Market Overview

Hotel Chains Versus Online Travel Agencies: Marriott Thinks It Can Win

Hotel Chains Versus Online Travel Agencies: Marriott Thinks It Can Win

Conventional wisdom would dictate that hotel chains such as Marriott International Inc (NASDAQ: MAR) have a strong relationship with online travel agencies including Priceline Group Inc (NASDAQ: PCLN) and Expedia Inc (NASDAQ: EXPE). However, this is not the case at all, at least according to a Bloomberg report.

Bloomberg noted that online travel agencies receive a commission for each hotel room they facilitate booking, and the rate can be over 15 percent. Naturally, hotel chains would rather not share commission with any third party and began offering customers with discounted rates, free Wi-Fi and other perks to lure customers to book directly with them.

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Hotel chains are also quick to remind customers that any booking made through a third party would not earn them any loyalty reward points.

In return, the online travel agencies appear to have pushed major brands lower in their search results.

Bloomberg cited data from Kalibri Labs, which said that online travel agencies captured around 15 percent of total spending on hotel rooms in the United States in 2015, which stood at $150 billion.

Robert Finvarb, an owner of Marriott hotels in and around Miami, told Bloomberg it is "absolutely critical" to regain "control of our inventory."

With Great Size Comes Great Negotiating Power

Perhaps Marriott has gained a huge advantage over the online travel agencies. Its pending merger with Starwood Hotels & Resorts Worldwide Inc (NYSE: HOT) is set to close this week and create the world's biggest hotel operator. With such a size comes greater negotiating power.

Marriott could decide to blend the loyalty program of its 27 different brands. After all, the company's CEO Arne Sorenson was quoted as saying that a "major reason" for its multi billion acquisition of Starwood is because of the loyalty programs.

Meanwhile, online travel agencies aren't worried. Expedia's president of lodging partner services told Bloomberg that most consumers are brand-agnostic and would rather see a full assortment of choices and don't like being limited to one specific brand.

A heightened competitive environment is always great for customers, but not so much for shareholders.

Marriott closed Wednesday at $70.14, while Starwood closed at $77.25. Expedia closed at $108.02, and Priceline ended the trading day at $1,464.00.

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