OTAs Win in Louisville on Occupancy Tax Issue

This morning, the United States 6th Circuit Court of Appeals affirmed a lower court's motion to dismiss a lawsuit filed by Louisville against the usual Online Travel Agency (OTA) suspects.

Full opinion here for your reading pleasure.

As is usual in these cases, Louisville (and some surrounding areas) filed a lawsuit claiming the OTAs had not paid occupancy taxes based on the rate charged to consumers on their website but rather on the wholesale rate remitted to lodging operators.

The lower Court rejected Louisville's suggestion that the OTAs are not "like or similar" to "motor courts, motels, hotels or inns" because they "have neither ownership, nor physical control, of the rooms they offer for rent." In fact, according to the ruling issued today, the court remarked that the Kentucky laws had "simply failed to keep up with the times."

Of course, Louisville et al appealed this ruling - Today, the court agreed with the lower court's analysis.

A few highlights:

This ruling is a clear rejection of the way the taxation statutes are written today. In particular, the Court ruled that "like or similar" was vague and unclear when questioning if the OTAs were "like or similar" to hotels etc. The Court was concerned about how broadly this "like or similar" verbiage could be construed.

Similarly, the Court ruled that taxes are collected on the "entities doing business as hotels and the like" not the individual occupants of the hotel rooms. As such, the Court rejected counties' suggestion that the amount paid by the ultimate consumer was the amount that should be taxed.

Finally, the Court looked at several other rulings where concern was raised that a hotelier could simply sell all their rooms through a subsidiary of some sort at a very low rate, collect the tax on said low rate and then simply market the rooms to consumers at a higher, marked up price. Thankfully, the Court rejected this claim and suggested that the right place to fix this problem was through legislation, not the courts. They also rightly noted that, in this case, anyway, there is no common ownership between the OTAs and the hoteliers.

This final claim, while positioned as a absurdity, shows the basic lack of understanding of hotel distribution that exists out there. While we doubt the Court has taken any of Bill Carroll's classes up at Cornell, they did a nice job of rejecting this concept which ignores the fundamental ways in which the majority of hotel rooms are distributed - which isn't via OTAs.

Oh, and anyone stayed at a "Motor Court" recently?


Thanks to bluehighwaysofamerica.blogspot.com/ for this great image!

DOT: $27,500 PER PASSENGER Fine for Long Delays. Total insanity.

In what is being heralded as a "Christmas Miracle" by some air travel watchdog groups, the DOT announced new fines for airlines that keep passengers on board an aircraft for longer than 3 hours after departure from the gate.

While we are not advocating that passengers should be kept on aircraft for long periods of time and deprived of basic necessities, we do worry that this arbitrary time limit will have a huge (and negative) effect on how airlines operate during periods of bad weather. Airlines don't intentionally keep people stuck in a tube for hours on end - it is clearly not in their best interests either. And a few of the incidents that have drawn widespread media attention (the Continental Express flight that spent the night on the tarmac in Rochester, Minnesota, for example) are so egregious that we agree something had to be done. But issues like the one in Rochester happened because of utter stupidity and the failure of the crew and airline to properly monitor a nasty situation - not because of malice or profit motive.

The new fine of $27,500 per passenger (which is going to the government, mind you, not the passengers sitting on board!) is arbitrary and capricious. I guess the DOT was trying to send a message, but they might want to check in with the FAA what is a reasonable fine. For example, lets assume a 228 seat 767 sits on the runway for 3 hours and 5 minutes waiting to take off. This would subject the airline to a $6,270,000 fine! In contrast, the FAA recently proposed fining United Airlines $3.8M for flying a 737 on over 200 flights with shop towels covering an oil sump area rather then the proper caps. And most FAA fines are reduced by half if the error is corrected and not repeated. So, a 3 hour delay costs over $6M but 200+ flights with rags in the engine costs ~$2M. This makes no sense. Ont top of that, no compensation goes to the passengers actually sitting on the plane. At least when an airline bumps you (under rules also set by the DOT) the compensation goes to the passenger, not the enforcement agency.

Further, because the fines are so large, airlines will be extra careful in ensuring the aircraft return to the gate in order to avoid these fines. Get ready for your next flight to be sitting in line waiting for takeoff on a snowy evening and after waiting for two hours or so, you head back to the gate. As such, you lose your spot in the queue, maybe the crew goes illegal, bags have to removed etc - you end up stuck in an airport. Some Christmas Miracle indeed.

Net/net, less passengers will make it to their final destination with this new fine.

This is a classic example of the government over-reaching into the operational aspects of a business for reasons beyond protecting the safety and welfare of citizens. Yes, something had to be done to prevent another Rochester, MN but this is not the answer. This is a cheap headline, hardly a "Christmas Miracle."

AirTran Pinches SI Swimsuit Partnership Away from Southwest

AirTran announced a partnership with Sports Illustrated's Swimsuit edition this morning that culminates with AirTran flying the models from NYC to Vegas after the release of the magazine. Of course there are the usual opportunities for a contest winner to join the models on the flight and more promotional tie-ins are promised. We can only imagine.

But what is interesting about this promotion (beyond the obvious) is that last year Southwest (who had yet to begin service into New York LaGuardia at the time) issued nearly the same press release including a similar flight, contest as well as a new take on Southwest's logo jets - not another Shamu plane. Rather, a full length shot of cover girl Bar Rafaeli. Southwest took a fair amount of heat (others called it a stroke of marketing genius) for the airplane pictured here.

So, was SI too hot even for Southwest, the carrier formerly known as the Luv Airline? And what about SI models flying AirTran - that sounds like worlds colliding. The battle between Southwest and AirTran continues - at least this time it is in NYC rather than Milwaukee.

Facebook and TripIt Get Trippy

This morning, at long last, TripIt announced a Facebook app that allows TripIt users to integrate their itineraries into their News Feed. Much like TripIt's LinkedIn connectivity, it allows users to share their plans (or not) but on a much larger platform.

Not only will your FB friends be able to see when and where you are headed (if you choose to allow them of course) but they'll also be able to suggest places to eat, things to do, people to meet and who knows what else. No longer will I have to update my status: "Just landed in Antananarivo" - everyone will already know.

In TripIt's (cheeky) example below, it appears that people can even schedule a contract review through FB! Is FB on track to take over email/outlook as a primary business communications device as well? Probably not but at least it is now possible to separate "work" friends from all those people you went to high school with that are now your "friends" even though you barely spoke 20 years ago!

Bravo to TripIt.

Jetsetter Speaks Out at HEDNA on Marketing and Distribution

Jetsetter CEO Drew Patterson was a panelist at this week's HEDNA convention in Las Vegas and had some great insights into marketing, distribution and revenue management.

Drew began his remarks with an observations that what is really missing in the online travel industry today is inspiration. Paraphrasing, the major OTAs are not really about exciting people to travel or getting them to book an incremental trip - they are largely order takers. (My words, not Drew's!)

Drew's comments are similar (but not as blunt) to Harrah's CEO and President Gary Loveman's remarks at this year's PhoCusWright conference during which he lamented that the OTA industry has done little to actually drive tourism and increase trips - most energy (in his opinion) is spent on beating up one another (OTA vs. OTA as well as OTA vs. supplier) vs. actually driving and inspiring consumers to travel (and stay in his hotels, obviously.)

Drew also commented on the often difficult relationship between Revenue Management and Marketing within the hotel industry. In Drew's words, "RM and marketing have to work in partnership to stimulate activity. Lowering rates without communicating the price change just dilutes an existing customer base. At the same time, marketing communication without value or a reason is a waste of money because consumers will see through it. The two have to be integrated to have an impact." Sage advice for hoteliers and distribution partners.

Clearly, Jetsetter aims to solve for these issues, but they alone can't be the total answer for what ails the industry today. (Drew has big plans but it is a big world out there.) Will anyone step up in 2010?

Lodging Recovery: 4 Years Away, OTAs vs. Suppliers, Google vs. TripA and Other Good Discussions

Check out the blog over at uptake.com for some good thought-provoking discussions following the PhoCusWright conference down in Orlando.

Yen does a nice job of explaining Bill Carroll, Chris Anderson and Jake Fuller's analysis of the lodging cycle and the opportunities for the OTAs. In a nutshell, look for another 4 years of pain for hoteliers and substantial continued opportunities for OTAs.

Solid musings on the potential GDS IPOs along with HomeAway, Kayak and ITA - should be a big year in travel IPOs

And what would a travel discussion be without thoughts on google and tripadvisor?

Catch all the details here including my thoughts on OTA vs. supplier.com innovation and growth. The reply below is in response to Yen's thoughts around the growth of OTAs during the last economic blip - good supply helps but innovation is critical as well:

I think the question is as much around supply vs. demand as it is innovation vs. the lack of it. Hotels.com and Expedia built their businesses just as much around great pricing as they did around great websites, content and functionality. The chains and airlines fought back and brought their sites (somewhat anyway) up to snuff. But, particularly for airlines, they have relied on booking fees charged by the OTAs as a crutch to create differentiation. With those fees now moot, is it any wonder why consumers, for the same price, aren’t booking where a better booking experience happens – the OTAs? No wonder OTA air segments are way up – which obviously feeds the hotel and car lines of business. The innovation pendulum has swung squarely to the OTAs from the suppliers. Just look at Orbitz Price Assurance for air and hotel or Travelocity’s Guarantee or Expedia’s packaging product to see how the OTAs are changing the game. The suppliers are nowhere in these customer friendly areas. Will the airlines fight back with more negatives (as they are sooo prone to do) by restricting seat assignments or frequent flyer mileage accumulation to their own websites? (Remember when hoteliers did this?) Or will they match the innovation of the OTAs and really attempt to compete? We’ll see next year."

Is Allegiant Air Feeling the Heat From AirTran?

Allegiant Air, which has long operated exclusively from Orlando Sanford Airport, today announced that ten destinations will now be served from Orlando International Airport.

Normally, we would not consider this to be very interesting news except that we've been following the growth (or dare we say copy-catting) of AirTran from Orlando International Airport (MCO). AirTran has added significant new service over the past several months from MCO which closely follows Allegiant's strategy of operating less than daily (2-4 weekly frequencies) in under-served leisure markets such as Bangor-Orlando, Duluth-Las Vegas and the like. We doubt that AirTran hast been able to build the kind of vacation packaging revenue that Allegiant depends on, but clearly Allegiant decided they needed to compete on more equal terms.

Allegiant is moving markets where they directly or closely compete with AirTran to larger and more conveniently located MCO. These include: Allentown, Knoxville, Lexington and Des Moines where they fly wing-tip to wing-tip with AirTran as well as Greenville, Grand Rapids, Springfield MO, Tri-Cities TN, Huntington WV, and Youngstown where Airtran operates nonstop service to MCO from cities within a very easy drive.

Allegiant's press release says customer preference for MCO drove the decision but we see it really as a way to put pressure on AirTran. And AirTran is pretty good at picking fights - they have proven they can succeed in Delta's back yard in Atlanta and are waging a huge war in Milwaukee with Midwest and now Southwest. Even Northwest, which has a history of not tolerating LCC's in their hubs was not able to drive AirTran from Minneapolis, Detroit and Memphis. This will be fun to watch...