The dispute between Expedia.com and Choice Hotels International may seem like déjà vu to those who remember the battle between the online agency and InterContinental Hotels Group in 2004. But there is a key difference between the old fight and the new, according to observers close to the issue.
In the first half of the decade, hotel chains were dealing with franchisees who all too often were willing to fill their rooms at any price. This time around, property owners seem to understand that some deals struck with third-party distributors are simply unsustainable, so there is a greater degree of support for hotel chain executives who draw the line at giving distributors too much power.
In addition, an outgrowth of IHG's earlier battle with Expedia was the tightening of some company's brand standards governing the terms under which franchisees can distribute through third parties.
And some observers believe that hoteliers learned some tough lessons from the era of heavy online discounting in the months following the Sept. 11, 2001, terrorist attacks. In 2003, Smith Travel Research estimated that the U.S. lodging industry lost about $1.28 billion in room revenue to third-party merchant model companies, up from $872.3 million the previous year.
STR said that if room rates had stayed at 2000 levels, occupancy would have been lower but profits would have been higher. Since granting an exclusive interview to Hotels magazine with Choice chief executive officer Steven Joyce, the hotel company has said little about the dispute.
In that interview, Joyce said Expedia was making new demands in its contract negotiations.
He said Expedia wanted last-room availability -- a feature that many hotel companies would consider untouchable -- and a commitment that Choice would never offer a price that was not available to Expedia.
"They would no longer be our supplier. They would become our revenue manager," Joyce said in the interview. When Choice balked at the terms, Expedia purged its inventory from its Web site.
In a statement, Expedia said Choice's contract expired in May 2007 and the company had been given "many extensions."
It said "many of the issues under discussion were principles which both parties had been operating under during the prolonged extension period, and are commonplace throughout the hotel industry."
In a conference call to discuss third-quarter earnings, Expedia chief executive Dara Khosrowshahi reiterated that there has been "no significant change in how we work with our partners" and added that Choice seems to be "an outlier."
As for the rate and availability issue, Khosrowshahi said, "it's not an issue of economics. It's an issue of us wanting rate parity and inventory parity for our customers." He said that is how Expedia works with its other partners, and "they're comfortable with it."
Khosrowshahi added that in markets served by Choice, Expedia was capturing the majority of the bookings, so it is experiencing little economic impact. Expedia sent a letter to Choice franchisees, expressing sorrow that the hotel chain had publicized details of "good faith negotiations" in "such an inaccurate and misleading manner" and the hope that "we will be able to work with you and Choice in a mutually advantageous manner in the future."
Choice and Expedia have resumed negotiations. A Choice spokesman said, "At the same, we continue to deploy powerful marketing and e-commerce initiatives to drive business to our franchise owners' hotels." If the battle with Expedia continues, ongoing support from Choice franchisees could be largely contingent on the degree to which Choice succeeds with those initiatives.
Few hoteliers would argue that the online marketplace that Expedia provides offers value. But some are questioning whether Expedia contributes 25% to 30% worth of marketing value in exchange for the 25% to 30% discount that it typically gets from hotels.