More hotel rooms taken via internet than agents

11 May 2006
More hotel rooms taken via internet than agents

News that the internet overtook travel agents as a channel for hotel room sales in 2005 marks a watershed for the hotel industry. The much-hyped medium is at last starting to deliver on its promise to change the nature of the sector.

For Professor Peter O'Connor, of the ESSEC business school in Paris, the results of the survey on internet hotel bookings conducted by TravelClick came as no surprise.

The school's own research found that 35.2% of bookings at the central reservations offices of 30 international hotel brands came via the internet in 2005. Meanwhile, bookings from global distribution systems, the platform used in travel agent offices, stood at 34.6%, and call centres accounted for 30.2%.

Driving bookings
"Most hotel companies have invested a lot in driving bookings directly to their website," O'Connor said. "This has been via traditional advertising, e-mail marketing and search engine optimisation."

But as recently as three years ago hotel chiefs were publicly fretting that their brands were being commoditised by online intermediaries. Steve Bollenbach, chief executive of Hilton Hotels Corporation, warned that, unless hoteliers acted, the hotel brands of the future would be Expedia or

Tim Davis, Hilton's senior vice-president, commercial development and information technology, said the online intermediaries took advantage of the low-demand environment that followed events such as 9/11 and Sars.

Since then, however, the big hotel brands have fought back. "Most hotel companies have invested and done a lot since then," he said.

A key move, taken by the likes of Hilton, is to put their entire room inventory in one place so that all distribution channels - whether directly to the hotel or via the internet or a travel agent - have access at the same time and at the same price (known as "single-image inventory").

In addition, Hilton and others have laid down rules for online intermediaries on how they are prepared to work with them.

The pioneer of this approach was InterContinental Hotels Group (IHG). Spokesman Leslie McGibbon said: "We wanted to have customer protection. Some websites were using misleading marketing and unclear pricing."

Two years ago IHG stopped working with online intermediaries that did not comply with its set of rules. It was particularly concerned about websites that showed its hotels as full even though there were still rooms available; about unclear presentation of taxes and fees; and about being unable to set its own room rates.

Among the websites which IHG banned were Expedia and These two, both part of the giant InterActiveCorp, are still not allowed access to IHG's inventory.

The big problem back then was that online intermediaries had bought vast blocks of room inventory at hugely discounted prices and then hiked up the prices to customers, creating a huge margin for themselves.

This net-rate merchant model gave the intermediaries a stranglehold on the hotel groups and led to fears that hotel brands were being commoditised.

Margins on internet-booked rooms were previously often above 30% of the total customer cost, far more than the commission levels of 10% or less paid to traditional travel agents.

Hilton also banned Expedia and but, last October, an agreement was reached and Hilton's hotels are now once again accessible on these sites. "The websites now have to sell real rates on a real-time basis," said Davis. They have also had to agree not to abuse the trademarks and brand names of Hilton.

Some intermediaries, however, have traditionally been much more supplier-friendly, preferring to work with hotel groups on a partnership basis.

Adrian Currie, managing director of online reservations group Active Hotels, said that the biggest hotel groups have woken up to the internet threat and now have good websites of their own. He believes there is still a role for intermediaries to work with the big groups, but the real opportunity in Europe is with independent hotels or small groups.

Business grows
Active Hotels' business grew by 88% in its most recent quarter, indicating that both the big groups and intermediaries can grow at the same time. At IHG during 2005, for example, the proportion of total rooms sold via the internet grew from
13% to 14%; and the share of this 14% through IHG's own websites increased from 81%
to 86%.

Currie argues that, through sites such as Active's, independent hotels can compete on a level playing field with bigger brands.

For the future, the battle will be about whether hoteliers can retain their position of strength. Some believe there is less danger of history repeating itself in the next downturn, as hotel brands are now established online. Others are less sure. O'Connor warned: "Intermediaries are signing only short to medium-term contracts, as they know there will again be a chance to make supernormal profits in future."

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