Are the Hotel Chains Getting Government Help to Drive Bookings Away from Travel Agencies?

The New York Times reports that the current version of the pending New York State budget

includes a 20 percent increase in hotel occupancy taxes for travel intermediaries (meaning travel agencies, tour operators and online travel companies).

Get that? A tax on travel agencies and online booking services. That’s distinct nad separate from the hotel occupancy tax.

The “Interactive Travel Services Association” calls this “the Connecticut and New Jersey tourism promotion act” because raising the cost of travel to New York would push travelers elsewhere.

But that aanalysis is really incomplete. It’s actually the “major hotel chain revenue channel integrity act.” It’s the Marriotts, Starwoods, Hiltons, and Hyatts versus Expedia, Orbitz, and Travelocity. This tax applies to rooms booked via third party sites, not rooms booked with a hotel or chain directly.

The major hotel companies have been trying for several years to wrest control of the distribution fo the rooms away from sites like Expedia, pushing bookings onto their own sites. In the travel slump of late 2001 through 2003, hotels relied increasingly on third-party discounters, but paying those commissions or offering blocks of rooms at a wholesale discount was a costly way to move their inventory. So they’ve worked hard to bring customers back to booking directly through their own channels.

That’s why chains like Starwood and Hilton only offer elite benefits to members staying on rates booked directly with the chain. Marriott still offers elite status benefits to customers regardless of how they booked their stays. But the major chains even once recognized status on stays booked through opaque sites like Priceline. I knew people who qualified for top tier Diamond status with Hyatt strictly on cheap Priceline stays (and would use those stays to count towards promotions like Faster Free NIghts, where two stays would yield a free night… and where a phone call charged to the room on a free night would then count as a stay towards the next free night).

I still believe that a hotel is well-advised to treat their elite members as elite members regardless of the booking channel the customer uses. If a hotel is sold out on the Starwood site but Expedia still sells them a room, their loyalty led them to book the Starwood hotel, then their Starwood Preferred Guest elite level should certainly be recognized.

And even when a guest walks in on a Priceline stay, that person has still shown their loyalty over time to the chain, and that person ought to be recognized as valued by the brand whenever they set food into one of the brand’s hotel properties.

Radisson Hotels ‘gets this’ internationally, where their elite members are welcome any time for a complimetnary coffee or hot chocolate and to use wireless internet in the lobby lounge. Their elite levels are always welcome.

Or as the Flyertalk member that I learned the most from over time, PremEx, used to say “I am not my rate.” Seven years later, I still remember this post of Mark’s about Starwood not awarding points on stays booked through third parties:

Welcome to the Starwood Preferred Rate® Program. You are no longer a Preferred Guest.

Forget about the 25 or 50 or 75 stays you had on normal rates, that earned you Platinum. Walk in the door on Jan 1, 2004 on an occasional Priceline or other third party booking…and magically and mystically you’ve somehow become a Non-Preferred Guest!

And now that that fundamental change in the program has kicked-off and that wall has been shattered to pieces, where will it end?

Only property elite benefits when staying on Rack Rates? That also would certainly improve elite benefits too…on only those times that you were staying on Rack Rates!

Slippery slope, my friend.

I don’t know about you, but I prefer to be a Preferred Guest. As long as I’m at a Starwood property, I prefer and expect to get the recognition I earned. And I earned that status all on qualifying rates.

Because I’m a Platinum Preferred Guest. I am not my rate.

In any case, this has long been a strategy to push their customers to book through their own channels in order to re-capture commission and incentive revenue being paid to third party sites.

Now it seems they have help from government. You can book directly through the hotel or, if you prefer, through a third party website like Expedia. But if you do that, the State of New York will tax you.

Corporate welfare, in the guise of raising revenue to close a state budget gap, and with the ‘veneer’ of fairness. In most cases, third party booking sites remit taxes based on the price of the room charged to them by the hotel, rather than the retail rate they charge the consumer. Of course, a hotel could charge a lower price directly to the consuemr and pay the lower tax. But to the extent they do not do that, some argue that different tax schemes are at play. (I actually disagree — in both cases, the amount of money being paid to the hotel for a room night is what’s taxed.)

But the fairness arguemnt only gets you so far, as in North Carolina:

North Carolina recently passed a similar tax on travel intermediaries, but in this case the tax levied is the same as whatever the hotel occupancy tax is in the given municipality. North Carolina’s law goes into effect Jan. 1, 2011.

In New York State’s case, there’s a unique tax proposed on third party booking agencies that would not apply to booking with a hotel chain directly. Disproportionality, clearly. And something that the hotel chains themselves have been wanting desperately since at least 2003.

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, 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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  1. This is a back-end way to get the full taxes “owed”…

    Currently, third parties are paying local TOT taxes based on the wholesale rate they pay, not on the rate actually paid by the customer.

    For example, I book a room at the Andaz West Hollywood for $200, the City of West Hollywood is due $30 in TOT at it’s 15% rate.

    If I book that room through Expedia for $200 but Expedia paid Hyatt/Andaz $133 for it, then Expedia only pays the City $20, or 15% of the wholesale rate.

    Now, do I agree with the approach of tacking an extra 20% on–NO. That is unfair, and arbitrary. But do I believe that the TOT should be based on the amount paid by the customer, not the amount paid by the 3rd party agent? Yes.

  2. @Scott, for the purposes of this post I really don’t care one way or another whether the occupancy tax is based on the amount the consumer pays for a room or the amount the hotel receives for the room.

    What this does is tax third parties AT A HIGHER RATE than booking through the hotels themselves. At the same price point for a room, it becomes more expensive to book through the third party site.

  3. Currently, however, the tax system means that a $200 rate booked at costs $230, but only costs $220 on Expedia… That is not fair, either, is it?

  4. @Scott, actually that’s generally not the case, the complaint that states and localities have is precisely that the third party booking engines are charging consumers the same total price and ‘pocketing the difference’ in fees rather than taxes.

    There is NOT currently a generalizable opportunity to save on out of pocket hotel cost by buying through a third party. That simply does not exist. And the entire crux of the argument is precisely that given the differential tax treatment of the bookings, that the government rhould be pocketing more taxes rather than the agencies pocketing more commissions when the consumer is being charged hte exact same price.

    (But then the federal govenrment also wants more tax money when the airlines charge baggage fees — arguing that those are essentially part of the ticket as well.)

    There’s little fair in taxes, but that doesn’t mean that all is fair in choosing to advantage one player over another through the tax system.

  5. If the hotel chains would bring back online booking bonus’ they’d cut into this ‘problem’.

  6. There also become issues with pricing from the hotels. If the tax is based on the amount the product is actually sold for then travelers could figure out that “hidden rate” and wonder why the hotels are selling the rooms for 15-25% less to Expedia than to them.

    As it is, most people think if they book a room for $200 the hotel gets all that money. If they find out the hotel was willing to takle $175 to sell the room to someone who will repackage and resell, they get steamed, as though they were misled.

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