Internet

Hotels Are Taking Back the Night, According to Stax Research

Orbitz's (ORBZ) IPO yesterday may have fired up renewed interest in online resellers and their growth prospects, but Stax Research believes current investors should consider their next move carefully.

Hotel News Resource Recently, in an effort to gauge the pricing power and outlook of Travelocity's merchant model for online hotel room sales, Stax went to the hotel chains themselves, asking them about pricing models, share of rooms sold through branded and third-party sites, and the salability of bundling vacation packages.
Based on Stax's September 2003 investigation, Travelocity and InterActive's (IACI's) Hotels.com and Expedia--which among them currently claim 60% of the market--already face price compression in major destination markets going forward. Orbitz, with its 17% share, must of necessity cope with the same problem: Hotel chains increasingly have reservations about letting online resellers grow too strong.

In the decline in hotel bookings following 9/11, the online merchant reseller model that widely supplanted the old travel agent commission model gained ground rapidly--so much so that hoteliers have seriously begun reclaiming that ground, bringing their customers back to branded sites as the economy recovers, and in so doing decreasing room inventory available to online resellers. As hoteliers continue to discourage merchant vendors by conditioning guests with incentives and low-rate guarantees, vendors like Expedia (IACI) and Travelocity (TSG) appear to be softening their terms to safeguard hotels' brand-wide participation. Since IACI's Hotels.com and Expedia were first to market, Travelocity may pay the biggest price for this increased price compression. "Although we found Travelocity to have a great brand name," says Stax CEO, Rafi Musher, "it is still unclear as to whether they will be able to close the deal and get the inventory to sell. The whole hotel industry said that they expect growth in on-line booking, but most of that growth will be with their own hotel branded websites, and that they were re-training their customers to buy direct."

About Stax Research's Travelocity Merchant Hotel Study:

In September 2003, Stax Research interviewed 26 hotel managers within leading U.S. brand groups to understand the profit potential and sustainability of travel services' merchant contract relationships with hotels, moving forward.

About Stax Inc.: Stax provides clients with independent research and analysis to make better strategic, operating, and investment decisions. Our clients include major corporations, blue chip private equity firms, hedge funds, and mutual funds. www.stax.com