Blue Whale of Catoosa, Okla., or find out where singer Sam Cooke was killed? Information about these and other pop-culture landmarks is available at -- of all places -- hamptoninn.com, the Web site for the Hampton Inn hotel chain, owned by Hilton Hotels (HLT ). The idea is that you'll plan a trip to some offbeat location and a couple of mouse clicks later book a room at the nearest Hampton Inn. (In the case of Sam Cooke's death site, the Hampton sounds like a good choice. He was shot by a clerk at an independent motel.)
The pop-culture connection is just one piece of a larger effort on the part of hotels to keep customers from booking rooms through independent travel Web sites such as Expedia.com and Travelocity.com. In the past year, hotel chains have fought back by forcing franchisees to post the same rates on hotel-owned Web sites as they do on independent sites. The chains have offered travel packages that include airline and rental-car bookings on their sites. And they're making last-minute deals on rooms -- only on their sites.
They have good reason. The total dollar volume of hotel rooms booked online is expected to double, to $24 billion, by 2006. At that point online sales will account for 27% off all industry revenue, according to trend forecasters PhoCusWright. That would be a lot of business for the hotel chains to lose. Independent travel sites keep about 22% of the retail price of a hotel room, vs. just 10% for traditional travel agents. Hotels, however, don't have to pay any commissions if the customer books with them directly.
EASY TO DEAL WITH.
The hotel chains have some inherent advantages over the independent sites. Members of a chain's frequent-guest program earn points toward free rooms if they book through the hotel Web site but not through the independent sites. Business travelers who use independent sites usually get two bills that they have to figure out how to expense, one from the Web site for the room, another from the hotel for incidentals such as parking and room service. Plus, it's often easier to make last-minute changes or cancellations when dealing directly with the hotel chain.
The hotel chains' new aggressiveness seems to be paying off. Hilton claims that reservations from its own sites increased 30% in the first quarter, while reservations through third-party sites were up only 10% (see BW, 6/28/04, "The Light Is On At Hilton"). And the July issue of Consumer Reports found that in three out of four cases, hotels gave a better deal than the independent Web sites, and in those instances, the price difference was much greater.
No one thinks the independent sites are going out of business. With consumers continuing to shift from travel agents and 800 numbers to online reservations, Web travel bookings will only increase. In this year's first quarter, revenues at the travel sites of industry leader InterActive Corp. (IACI ), which owns Expedia.com and Hotels.com, increased 41%, to $491 million. Travel-related operating profits were up 21%, to $85 million.
Now, though, with Americans hitting the road a lot more and empty hotel rooms being filled, chains may gain the upper hand. Chairman Tom LaTour of boutique hotel-chain Kimpton Group has this to say about online travel stocks: "I'd short them."
Palmeri is a correspondent in BusinessWeek's Los Angeles bureau