The online travel agencies, after having put the whole sector at their feet, are facing the rebellion of major players in the hotel and airline industry.
If at one time the term “uberization” was fashionable, we must not forget that the phenomenon is much older and that the first uberized inbdustry was the travel one. Online Travel Agencies (OTAs) such as Booking or Expedia have become a major distribution channel that hotels and airlines can no longer do without.
Travel: an industry that has long been uberized
And this is not without consequences:knowing that they are in a strong position, OTAs take up to 18% commission on each sale made. When you know the margin of the industry, in the end it hurts all the players and leaves almost nothing for the small independent hotelier. A commission is due even if the reservation is cancelled or the customer does not show up.
But the tide seems to be turning as two major players are in open war with Expedia.
On the hotel side, it is the giant Marriott that has entered into an arm wrestle with the platform by demanding commissions of less than 10%and threatening to withdraw its 6700 hotels. And its management has warned: once the Expedia case is settled, it will be booking’s turn.
On the airline side, it is United that plays with Expedia’s nerves. Noting that Expedia refused to enter into a “constructive discussion” about commissions, United announced that its flights would no longer be available on the platform as of October 2019.
Who can afford to do without OTAs?
A suicidal attitude when you know the power of OTAs? No. Well, not when you meet certain conditions.
The first is the size. 6,700 hotels for Marriott since the acquisition of Starwood, 4,800 flights per day for United. When you are a big business provider you can afford to show your muscles.
A good loyalty program. Expedia could say “let them go, it doesn’t matter, customers will book with competitors who are on our platform”. That’s without counting the power of a good loyalty program. Mileage Plus members, especially those with high status, will book directly with United. Marriott Bonvoy members have been avoiding Expedia for a long time because the hotel industry does not apply the loyalty program to customers who book via an OTA (except in the special case of business travel desks). Expedia only sends to Marriott non-loyal customers: this is not nothing in terms of volume but it is not much in terms of margin once the commission has been taken.
A precedent that could turn the industry upside down?
Between bluff and big money, it is hard to know how far the escalation of violence can go. And whether the threats will be carried out. But all indications are that Marriott and United are very serious and will follow through.
The consequences for Expedia:if they negotiate, less commissions, if they refuse less customers. But if they agree to lower their commissions, it’s a very bad signal they’re sending to the market because all the players will follow the logic of Marriott and United. Bad in both cases.
Worse: we can imagine that Egencia, Expedia’s business travel platform, is concerned by these threats. Business travelers are very loyal to their brands and loyalty programs, especially since, for large businesses, contracts exist with hoteliers so that the employees of a given business have specific rates. For a big business, even the hotels and the airline with which you have a business agreement disappearing from your travel desk will lead you to change the travel desk, not the agreement.
The consequences for Marriott and United? Losing non-loyal customers, those who booked “by chance”, with what will be saved on the commission… it is not neutral. Expedia brings volume but the businesses want margin.
The big loser in any case will be the “small independent hotelier”. It cannot afford to negotiate so will continue to pay high commissions even if the industry giants win. And if these giants leave the OTAs, the latter will have a less rich offer, thus attracting less traffic, thus bringing them fewer customers.
In any case, we are perhaps not far from a key moment in the history of the industry.
Photo : Expedia by designs by Jack via Shutterstock
