Hotels wary about deals between agents and OTAs
The partnership giving American Express agents access to Orbitz hotel inventory may represent a breakthrough deal for online and offline retailers, but one group in the equation is keeping a wary eye on the arrangement. Read More
SAN DIEGO — Since the beginnings of the commercial Internet in the late 1990s, the relationship between online travel agencies and traditional agents has been contentious at best, sometimes downright hostile. But, slowly, the two camps have been discovering that in some cases moving from competition to cooperation can be profitable.
Perhaps the best example of this kind of alliance between offline and online agencies is the deal announced last week between Orbitz.com and the American Express Retail Travel Network, which gives agencies access to the OTA’s hotel rates along with a guaranteed 12% commission.
While no other deal so far has resulted in an agent network gaining so much access to the tens of thousands of properties in an OTA’s inventory, OTAs have introduced several other programs that offer offline travel retailers the ability to sell online products at competitive commission levels.
The Orbitz-American Express deal is an extension of the partnership the two companies entered into last month under which Orbitz will power American Express’ consumer travel website beginning in the second half of 2012. Currently, the website is operated by Travelocity.
Ellen Bettridge, vice president of the American Express Retail Travel Network, said the deal began to take shape as American Express and Orbitz considered how else they might leverage their new partnership.
“We saw hotels as a great opportunity to make available to my franchisees and owned offices,” she said. “I think customers are very savvy nowadays. They go online. They call places. They call direct. This is an opportunity for agents to offer them what their customers are finding online.”
Bettridge described the Orbitz product as an “everyday hotel program” as opposed to the premium hotel programs in the American Express portfolio, though she said there could sometimes be overlap.
“If you’re a Centurion member and you just want one night in a Marriott somewhere, [an Orbitz booking] might be the right choice,” she said. “We all have different hotel needs at different times.”
Many agency owners applauded the program.
“I think one of the primary values a franchiser brings to its franchisees is to increase the value of the franchisee’s business,” said Scott Milne, president of Milne Travel American Express in New England. “The Orbitz deal is a step toward enabling Milne Travel and others like us to much better compete in the e-commerce space and move toward cutting-edge utilization of social media to improve our value to clients and the value of our businesses.”
Ronnie Gurion, president of Orbitz Worldwide Distribution, was tight-lipped about program details but assured agents that Orbitz would not have access to their customer data.
“We are not trying to take your customers,” he said. “We want to give you access to our inventory.”
For Gurion and Orbitz, the appeal is clear: The American Express Retail Travel Network projects it will generate $5.4 billion in sales this year.
In an 8-K filing with the Securities and Exchange Commission in September, Orbitz reported, “Once implemented, the partnership is expected to deliver increased sales volumes overall and hotel room night growth for [Orbitz], which supports our strategic initiative to expand our hotel business.”
This is the first such program Orbitz has undertaken with a single travel agency network, but it has been paying other travel agents up to 10% commission for booking its products since February 2010, when it rolled out Orbitz for Agents. Standard commission rates are 10% for hotel reservations and 4% for travel packages.
Expedia also pays travel agents a 10% commission to book products through its Travel Agent Affiliate Program, which is now used by 16,000 agents worldwide.
“Expedia realized a huge market never goes online to book because the service the traditional travel agent can offer is unique,” said Luis Poggi, Expedia’s director of strategy and new initiatives. “What they can offer face-to-face is unique, and Expedia can never offer that.”
Another factor, analysts have noted, is that after years of impressive growth, OTA sales are starting to plateau.
“OTAs have this incredible asset in their hotel inventory,” said Douglas Quinby, senior director of research at PhoCusWright. “Their No. 1 mission is driving demand for that content. They have already in a sense reached a certain threshold in the online marketplace. … Travel agents still represent a significant piece of hotel business. This is really about how OTAs can incrementally add to the booking volume they create and the demand they generate for suppliers.”
OTAs offer travel agents inventory and pricing, Poggi said. “We have access to thousands of hotels at very good prices.”
Michael Drever, CEO of Expedia CruiseShipCenters, describes the OTA’s inventory as “$22 billion worth of purchasing power.”
Expedia invested in Vancouver-based CruiseShipCenters in 2007 and renamed it Expedia CruiseShipCenters.
CruiseShipCenters locations earn 11.5% commission on Expedia’s products, and their clients can use agency websites to book Expedia inventory.
“We plug the Expedia technology right into our [customer relationship management] platform, so our agents have access to everything that you can find on an Expedia website on their website,” Drever said. “Agents can [tell customers], ‘If you need a hotel or car, just go to my website and make the bookings. It’s just like Expedia.com, but if something goes wrong, give me a call and I’ll help you.’ Meanwhile, you get a check.”
Expedia’s sister, Hotels.com, has an affiliate program for agents called HotelRewards.com, which pays 10% commission.
On the offline agency side, two other forces are accelerating the rise of these partnerships: the decline of agencies with GDS agreements and travel agency groups realizing that they are leaving money on the table.
PhoCusWright research revealed that in 2008, 39% of agents were booking clients’ hotels directly from supplier websites, Quinby said.
“There’s been a very clear shift among leisure agents to move off the GDS for component sales and move to online platforms,” he said. “So agency groups are stepping in to try to recapture some of those bookings.”
He also noted that the OTAs, having aggregated the largest repository of hotel inventory anywhere, have the leverage to negotiate merchant rates that are not available in lot of the GDSs.
“It’s really a sign of the times,” Quinby said. “Agency groups used to go to wholesalers, and many still do, but now they are turning to OTAs to provide that content.”
CORRECTION: CruiseShipCenters locations earn 11.5% commission on Expedia’s products.
For news and updates on agent and distribution issues, follow Johanna Jainchill on Twitter @jjainchilltw.