IHG Takes Action Over Problems with Online Travel Distributors

20th Apr 2004

InterContinental Hotels Group (IHG), the world’s largest and most global
hotel company, is adopting a new standard for its portfolio of brands,
representing more than 3,500 hotels, for selling or re-selling hotel room
inventory via all online travel companies. The new standard becomes
effective on 20 May 2004 and was unanimously endorsed on 16 April 2004 by
the IAHI, the most established independent franchisee association in the
industry.“The standard directly addresses a number of problems that IHG’s guests
and hotel owners are experiencing with some online travel companies. We
have been discussing these problems for some time and believe several
distributors are working hard to alleviate the situation. However, it is
important that we ensure the business practices of all our online
distribution partners are in line with our core values,” stated Tom
Seddon, senior vice president, Americas Brand Performance.

With its new standard, IHG is committed to only working with distributors
and their affiliates that do not engage in confusing and potentially
unclear marketing practices, that clearly present taxes and fees to
consumers, that respect IHG’s trademarks, and that ensure reservations are
guaranteed through an automated and common confirmation process. The new
standard also ensures that hotel owners are able to provide the best
available rate, realize efficiency gains from the Internet which they can
reinvest in their properties, and better manage inventory.

  Significant Consumer Problems

- Confusing and potentially unclear marketing practices -

The rapid adoption of the Internet for travel booking has led to the rise
of some potentially confusing and unclear practices.


* Customers who go to an online distributor’s Web site to find a hotel may
see a hotel listed as ‘Sold Out’ when that hotel actually has rooms to
sell. * Customers may be lured to a site with the promise of huge
discounts on recognized hotel brands, which may not exist in any
meaningful quantity. * Customers searching for a specific hotel brand can
be diverted to another Web site without their knowledge or consent.

IHG will only work with distributors and their affiliates that commit to
not engaging in any of these types of practices.

Unclear Presentation of Taxes and Fees

When booking a hotel room on some distributors’ Web sites, a guest may see
a charge for ‘taxes and fees’ added to the room rate. In many cases, it is
not made clear to the guest what proportion of this charge is for taxes,
and what is for service fees imposed by the distributor. This means that a
large part of the ‘taxes and fees’ line may often, in fact, be fees
retained by the distributor, although many guests may be unaware of this.
It also leads to problems for hotel owners and distributors in determining
the appropriate taxation basis on the amount remitted by the distributor
to the hotel.

IHG will only work with distributors that commit to clearly showing all
guest charges and to helping hotels directly address the question of the
appropriate taxation basis.

Antiquated and Unreliable Booking Processes

Given the hi-tech nature of the Internet, it is surprising that some of
the third party sites still use manual and inefficient booking processes.
Consumers can make reservations on a distributor’s Web site, but those
reservations are often ultimately transmitted to the hotel via a fax or
other process that then must be manually reentered into the hotel’s
reservation system. This leads to the potential for lost reservations,
reduces consumers’ confidence that their booking is secure, and increases
operational costs for hotel owners.

IHG will only work with distributors that either already have automated
the booking, payment, and settlement processes or are committed to
automating the processes in a short period of time.

  Increasingly Unattractive Business Model for Hotel Owners

- Hard for hotel owners to offer the best rate available -

Current online distribution models make it difficult for hotels to offer
the best rate available. In some cases, hotels don’t have the ability to
set their room prices on third party sites, making it unnecessarily
difficult for a hotel to ensure that it stays in compliance with IHG’s
Lowest Internet Rate Guarantee.

IHG will only work with distributors and their affiliates who commit to
work with hotels to comply with IHG’s best rate available promise.

Hotel Owners Unable to Respond to Supply and Demand

Under the existing model, hotel owners are unable to make real-time
choices on controlling rooms available for sale, taking into account
demand levels, customer buying patterns and channel costs. Hotel owners
often subsidize inefficient distributors by being forced to keep open high
cost channels when demand is high.

IHG will only work with distributors and their affiliates who commit to
allowing hotel owners to respond to market supply and demand.

Internet Efficiencies Unrealized by Hotels

The high cost of some current distribution channels prohibits efficiencies
gained from the Internet from being passed to hotels and consumers. In
fact, some distributors are currently operating with 20-30 percent
commission margins, a level that far exceeds even ‘traditional’ offline
travel agents.

IHG will only work with distributors who want to share Internet efficiency
gains with hotel owners and guests.

“We are committed to working with a wide variety of sales distribution
channels,” said Seddon. “However, we are taking the stand that we will
simply not have our brands sold through distributors who refuse to solve
these problems. Customers and hotel owners have a high degree of trust in
our brands ... our reputation and heritage is built on that trust.”

Leroy Lail, chairman of the IAHI, stated, “We as hotel owners are fully in
support of this new standard. It is a win-win for owners and guests alike.”

InterContinental Hotels Group has always been an industry leader in E-
Commerce, being the first company to offer online reservations in the
industry. IHG was recently recognized by an Internet assessment
performance company, Keynote Systems, for having the fastest Web site in
the industry, and was voted the best international hotel Web site in the
most recent Freddie Awards (the frequent traveler’s answer to the Oscar,
Emmy and Grammy Awards). IHG was the first company in the hotel industry
to earn the TRUSTe seal of approval for our online security and privacy
protections. Over 70 percent of InterContinental Hotels Group online
reservations are currently booked directly via its own Web sites, well
above the industry average of 50 percent. Bookings through third-party
online distributors currently represent less than two percent of room
revenues for IHG’s brands worldwide.


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