Hilton Scores a Victory Over Online Booking Sites, and What It Means for How Travel Will Be Booked

United Airlines used to offer last minute e-fares on their website, but stopped because they ran afoul of agreements with computer reservation systems to always display the best available fares through those sites.

Paying the computer reservation systems is costly, it’s cheaper when airlines sell to you directly, so they used to offer bonus miles for doing so. And paying the online travel agencies is costlier still. Even though few airlines base commissions any longer (although Alitalia just re-introduced 1% commissions in Italy) they do pay based on volume.

Airlines have long paid less to the online travel sites than hotels. So hotels have gone to greater lengths than airlines in trying to get customers to book direct. Generally when you book on Expedia you still earn frequent flyer miles for your flights, and are eligible for elite status accrual and elite benefits. (Although it may not always be as clear what restrictions apply to the fares you’re buying.)

Hotels on the other hand have:

  • Restricted points-earning (Hilton’s official policy is no points at all, even for incidentals during your stay, when booking through a third party)

  • Restricted status-earning (major chains won’t let your stay booked through most third parties count towards gaining or retaining status)

  • Restricted elite status benefits (Though Hyatt and Marriott generally honor elite status on third party bookings, other major chains do not)

During periods with hotel occupancy low, the “OTAs” had the greatest leverage. The major chain hotels were paying over 20% commissions, perhaps 25%, and independent hotels easily paid 40%.

But those commissions have been falling. With hotels full they have a stronger bargaining hand. They’re able to pay lower commissions, and negotiate other favorable terms.

Hilton reports that it has successfully concluded better deals.

[Hilton CEO Chris] Nassetta said Hilton Worldwide won the right to lower the commissions it pays to online travel agencies such as Expedia and Booking.com.

…Hilton Worldwide managed to eliminate last-room availability clauses and won the right to offer preferential pricing — lower rates than it gives to online travel agencies — to certain members of the hotel chain’s loyalty program, Nassetta said.

“We are done with all of our OTA negotiations, and we achieved our goals in every one of those pillars,” Nassetta said.

This likely explains Hilton testing discounts for HHonors members since they don’t have to offer those same rates through online booking sites and can use those to incentive lower direct booking expenses.

Airlines, too, continually squabble with the online sites and computer reservation systems over how their fares are distributed. Lufthansa is currently imposing an extra charge for tickets through these systems, which makes them less competitive. It’s hard to sort out the effect it has had on the airline, because their sales have also been affected by strikes. Airlines want online travel sites to work through their own, less expensive, direct channels. And they want everyone selling their ancillary products, at the lowest cost to the carrier.

When we see Expedia buy Orbitz after buying Travelocity we shouldn’t just think of them as making consumer unfriendly moves, we should think of them as:

  1. Trying to preserve some of their leverage against travel providers who are eroding their margins.

  2. Making defensive moves in anticipation of Google disrupting their business model.

That isn’t to say that consolidation in the online booking industry is consumer-friendly. And consumer experiences vary. But online travel agency sites are hardly gaining market power.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Gary – Do you think airlines will ever follow hotels and not offer miles or elite status on bookings not made through them? Or they’re already not paying them enough commission for the comparison to be made?

  2. I don’t like OTAs so I use them to price compare and then book direct. I hope hotels and airlines make better websites. The travel booking experience is smoother thru an OTA as we don’t have to enter the personal and credit card details all over again. Most hotel and airline websites are usually terrible and require a lot of data entry from customer. They should adopt amex check out/visa check out type thing where a customer can check out pretty fast.

  3. @Daniel – that’s a really great question, it has always surprised me that they continued to offer miles for OTA bookings but of course – and while they do want to reduce their distribution costs – they haven’t needed to take the drastic measures that hotels have because airline costs are far lower.

  4. What could be problematic is where employers may require their employees to book their hotel reservations through travel agents. My employer initiated a new program back on October 1 that we’re supposed to follow, requiring all hotel reservations to be booked through our travel agent computer system. Needless to say, this new requirement is not popular amongst my colleagues.

  5. How do you think this will affect the B2B OTAs like Orbitz for Business and Egencia? It seems like mostly these gains by Hilton will make waves in the leisure space…

  6. Gary, the last I heard Hilton was still giving points, free Wi-Fi, etc. for those travelers booking through a travel agency GDS – just not through Expedia/Travelocity, etc.

  7. Like others I use the OTA to compare prices for Air, Car and Hotel and then go to the sites directly. I have just heard too many stories that have gone wrong with these OTA.

    As IHG Platinum we wanted to change our reservation for a hotel but did not do so 24 hrs in advance. We were told by the manager since we were Platinum we could cancel our reservation with out charge. If we had made the reservation on a OTA we would have been out of luck.

    I have been told, unofficially, that when airlines need to bump they look at the OTA bookings as the first to go. Even if you have a connecting flight or need to meet that cruise ship in Miami you will be bumped to the next flight (and still get there with out having to pay compensation) but miss your connection on another airline or to the cruise ship!

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