APRIL 15, 2003—Beverly Hills, Calif.—Hilton Hotels yesterday unveiled a major initiative to combat discount-lodging websites, which have largely grabbed the initiative for room pricing away from hotels.

Hilton announced a single-pricing policy for company-owned hotels in North America. For any given hotel over any given night, customers will find the same price for like rooms no matter which company-authorized distribution channel they use to book their rooms. Those channels include websites, travel agents, call centers, and at the hotels themselves. Individual hotels are still free to set their own rates.

“We`re making life simpler for our customers,” said Steve Armitage, Hilton`s senior vice president of sales. “Now they don`t have to go out and search; prices will be consistent.”
Hilton`s initiative far exceeds the steps other hotel companies, most notably Starwood and Six Continents (renamed InterContinental Hotels Group as of today), have taken to re-gain control of their pricing. Those companies guarantee that customers will receive a discount if they find a rate on the web cheaper than the rate offered on the companies` own websites.
At the heart of Hilton`s initiative is a deal with the online travel booker, Expedia, in which Hilton will channel its inventory to Expedia in exchange for Expedia`s agreement not to undercut Hilton`s rates. Hilton has a similar agreement with Travelweb, the new online booker that is owned by five major hotel companies, including Hilton.

Also as part of its strategy, Hilton will only award loyalty points toward free stays when customers book through authorized distribution channels, and it has enhanced its brand websites with more powerful functionality. The meetings search on Hilton`s brand websites is powered by PlanSoft, which generates detailed property information and images in its search results.

While the distribution arrangement with Expedia strictly applies to approximately 65 company-owned hotels, Armitage said Hilton is strongly urging franchisees and owners of its managed hotels to follow suit. More than 2,100 hotels in North America fly the flags of Hilton`s various brands, which include Hilton, Doubletree, and Embassy Suites.

If many of the other Hilton hotel owners do follow suit—and especially if other hotel companies launch similar initiatives—Hilton`s initiative could dramatically alter the landscape for hotel room pricing. It could possibly force online lodging bookers to take less profit and shift control of pricing back to hotel companies.

The initiative may prove beneficial to groups, which have seen increasing numbers of attendees use the Internet to book rooms outside room-blocks, usually at cheaper rates, thus exposing groups to hotel attrition damages.

“We`re supporting our meetings customers by making it less motivating for attendees to book rooms through other channels,” said Armitage. “The attendees will go through formal group-housing channels.”
However, Armitage acknowledged that attendees might still find cheaper rates than the group rate through Hilton`s distribution channels. As a meeting date nears, hotels will feel the traditional pressure to discount rooms in order to move distressed inventory. In addition, groups that contracted for room blocks a few years ago during the seller`s market may find their rates higher than present rates, which have slipped under pressure from the decline in travel.

As part of the deal with Expedia, the Bellevue, Wash.-based company will enjoy a direct technological connection to Hilton`s central reservations system, beginning this summer. The direct connection will enable Hilton-affiliated hoteliers to change room rates and availability displayed on Expedia quickly and easily, thus encouraging their greater use of Expedia.

To the extent that Hilton distributes its inventory to third-party websites, Hilton will work with Expedia and Travelweb, according to the company, and not with other websites that operate under what is called a merchant model. Under such a model, websites agree to place hotel inventory into their systems based on a set wholesale price, which they then mark up. Thus the websites, such as Travelocity and Hotels.com in addition to Expedia, control pricing, not the hotels.

“This provides pricing integrity,” Armitage said of the agreement. “Our distribution costs through this channel will be less than before; the mark-up is much more manageable.”

Online bookers often mark up rates by 30 percent, but Expedia has agreed to mark up Hilton rooms by no more than 18 percent. Thus Hilton will realize increased revenue by in effect raising wholesale rates to Expedia. It will also reduce distribution costs by driving more bookings to its own websites and call centers as consumers realize they won`t find cheaper rates anywhere else. Armitage said Hilton`s initiative is not designed to raise retail rates, but Hilton will be better positioned to raise rates if it gains substantial control over its pricing. Hilton hotels may still be listed on Travelocity, Hotels.com and other discount online bookers but for all practical purposes only if those bookers accept the standard, 10-percent commission travel agents receive, according to Armitage. Hilton`s deal with Expedia, which may extend to 2005, could force other online bookers to sign similar deals. Hotels.com and Expedia are owned by the same company, USA Interactive, but the Hilton agreement applies only to Expedia.

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