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Hilton Battles Hotel Discounters

Saying that consistency of room rates across all channels is a "cornerstone of brand integrity," Hilton Hotels rolled out a new online booking strategy and signed a deal with travel site Expedia that includes a direct electronic connection to its reservation system.

Hilton, trying to fend off an onslaught of heavy discounting in the hotel industry, said it wants its customers to know that they cannot find better rates than what they get through Hilton's designated distribution channels.

Hotel reservations have become the newest battleground for online travel sites as the airline business has slumped, and the hotel companies -- and individually managed hotels -- have often been discounting steeply in order to compete with one another in a down economy.

With its new strategy, Hilton , whose hotel brands also include Doubletree, Embassy Suites and Hampton Inn, is in effect saying, "enough, no more deep discounting."

Hilton said its new strategy includes development of across-the-board price integrity. Although each hotel will establish its own rates, "the standards will require each hotel to offer its rates consistently across all designated distribution channels," including Hilton proprietary Web sites, Hilton Reservations Worldwide call centers, the Global Distribution Systems/travel agents (including Expedia) and through hotels directly.

"The direct connection between Hilton's central reservation system and Expedia will result in an enhanced quality of interaction with a preferred online distribution channel," said Tom Keltner, president of the brand performance and franchise development group at Hilton.

"Expedia and Travelocity have both introduced direct connection technologies to their hotel products over the past few months as a way of allowing hoteliers better control over the inventory and rates available on discount Web sites," said Jupiter Research analyst Jared Blank.

"This is in marked contrast to Hotels.com, which typically requires guaranteed blocks of rooms from hotels nearly every night of the year," he said. "Hotel companies have become frustrated as third-party sites have undercut their prices The direct connections will allow hoteliers to work with discounters, but on their own terms."

Indeed, Bellevue, Wash.-based Expedia , said its two-year deal includes greater access to Hilton's owned, managed and franchised hotel portfolio, and development of a new direct electronic connection between Expedia's database and Hilton's central reservation system, making it easier for Hilton properties to manage room rates and inventory sold through Expedia.com.

Hilton said its strategy also includes improvements to the Web sites for its various brands, including better search and room availability functions, as online channels currently account for approximately 10 percent of the company's total bookings, with more than 75 percent of that total coming from the company's own sites.

The hotel company's third-party Web site sales have been smaller, but they are growing, and the commissions have been steep. Expedia had been charging a 28 percent commission for each sale of a hotel room, but according to a Wall Street Journal report, in the new deal with Hilton the commission declines to 18 percent.

Expedia, recently acquired in full by Barry Diller's USA Interactive , has been busy establishing similar connections with other hotel companies as well. And the online hotel business in general has been just full of recent deals.

Hotel booking is now one of the fastest growing online travel categories, according to Jeff Katz, Orbitz president and CEO. And Expedia CEO Erik Blachford said recently that hotels "are a key component" of the company's travel packages business, which also is being promoted heavily.

The Hilton move is "another step that the hotels are taking to wean themselves off third-party sites," analyst Lorraine Sileo at online travel research and consulting firm PhoCusWright told internetnews.com.

"...third party sites are an important channel for hoteliers, especially to reach the infrequent or leisure traveler, so don't expect these channels to go away ... But, just as Six Continents has done, Hilton is making noise about its plans to get its properties in line with corporate strategy -- that is, to provide the lowest price via the direct channel (including the Web site), instead of making it obvious that the lowest prices are on Expedia, Hotels.com, Travelocity and other third party sites," she said.