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Expedia's New Traveler Preference Program Could Cost Hotel Owners Billions

publication date: Jul 29, 2013
author/source: Jay "Jimmy" Patel

Expedia's New Traveler Preference Program Could Cost Hotel Owners Billions

 Expedia's New Traveler Preference Program Could Cost Hotel Owners Billions(in: What You Need To Know) 



The new program from Expedia lets guests pay the hotel directly at checkout, rather than to Expedia at the time of booking. This is a positive option for U. hotels that would like to attract more European guests through Expedia as these guests prefer to pay the hotel at checkout rather than at the time of booking.

However, what are the financial implications for hotel owners of this rather straightforward guest oriented program?  Expedia handles 5% of all US hotel rooms’ revenue, so maybe a closer look is warranted. According to a white paper released by Michelle Russo and Ryan McCarthy of hotelAVE (an extremely proactive hotel asset management firm), this change could potentially impact U.S. hotel ownership to the tune of $2.1 billion in real estate value unless concessions by Expedia, brands and managers occur.

This new program will cost hotel owners up to an additional $4.00 for the every $100.00 that goes through Expedia under the new retail model. Of this, $2.20 will be shifted from Expedia to owners by way of credit card fees (or $0.44 if a hotel already uses the Expedia credit card program), and the remaining $1.80 will be remitted to operators and brands.

Russo said she did not take into account the amount of room tax a hotel will have to collect and pay on the full $100 room revenue. The occupancy tax has long been an issue with local governments throughout the US, with many OTAs filing law suits to keep municipalities from enacting laws that require OTAs to pay occupancy tax on the full retail price of the room.

Some negative elements of the new traveler loyalty program are as follows:

  • Higher franchise fees
  • Possible frequency point charges for 3-5%
  • Higher credit card processing fees
  • Expedia’s commission is added on as a room’s expense & could be upwards of 30%
  • The invoicing cycle will be reversed, resulting in Expedia billing the hotel instead of the opposite
  • Hotel owners will assume all credit card, brand and marketing fees as well as additional management

The issue is not that Expedia is allowing guests to pay the hotel directly; rather the controversy revolves around the fact that the new program increases the cost to a hotel to acquire the same business and that the entire burden of this added cost falls on the hotel owner, while Expedia and the brands and management companies (the two components that negotiated the agreement) benefit from the change. You certainly expect to hear more of this issue in the future.

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