Expedia’s pay-for-positioning program riles hotel trade group

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Expedia is broadening a program that gives a more prominent listing position to hotel operators in exchange for paying a higher commission on bookings.

The program is an attempt by Expedia, the most popular OTA among U.S. travelers, to further capitalize on its sway in the travel industry. The hotel industry’s trade group is decrying the program for what it says is a lack of transparency to consumers.

The company, which began beta-testing the program, known as Accelerator, late last year, confirmed that it was rolling out the initiative globally. While the program is similar in concept to the Preferred Program that Priceline Group’s Booking.com instituted a few years ago, Accelerator lets hotel companies bid to improve their listing placement. Participating hotels pay as much as double the 15% commission rate Expedia typically charges (Booking.com’s Preferred Program charges a flat commission of an additional 3%).

Accelerator is designed to enable hotels to pay extra for what they hope will be a bump in reservations during a particular period of time. Expedia said hotel companies typically employ Accelerator during a period of about two weeks to get better placement in responses to consumer queries.

The program represents a wrinkle in what had been a meritocracy of sorts when it came to the OTAs’ hotel-listing order.

Prior to Accelerator, Expedia listed its responses to hotel queries according to a combination of factors, such as how competitive the OTAs’ listing rate was with other channels’ rates, how well the hotel was reviewed by guests, room availability and the caliber of information the hotel offered in its listing, according to Adam Anderson, Expedia’s managing director of industry relations.

“If hotels are really interested in driving visibility, they have to make sure they get their house in order first,” Anderson said. “A hotelier can’t buy their way to the top if their offer strength and quality score is not up to snuff.”

Still, the American Hotel & Lodging Association (AH&LA) is criticizing Accelerator because it increases distribution costs for hotel companies and because the group says it lacks transparency when it comes to the order of hotel listings.

“It’s driving up the cost of hotel advertising, writ large,” said Maryam Cope, the AH&LA’s vice president of government affairs. “And it’s not fair to the consumer.”

Regardless, the program signals that OTAs are dealing from an increasing position of strength when it comes to influence over bookings of hotel rooms.

While annual U.S. bookings via hotels’ own websites are predicted to jump 39% between 2013 and 2017, to $30.2 billion, annual bookings through OTAs will grow at an even faster clip. In a January report, Phocuswright forecasted the OTAs’ hotel bookings will have surged 52% between 2013 and 2017, to $31.3 billion.

With Expedia’s acquisition of both Orbitz Worldwide and Travelocity last year, the company is expected to account for about 70% of all U.S. travel bookings through OTAs this year.

The AH&LA’s concerns notwithstanding, analysts say that it’s a smart move by Expedia to use its influence to spur revenue via the bidding program and, furthermore, that hotels might be wise to use it.

“As opposed to the hotel industry’s common ‘pay and pray’ approach to marketing campaign management, commissions are only paid off converted business,” said Robert Cole, Phocuswright’s senior research analyst for lodging and leisure travel. “If the program doesn’t work, only time has been wasted. If it does work, the cost is already fully covered by the incremental revenue.”

Lloyd Walmsley, a Deutsche Bank financial analyst who covers the OTAs, said, “A lot of hotels on Booking.com are participating in this already, and it is very effective at driving volume. So I would imagine that despite cries of despair from hotel companies, many will jump in.”

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