Room Key joins the hotel search party

Courtesy of Room Key

Hotel search website Room Key is in beta release. John F. Davis III, Room Key's CEO, said hotels whose rooms are booked through the service pay a commission that is "significantly less" than what they pay online travel agencies such as Expedia and Travelocity.

Six major hotel companies formed a new online booking service, Room Key, as a way to reduce commission costs paid to online travel agencies (OTAs) like Expedia and Travelocity, whose hotel room sales continue to climb.

Co-owned by Choice Hotels International, Hilton Worldwide, Hyatt Hotels Corp., InterContinental Hotels Group, Marriott International and Wyndham Hotel Group, Room Key is listing virtually all of the 23,000 hotels in the companies’ brands globally; users search for hotels by destination and are connected directly to the hotel company’s website to book. 

According to John F. Davis III, chief executive of Room Key, the new service offers users the lowest available rate on the hotel’s website; this is often the advance purchase rate, a deeply discounted rate that is capacity-controlled, requires an advance purchase and is nonrefundable and cannot be canceled. Users who belong to hotel loyalty programs will receive program credits when they book through Room Key; they do not receive these credits when they book hotels through OTAs.

The new site will not offer AAA or AARP discounts, which hotel companies often offer on their sites, though it might in the future, Davis said. 

While he wouldn't provide specific figures, Davis said hotel companies whose rooms are booked through Room Key are paying the site a commission that is “significantly less” than what they now pay OTAs.

Commissions currently paid by hotel companies to OTAs can range from 5 percent to 30 percent and sometimes even climb as high as 60 percent, said Bjorn Hanson, dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University. 

According to PhoCusWright, a travel industry research firm, 31 percent of all hotel rooms booked in the United States in 2011 were booked online, up from 29 percent in 2009. It also said OTAs generated 45 percent of all online hotel room bookings in the United States, worth $15.2 billion, in 2011, a 1 percent increase over 2009.

The six companies behind Room Key have created it, Hanson said, because of their “concern about the growing cost of online travel agency commissions.”

The new site currently is in beta mode. When formally launched in March, it also will contain reviews of hotels featured as well as social media initiatives. It is currently talking to providers of hotel reviews, including Tripadvisor.com as well as “the usual suspects,” about obtaining this content, Davis said.

Room Key is actively soliciting new participants, he added, including chains like Starwood, Fairmont and Four Seasons, as well as hotel marketing companies like Preferred Hotels. The first addition, announced Thursday, is Best Western International. 

Davis expects Room Key to be profitable by the end of 2012, “driving a significant enough volume back on the hotels to impact the hotel owners’ profitability.” For the most part, the hotel companies that own Room Key do not own the hotels in their brands, but manage them on behalf of owners.

Davis hopes Room Key will offer rooms at 80,000 hotels, including independent hotels that are not part of chains, by June; by contrast, Expedia sells rooms at over 130,000 hotels worldwide. He said he expected the service would appeal most to leisure travelers and to business travelers whose employers do not manage their travel. 

Hanson said Room Key deliberately is not trying to fully emulate the business models of OTAs. “Travelocity and Expedia, for example, include other brands and independent hotels, so some travelers will find additional hotels and lower rates with restrictions that are not on Room Key,” he said.

Henry Harteveldt, co-founder of Atmosphere Research Group, a market research company, said that although the service is owned by and sells rooms of six of the largest hotel companies, “noticeably absent are Starwood and Accor, [the latter of] which is very big in Europe. That doesn’t mean they will not work with it, they’re just not in it now.”

He said the new venture faces a number of challenges, not only in getting more hotels to participate, but also in creating awareness among travelers.

In addition, he questioned how willing travelers will be to book hotel rooms on Room Key and then be required to book flights on another site, when sites like Kayak.com let travelers compare industrywide rate information from both hotel companies and airlines. He said another potential, increasingly powerful rival is Google’s Hotel Finder, a service started last summer that provides rate information for hotels by specific neighborhood. 

Harteveldt also questioned Room Key's decision to not offer all discounted rates available on hotels’ websites.

“If the hotels want Room Key to be a truly successful traffic generator for them and reduce their reliance on third-party intermediaries, Room Key's content must be consistent with what is publicly available on the hotels’ websites," he said.