Marriott and US-based online travel agent (OTA) Expedia have long worked together, but in November 2018, the contract underpinning the co-operation expired. Since then, the two have worked under an extension and while Expedia has stated that “we’ve agreed to general terms”, it has not provided any further information.
One thing is certain: Marriott has used its scale to negotiate hard and drive down the commission rate closer to the magic 10%.
Marriott operates over 6,300 hotels with more than 1.2 million beds worldwide, giving it great clout in the negotiating process and it is simply because of this scale that it will succeed in driving down the rate it pays Expedia for bookings made through the OTA’s portal. It has in fact already done so in recent years, from an estimated 18% in 2012 to around 12% currently.
This is because Expedia cannot afford not to have the world’s third largest hotel chain on its platform, so it is forced to yield.
Expedia commission rates: finding the right balance
Commission fees have become a major bugbear for hotels as they erode profit margins and deter franchisees. Consequently, in recent years, major chains have pushed back, introducing discounted rates and incentives for direct bookings. This has however failed to stem the importance of intermediaries, as consumers that prioritise affordability frequently use OTAs as a one-stop shop to compare everything from prices to location.
This is significant as GlobalData’s Q3 2018 Global Consumer Survey shows that 59% of people asked said affordability was a factor in helping them decide where to go on holiday, making it the number one driver of decision making. OTAs will therefore remain very relevant and both parties know this.
More specifically, Expedia is fully aware that Marriott needs and values the room distribution opportunities it presents and this will allow it to take a stance that should prevent commission rates falling below 10%.
Marriott acknowledges that while its Best Rate Guarantee programs have helped limit the shift to intermediaries and greatly reduced their ability to undercut published rates, they continue to act aggressively in the market, even going so far as to purchase trademarked online keywords such as “Marriott” from internet search engines to drive traffic to their sites.
GlobalData Travel & Tourism data shows that the online travel intermediaries industry is set to grow at a compound annual growth rate of 7.2% between 2018 and 2022 to reach a value of $393.2bn.
This is a clear sign that OTAs like Expedia are far from a passing trend and will remain critical to the success of hotel chains like Marriott. The two need each other to prosper and that will result in an amicable agreement being reached.