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Online fuels hotel commission wars

Internet discount websites are changing the business accommodation model, which may leave wholesalers out in the cold.

Internet discount websites are changing the business accommodation model, which may leave wholesalers out in the cold, according to Glenn Fogel, executive vice president of corporate development, Priceline.com.

Speaking at an event put on by Travel Trends, Fogel said the wholesaler model will decline and may even disappear altogether due to high commission rates. Customers are now able to go online and see for themselves where the cheaper prices are thanks to metasearch engines like Priceline.

A wholesaler is a company that buys rooms from a hotel at a low price and then resells them to online travel agents taking a substantial amount of commission.

Commissions charged by wholesalers can start from 20 to 30 per cent, according to Fogel. The main threat to this system is coming from metasearch engines, like Priceline.com, Wotif and Expedia, due to their ability to offer cheaper prices direct to the customer.

One example Fogel gave of the declining wholesale model was that of GTA in the US, which was bought in 2005 by TravelPort for $1.1 billion but then sold for $720 million just four years later.

Toga Hospitality CEO, Rachel Argaman, who also presented at the event, admitted that she won't sign on with third-party websites if the commission is higher than 10 per cent.

Argaman predicted that we will be seeing third parties working very hard to keep commissions below 10 per cent. "Toga Hospitality strongly supports third-party websites who charge 10 per cent commission and will be working hard to support third-party websites who cap their commission at 10 per cent," she said.

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Updated at 11:04am, 24 March 2011: Toga Hospitality's CEO supports third-party websites with a commission of 10 per cent.