Hotels mimicking Orbitz's business

Summary:Five hotel chains are forming their own system for booking hotel rooms over the Web. But the group has a ways to go if it's going to challenge existing big guns like Expedia.

Taking a page out of Orbitz's playbook, five hotel chains announced Monday that they are banding together to form their own distribution system for booking hotel rooms over the Web.

Hilton Hospitality, Hyatt, Marriott International, Six Continents Hotels and Starwood Hotels & Resorts Worldwide have formed a new company called the Hotel Distribution System. HDS will make hotel rooms available to Web travel sites via direct connections to hotel reservation systems, the company said in a statement. Eventually, HDS intends to launch a Web site to sell directly to the public as well.

The launch of Dallas-based HDS is an effort by the hotel chains to compete with Expedia and the Hotel Reservation Network, which book the most hotel reservations online. Both reported profitable fourth quarters recently, due in large part to revenue generated from hotel reservations. While Expedia and HRN have feasted, the major hotel chains have appeared satisfied to sit on the sidelines.

The new company may signal that hotels are starting to ask the same question the major airlines asked two years ago: If other companies can make money selling our inventory over the Web, why can't we?

"This will help the hotels provide a more efficient way to distribute their product," said Henry Harteveldt, an analyst with research group Forrester Research. Word of the new hotel reservation company had been coming for some time, he added.

HDS closely resembles the partnership struck two years ago by six top airlines to form online travel site and Expedia rival Orbitz, which emerged at a time when Expedia and Travelocity.com were running away with the online travel business. The Web travel agencies, by collecting fares from a host of carriers, made it easy for consumers to compare prices online.

Both companies earned profits and proved that online shoppers would flock to such a service. By the time Orbitz's well-heeled airline backers--including United Airlines, Continental Airlines and American Airlines--got the company off the ground, however, Expedia and Travelocity had already forged relationships with airlines, hotels and rental car companies. The two appeared unbeatable to some industry observers. But in less than a year, Orbitz soared to the No. 3 spot behind the two companies.

Expedia and Travelocity are quick to point out that part of Orbitz's success has been due to agreements struck between the company and the more than 30 airline members of its charter organization--deals that rivals have called an unfair advantage.

Each member of Orbitz's charter has agreed to offer Orbitz its lowest fares. This has been the subject of much controversy, and federal regulators have probed Chicago-based Orbitz's relationship for antitrust violations. Thus far, the government has allowed Orbitz to operate unfettered.

Orbitz is among the Internet sites HDS has struck agreements with to sell its inventory, HDS said. But the company was careful to highlight in its press release that it doesn't intend to restrict competition.

"Hotel operators that sell through HDS will be free to enter into agreements with all competitors," said Joe Humphry, interim chief executive of HDS.

Appearing to be too much like Orbitz could be the least of HDS' worries. Despite wanting to attract other hotels to its services, HDS controls only a fraction of the available hotel rooms in North America, another important difference with Orbitz. Orbitz's airline backers control a large share of available airline seating.

Any company that seriously wants to challenge Expedia and HRN--which each boast partnerships with more than 4,000 hotels nationwide--would have to greatly expand its number of members.

Bob Diener, president of Hotel Reservations Network, said his company has always believed that it would eventually face more competitors, and that there's plenty of room for more.

He said HRN booked more than $500 million worth of hotel rooms last year, not even scratching the surface of the $250 billion industry.

"We don't believe (HDS) will have a significant impact on our business," Diener said. "We offer hotels a broad distribution channel. We have the customers. How do they operate their business profitably and get their name out there in this environment?"

Said Humphrey about the mission of HDS: "Our ultimate goal is to increase competition for the sale of hotel rooms online."

Topics: Travel Tech, Government

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