Hilton To Travel Sites: Conform Or Else

Hilton is imposing a set of rules that online travel sites must conform to if they want to continue selling the company's rooms.

Tony Kontzer, Contributor

June 3, 2005

3 Min Read

Hilton Hotels Corp. is tightening the screws on online travel agencies with an accreditation process that sites like Orbitz and Travelocity have to conform to by year's end in order to continue offering Hilton inventory.

The move is intended to help Hilton protect the use of its trademark, prevent travel sites from purchasing search keywords that divert traffic from Hilton.com sites, force third-party sites to establish direct connections to Hilton's reservation system, and ensure that the hotelier's best-rate guarantee is honored by those sites, says Bala Subramanian, Hilton's senior VP of distribution and brand integration.

What it's not, Subramanian says, is an effort to cut online agencies out of the distribution process. "This is not some arbitrary set of things," he says. "Anybody who can abide by our terms is free to compete."

But there's no disputing the fact that online travel agencies are capturing an ever-smaller piece of hotel-industry revenue. Hotel chains for the past 18 months have tried to seize greater control over the online sales of their rooms by beefing up the capabilities of their Web sites and guaranteeing that those sites offer the lowest room rates.

The industry has made substantial progress. In Hilton's case, bookings through Hilton.com sites are up 30% year over year and now make up 14% of all bookings, whereas the growth of third-party sites is in the single digits and represents less than 2% of Hilton's bookings, Subramanian says.

Whether cutting off noncompliant distribution channels results in a revenue hit to a hotelier is unclear, says Norm Rose, principal of Travel Tech Consulting and an analyst for travel research firm PhocusWright. It's possible that the online agencies are stealing revenue that hoteliers would otherwise get through other channels, but it's likely that some portion of that revenue will be lost if an online agency is cut off from the distribution chain.

In any case, because online agencies represent such a shrinking percentage of revenue, it appears to be a risk hotels are willing to take. "This is all about control of business relationships and trying to ensure that the hotelier can keep price integrity at their site while realizing that there's still some value to third-party distribution," Rose says.

The launch of Hilton's accreditation process comes more than a year after InterContinental Hotels Group became the first major hotel chain to take such a stance when it said it would no longer do business with online agencies that didn't follow a new set of quality controls. Shortly thereafter, InterContinental stopped providing inventory to Expedia and Hotels.com, which are owned by IAC/InterActiveCorp. InterContinental couldn't be reached for comment on how the move has affected its business.

Ironically, Expedia and Hotels.com are the first two sites to be accredited by Hilton. Hotwire.com, Priceline.com, and Travelweb.com have received temporary accreditation and are working with Hilton to be fully accredited by the end of the year. Two of the largest online agencies, Orbitz and Travelocity, aren't in compliance with Hilton's accreditation guidelines, but Subramanian says the company is in discussions with both. "I would fully expect that as long as they're prepared to work with us on the same basis as others, we can certainly find ways to work together."

Hilton's accreditation process also prevents its franchises from cutting side deals with online agencies that aren't accredited, deals that in the past often resulted in rooms selling for rates below what was available through Hilton.com sites. Those deals often included a commitment to provide a specific number of rooms, frequently forcing franchises into providing cut-rate inventory even when they didn't need the additional sales. Hilton no longer will allow online agencies to require such inventory commitments.

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