“You’re Out!” No, that’s not just the last thing said to the Phillies at the end of this year’s World Series. It’s also the last thing Expedia said to Choice before they pulled the chain’s inventory.
Unlike the Phillies, though, Choice is back in the game. Only a few days after claiming that Expedia’s terms were too onerous, Choice appears to have capitulated and is ready to talk again.
For Choice, the time was not right to play hardball at the bargaining table:
1. current low occupancy in the industry;
2. prospects for 3 to 4 more years of low occupancy;
3. many owners with significantly high debt-to equity ratios desperate to cover fixed costs; and
4. limited in-place planning and actions to make up for property revenue loss from Expedia channels.
For Expedia, the time was right to play hard ball for the same top 4 reasons it was wrong for Choice. In addition, it was the right time for Expedia because:
1. they have a commanding US market share lead over other OTAs;
2. third quarter results suggest that hotel merchant bookings year-on-year growth was close to 10 percent in a (still) down economy. (Note: specific U.S. merchant hotel booking growth numbers are not reported but can be inferred from reported results); and
3. other major chains would be coming up for re-negotiation within the weak occupancy window -2010 to 2011.
Regarding this last point, having a public demonstration of resolve was very useful for Expedia.
In the end, Choice did the right thing for themselves and the industry. So did Expedia. They went back to the bargaining table. Hopefully, they will also do the right thing by striking the best agreement they can; then keep it confidential.
• Choice properties win because they regain a critical booking channel in a down economy.
• Expedia wins because it gets to keep its current agreement principal of last room availability intact for future chain negotiations.
• The industry wins because, depending on chain leverage with Expedia, the timing of contract end dates and the speed of economic recovery, agreement terms can be kept private on a chain-by-chain basis.
This last point is important for chains in the long term. The economy and occupancy will recover, hopefully within a couple of years. Expedia’s competitors will want to recover share loss and be very willing to offer more favorable agreement terms. Search engine marketing and social media management will be improved and made more efficient (lower cost) for driving direct hotel bookings.
Expedia knows this. So, both they and chains would be well advised to bargain smartly in the short term to maintain a viable relationship for the long term.