Stoking analysts' concerns about the future of online travel agencies (OTAs), Hilton Worldwide said last week it had decided not to renew its multiyear agreement with Orbitz Worldwide, which expired last week.
The expiration of the contract means that Hilton will no longer be a preferred supplier on Orbitz and that Hilton hotels will be less prominently displayed on Orbitz websites.
Hilton confirmed that it did not renew its Orbitz contract, saying it was acting "in the best interests of our guests and our more than 3,800 hotels around the world."
The company said that in addition to Hilton-family websites, it would "continue to have other booking options available through valued third-party channels."
Orbitz said an internal analysis indicated that the financial impact from its changed relationship with Hilton would be "between zero and less than 1%, as customers have many hotel alternatives."
Orbitz said the change would have no impact on Orbitz for Business, as corporate accounts will continue to have access to their private rates for Hilton hotels.
However, Orbitz's distribution partner sites will no longer have Hilton merchant hotel rates, but will retain Hilton inventory and retail rates.
Orbitz would not say which of its private-label partners received special Hilton rates.
Ross Cohen, an analyst with New York-based Lazard Capital Markets, said that even if there is no direct hit on Orbitz's earnings, agreeing that "OTA hotel shoppers tend to be brand-indifferent," the move still posed a threat to Orbitz and other OTAs.
"The loss of a key hotel chain over economics will fan fears," Cohen wrote in a note to investors. "The market is already concerned that hotels will push for lower markups given strong occupancy, more aggressive direct-booking efforts and emergence of agency model alternatives. [Orbitz] has other chain and airline deals expiring this year. Contract renegotiations could put a spotlight on OTA unit economics, and that could be a headwind for [Orbitz] and peers."
Hilton made the decision not to renew its contract with Orbitz less than two months after it helped launch Roomkey.com, a booking website and search engine designed to generate more online reservations through the hotels' own websites and fewer through OTAs, which represent a costlier distribution channel.
The other hotel companies participating in Roomkey.com are Marriott International, Hyatt Hotels Corp., Choice Hotels International, Wyndham Hotel Group and InterContinental Hotels Group.
Hotel companies have often had an uneasy relationship with OTAs because of what they view as prohibitively high wholesale discounts demanded by the OTAs.
The issue of OTAs and how much they cost hoteliers in the form of rooms sold at wholesale rates gained further publicity in late January when a report from Smith Travel Research and the American Hotel & Lodging Association outlined hotel room distribution costs.
More specifically, the study, which was published by Hospitality Sales & Marketing Association International, stated that in 2010, discounted rooms sold to OTAs cost U.S. hotels about $2.7 billion, up from about $2.4 billion in 2009 and more than double the $1.3 billion in commissions paid to traditional agents through GDSs.
Hilton and Orbitz are both owned in part by private-equity firm Blackstone Group. Blackstone acquired Travelport from Cendant Corp. in 2006 for $4.3 billion. Travelport, in turn, owns about 55% of Orbitz.
A year later, Blackstone took Hilton private in a $26 billion buyout. On Twitter, follow Johanna Jainchill @jjainchilltw or Danny King @dktravelweekly.