Remaking the Hotel Business

Competition from online travel companies, many of which are offering low
price guarantees, is likely to garner revenues of about $15.5 billion in
2006, up from an estimated $3.8 billion in 2000, according to a new industry
study.

The report, prepared by Bear Stearns , predicts that most
of the growth will go to third-party travel Web sites rather than the
proprietary sites run by hotel companies. In fact, traditional hotel revenues
are being “cannibalized,” the study says.

The reason? The Internet has empowered not only the leisure travel consumer,
but also the business traveler as well, says the report, entitled “Web Storm
Rising: Hotels Face Increasing Pressure on Rate as Web Bookings Increase.”

As evidence of the competition, both name-your-own price e-commerce company
Priceline.com and travel operation Expedia.com this week launched
upgrades to their hotel offerings, and rivals Hotels.com (majority-owned
by USA
Interactive ) Travelocity.com (owned by Sabre ) and Orbitz also have hotel reservation services.

Travel Web sites first targeted the airline industry and introduced consumers
to heavily discounted e-fares. The hotel industry is next, and
“year-over-year growth in online lodging revenue has already begun outpacing
growth in the overall online travel sector,” the report says.

Travel Web sites have evolved into online merchants, “cannibalizing hotel
profits in the process,” the study says.

The study also says that hotel chains are fighting back, and in May,
London-based Six Continents launched a program under which it guaranteed to
beat any price a customer found on other Web sites — if the guest booked the
room via the hotel’s online service.

Starwood, which owns the Westin and Sheraton brands, and Cendant Corp. , owner of Ramada Inn and Howard Johnson, also set that condition.

However, there is little evidence that these programs have helped to draw
significant business, Bear Stearns analyst Jason Ader was quoted as saying.

“When demand comes back, people are still going to be booking later and
they’re going to be able to more efficiently shop for price,” he said.