Marriott-Expedia commission battle could trigger industry overhaul

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The hotel distribution space could be in for a massive shake-up as talks over fees between Expedia and Marriott are said to be in their final stages. 

Last week, a financial analyst said the pair were negotiating a new commission rate, which could ripple through the entire industry as other large hotel chains look to flex their muscles.

Hotel industry analysts say it's a good time for Marriott, and possibly others, to be negotiating, given the strong business environment of recent years.

Phocuswright analyst and hospitality specialist Robert Cole says the hotel industry in the United States has seen nine consecutive years of increases in revenue per available room, which is driving Marriott to "lock in lower OTA compensation terms" before any downturn in economic fortunes.

In addition, Marriott has a significant size advantage after its acquisition of Starwood Hotels & Resorts in 2016.

He points to other dynamics at play, including the desire from large hotel groups to attract independent hotel owners as franchisees who might be lured by lower OTA fees.

It's not all one-sided, however, as Expedia has its own leverage and will be seeking concessions from Marriott.

Strengths on both sides

The "frenemy" relationship between hotels and their OTA partners is ongoing, but hotels acknowledge the distribution reach and, says Cole, the "low-risk business model" they get from the likes of Expedia, Booking.com and TripAdvisor.

He adds that the member-only pricing discounts and direct campaigns launched by many hotel companies about three years ago have failed to significantly shift the needle in terms of direct bookings.

Phocuswright's 2018 U.S. Online Travel Overview reveals online hotel supplier-direct bookings increased 11%, but that OTA-sourced online business increased 10%. 

Cole says: "Hotel bookings are still migrating from offline to online channels, so a portion of the hotel online growth was a merely a channel shift from offline hotel-direct channels to online hotel-direct channels."

Add to that the Phocuswright forecast, which says hotel bookings via OTAs will continue to grow, amounting to a 25% share by 2022, compared to hotel-direct bookings which are likely to decline, which adds a further possible bargaining chip for OTAs.

Placement and competitive landscape

Additional factors to be taken into consideration include how the search rankings of Marriott properties on Expedia might be affected if lower fees kick in. OTAs have sophisticated algorithms in place to determine search ranking and therefore can control what is displayed.

The consensus is that a change in economics is in the cards, with pressure on all sides, but that an agreement will be reached.

Cole says: "I don't expect any radical changes to the core nature of the agreement, or an impasse where the two blow up the deal. Each party wants to get a deal done, and somewhere, there will be terms that neither is wholly pleased with, but can live with."

He, and others, believe other hotel groups will be watching closely and following suit in trying to negotiate a reduction in fees.

Max Starkov, president and CEO of HEBS Digital, says the Marriott-Expedia negotiations "are ushering the major hotel chains-OTA relationship into a brave new world."

He points to Marriott's size, the positive business cycle and Expedia's reliance on the North American market and large hotel chains as bargaining chips in the ongoing discussions.

Regarding the strength of Expedia and the other large OTAs, they have become ubiquitous travel marketplaces, fully integrated into the hospitality industry fabric, similar to Amazon in retail.

Starkov believes that Marriott might have to concede last room availability, which he says is often closed to OTAs when chains think they can sell their rooms direct.

He describes 10% as the "sacred" commission level, but Marriott will have to make concessions to get there, possibly offering Expedia full-content access and hotel loyalty points for bookers.

"Expedia will have full access to inventory, last room availability, loyalty points. In the future, they will open their platforms to the major hotel chains to open their branded stores: Marriott Store on Expedia, Hilton Store on Booking.com, etc.," Starkov said.

In a statement, Expedia says the sides have agreed to "general terms" while an extension has been signed to "finalize the legal details of the contract."

Marriott has not responded to requests for comment.
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Source: Phocuswire

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