Thursday, October 29, 2009

Expedia and Choice Hotels: Spencer Has His Say

In Part Two of our Ghosts of the Internet Past interviews, we caught up with former Expedia executive Spencer Rascoff. Spencer is now the Chief Operating Office of real estate website but was ran hotel supplier relations during the IHG/Expedia stand-off six years ago. Prior to Exedia, Spencer and I worked together at where Spencer ran the hotel side of that business and I brought him coffee and donuts.

TomBotts: “Spencer, first off, do you miss travel?”

Spencer Rascoff: “Well, of course I miss travel. Real estate is fun – things are going very well here at Zillow. But I still follow the travel industry closely – several of us who were at Expedia during the IHG smack-down have been emailing back and forth and reliving the old days.”

Tom: “So, has anything changed this time around in your opinion?”

Spencer: “The biggest change is that the suppliers have developed much stronger direct selling capabilities. Six years ago, the brand sites were pretty much second class sites. That has changed radically. The brand sites are a lot more reliable alternatives to the OTAs now and the brands have developed tactical marketing capabilities to successfully drive traffic directly.”

Tom: “When it comes to the current breakdown between Choice and Expedia, what you see as the major issues based on what you know?”

Spencer: “It seems that the negotiations are almost exactly the same as they were six years ago - you can copy and paste “IHG” for “Choice”. So little has changed. Amazing that the industry has changed so little that they are arguing about the same 3 issues – LRA, sell rate and margin – it’s been the same for ten years!”

Tom: “Does it make a difference this time around that it is Choice rather than IHG?”

Spencer: “In my opinion, IHG was more important in 2003 than Choice is to Expedia in 2009. I would give the edge to Expedia in this bout. The dirty little secret out there in the OTA space is that they don’t really need all hotels for leisure consumers. They need to have a good mix of star levels and locations but they don’t need every single hotel for this customer base. The OTAs are focused on the key cities that make up the bulk of their business and there are several key properties – about ten or so in each that are fundamental must-haves. For example, you can’t sell hotel rooms in New York and not have the Waldorf=Astoria. IHG has (or had) many of these key assets – I’m not convinced that Choice is in the same position of strength and brand power.

Tom: “Does an OTA need to have all hotels for business customers?”

Spencer: “Yes, business travelers are a different breed – they book much more on location, loyalty program, habit and of course negotiated rates. If all of a sudden the hotel where their company has a negotiated rate is gone this presents a major issue for the supplier, the company, the TMC and the traveler.”

Tom: “So when IHG pulled GDS inventory from what was Expedia Corporate Travel (now egencia) how big of a deal was that?”

Spencer: “It was a nuclear bomb – we didn’t see it coming and it took us and our mutual customers by total surprise. It was the one thing that really brought Expedia back to the negotiating table. I don’t think Choice has the same amount of leverage, however. Their hotels are just not as important to the corporate travelers that use a booking tool as the IHG properties were and are.”

Tom: Any other key levers you see either player having in this game?

Spencer: “The other lever is understanding how much control the franchisor has over the franchisees when it comes to distribution. Negotiating with IHG was a three legged stool between corporate, the owners and Expedia. Jim and IHG did a great job of ensuring that the franchisees would toe the corporate line. The franchisees were unhappy but IHG was really effective at keeping them in line. I’m not sure Choice has the same power.”

Tom: “Do you think Choice can replace the demand through other channels?”

Spencer: “It will certainly be easier this time around but it is still really hard. One key fact that is hard to ignore is what we used to call the ‘billboard effect.’ I’m not sure what the recent research shows but we found, back in the day, that for every booking that occurred on, the supplier site generated a direct booking as well. Consumers were exposed to the hotel on Expedia and then went off to book it on the supplier site. This demand generation is nearly impossible to replace.”

Tom: “Yes, we saw similar results in testing when I was at Starwood. So, does the lack of Choice hotels really hurt Exedia?”

Spencer: “I highly doubt Expedia’s conversion will take a hit. Consumers just book a similar hotel from a different brand. Now, this would not be the case if we were talking about a key marquis property – but for run of the mill hotels, consumers simply book something else.”

Tom: “Any parting thoughts?”

Spencer: “Well, in my mind, the wild card here is really egencia. It is very difficult to grow that business if potential customers see the TMC as at war with the suppliers. I’m not sure where things stand between egencia and Choice, but it is certainly Expedia’s Achilles Heel in this negotiation.”

Choice Hotels and Expedia: Former IHG Exec Jim Young Strolls Down Memory Lane

As we discussed earlier, all of the relevant parties to the last major public flare-up between an OTA and a major brand (Expedia and IHG) have moved on to new challenges. However, we’ve tracked the two key witnesses down, and they both have agreed to discuss the current situation between Choice and Expedia. First, we are talking with former IHG SVP Jim Young. We’ll follow shortly with a discussion with Spencer Rascoff, former VP of Supplier Relations at Expedia, and now COO at

Tom Botts: “Jim, you lived through a similar situation a few years back when you were with IHG. What has changed since you went to the mat with Expedia?”

Jim Young: “It feels like the industry hasn’t learned a thing. Suppliers seek leverage in the good times when demand is high and Distributors take advantage when demand is low. I suppose you could argue that is just capitalism, but it sure isn’t sustaining and somewhat unproductive”

Tom: “Is the landscape still the same in your opinion?”

Jim: “Some things are different. I think there is greater price transparency and channel awareness with meta-search now in the mainstream. Hotels have greater ability to communicate with customers through social networks like Twitter and Facebook. Finally, I think that both hotel companies and OTAs have done a better job establishing their brand position in the market.

Tom: “Talk about the role of hotel brands in this puzzle”

Jim: “Hotel brands are in the business of franchising their trademarks, providing development and marketing expertise, as well as reservation services. They make money by charging fees, normally based on a percentage of total rooms’ revenue. Hotel owners sign franchise agreements in order to be part of a bigger system. It gives them access to services and scale they either can’t get or are too costly to procure on their own. As far as room distribution is concerned, the brand represents all their system hotels and negotiates the participation terms with all major travel sellers, offline and online and processes them through the reservation system. Some brands have very strong franchise agreements that clearly establish the brands rights to set the terms of these agreements. Other brands are just glorified representation companies with minimal design, quality, and compliance standards.

Tom: “What is the power of a brand in your mind?”

Jim: “A hospitality brand is a lot more than just the sign, the room decor and the attitude at the front desk. The brand is the market power you give to hotel owners to sell rooms. That is what it is all about, after all. If you are a 200 room hotel in a big city crowed with many competing properties or an 85 room hotel at an interstate exit with 5 other hotels on the same strip, having a strong brand is a big deal and it helps you beat the competition. If, however, an owner perceives that they can get better marketing, distribution and reservation production by going direct to the distributor, then the brands value starts to diminish. That is what keeps franchisors up at night. If they are not perceived as a strong well marketed brand, then they can’t grow their system”

Tom: “So, why now? Why is this fight happening at a time when most hoteliers are pretty happy to get any revenue at more or less any price?”

Jim: “Like I mentioned earlier, I don’t think the industry learned anything from the last exercise. The cyclical nature of the business constantly creates winners and losers in contract negotiations. Expedia’s timing is dubious – kicking hoteliers when they are down is a tough card to play. Choice and Expedia were operating under the previous terms of their agreement which had, apparently after a number of extensions, expired. It sounds as if Expedia saw an opportunity to bring Choice’s corporate agreement into the realm of what they claim is their accepted norm with other chains. Both would have been better served to build an agreement that would survive the normal cyclical nature of the business – building an agreement that survives good times and bad for both.”

Tom: “And so what of Expedia’s attempts to bypass Choice and go directly to the owners/franchisees?”

Jim: “As you said in an earlier post, ‘we’ve seen this movie before.’ It is exactly what they attempted with IHG. We had tough guidelines in place that prevented our franchisees from deviating from the corporate strategic position. I’m not sure if Choice has those same standards in place. Going directly to the hotels is disingenuous if you really want to do a deal at the chain level. Expedia could drop a whole bunch of market managers if they focused on the chain level relationships rather than focusing on the hotels.”

Tom: “Choice has talked a lot about other efforts they are pursuing to replace the lost revenue from Expedia. Steve Joyce has placed the number at around $100M per year – not a small number given that it probably flows to a disproportionate number of hotels. You worked hard to replace the business you lost when you were dark on Expedia – did you make it up?”

Jim: “Well, we came pretty close. I can’t share exact numbers of course, but we were able to leverage some other key strategic partners to drive some pretty impressive numbers which demonstrated to its hotel owners the power of its brand system."

Tom: “So, could you have driven those numbers and retained the Expedia business for a net overall share gain?”

Jim: “Great question – the answer is probably somewhere in the middle. Some things are only possible when you switch allegiances and create the burning platform that forces everyone to react to the change – just look at Continental and SkyTeam vs. Star! I’m sure Continental will get an early benefit from being a full partner in such a large alliance.”

Tom: “Old airline guys (myself included) never get the Jet A out of our veins, do we? What is the net net of this situation?”

Jim: “I think, in the current state of mind of both hoteliers and OTAs, that this will end up as a giant, zero-sum game for both. Expedia will look a little less complete when their customers realize that Choice’s 5000+ hotels are missing from the display and Choice won’t have access to Expedia’s distribution reach. Something has to change.”

Tom: “What needs to change in your opinion, Jim?”

Jim: “I think there is a balance somewhere out there. In market segments where Choice has a strong brand presence and can easily tap the demand directly to their website, they don’t need to rely on the OTAs as much and should focus their efforts there. However, where Expedia can demonstrate that they can more cost effectively merchandise and deliver a room reservation to a hotel in a market that Choice is not as strong in or not targeting directly, then Choice should find a way to pay for that value delivered.”

Wednesday, October 28, 2009

Best Western Makes the Same Expedia Choice?

Hotel News Now has an interesting story describing the recent Best Western owners meeting. According to the story, Dorothy Dowling, Best Western's SVP of Marketing and Sales asked the members in attendance if they would be willing to join Choice in the fight against Expedia by pulling their hotels from the site. According to the story, applause rang loudly from the attendees.

Now, before this becomes a conspiracy against Expedia, lets examine the facts. Best Western, by the nature of the business model, does not have the power over its membership that IHG or even Choice Hotels has - they can't force their members (not franchisees, mind you) to actually toe the corporate line as IHG did six years ago.

And of course the hotel owners are opposed to the terms which Expedia is asking for - who wants to give up 25% of revenue per booking? The question is, can they make it up elsewhere?

Best Western suggests working with "receptive tour operators and other online travel agency partnerships" to drive revenue instead of relying on Expedia. Fair enough, but IHG and Choice would both say it takes a lot more than looking at other channels. And we've never seen a receptive that offers lower (or more flexible) margins than an OTA. As for looking to other OTAs - it comes down to size and scale. And for better or worse, Expedia has everyone beat in both categories.

So, is Best Western ready to step up and drive revenues direct? This is the true power of the brand.

Virgin America Answers "The Whats in it For Me Question" of Social Networking

Virgin America has launched a new program via email tonight that offers members of Elevate, Virgin's Frequent Flyer program, 20% off their next flight. The 20% off offer isn't new - Virgin has been sending these out like candy over the last year.

What is new is that there is (finally) something in it for the email recipient who forwards the 20% offer to friends, facebooks (is that a verb?) it or blogs about it. (Yes, guilty.)

VA is offering a free round trip for members who pass it on and get 10 friends, accomplices, vagabonds, really anyone, to book a ticket. Not a bad deal for all concerned - 20% for the hangers-on and a free ticket if enough "friends" actually book some tickets.

So, have at it. And if you want to be my friend and save 20% on Virgin America, click here and enjoy.

Tuesday, October 27, 2009

Priceline Negotiator Trades Phasers for an iPhone launched a cool new iPhone application today that not only functions well but is also really fun. Finally, a great app from an established company that also has some whimsy. Priceline is obviously serious about mobile bookings but isn't taking themselves too seriously with this app - we like that.

Most importantly, this isn't just a re-skin of the regular Priceline website crammed down to fit on a small screen - The Negotiator app is actually a different experience tailored for the iPhone and a fun one at that - the music between the screens adds to the fun.

Most fun is the "shake down" feature which leverages the iPhone's location functionality to display winning bids nearby. Shake your iPhone and see what your options are - perfect for last minute bookings and much more useful than a randomized restaurant listing!

It is also easy to toggle between "Name Your Own Price" hotels and regular, published hotels through a tabs at the bottom of the screen labeled "Negotiate" or "Browse." When "negotiating,"
the app allows users to perform Priceline bidding functions with some nice touches for choosing your bid amount like a recommended price to bid, and a slider to increase or decrease the bid with great tag lines like "See if you can bag this deal, too!"

And because you can book up until 11PM for same day arrival, we bet more than a few travellers who find themselves stuck in a city for whatever reason (you can think of a few, I'm sure) will love this app. Priceline has long allowed for same-day bookings but firing up your laptop for a last minute room isn't exactly a lot of fun - Priceline has created an elegant and fun solution.

Tuesday, October 20, 2009

Travelocity Shakes Things Up

Travelocity just announced the departure of Paul Nelson who is leaving the company at the end of the year. Filling his shoes as President, Global Partner Marketing is long-time Travelocity vet Noreen Henry. Noreen has most recently been VP of North American Hotels and Packaging.

Noreen's step up to the big chair created the proverbial domino effect and allowed Leslie Harris to step into Noreen's role. And filling Leslie's former role as VP of Travelocity Business will be Yannis Karmis who currently heads Sabre's global customer care team.

Nice to see some great people get promoted and a company with solid succession planning in place.


Choice Hotels' CEO Steve Joyce just spoke with Hotels Magazine about the current issues at hand - taking the fight into the streets.

According to Joyce, it sounds as if the issues came down to six letters: LRA and MFN. In other words, Expedia is asking for Last Room Availability whereby they will have access to the entire hotel's inventory during both periods of market strength and weakness. MFN refers to a Most Favored Nation clause by which Expedia is asking for parity vs. other channels.

Choice is concerned that they will still have to offer rooms to Expedia (at the standard margin) even when the hotel is expected to sell out, depressing yields. In contrast, Expedia's concern focuses around providing consumers with inventory at all times, not just when the hotel "needs" business - it is about product consistency.

Choice would also prefer not to offer Expedia all rate plans and programs - possibly to allow special rates or packages on their branded websites etc. Obviously, Expedia would like to always have competitive pricing in order to keep consumers coming back in a hyper-price competitive marketplace.

These are gross simplifications of the issues at hand - Expedia is certainly not getting any style points right now in what is being pitched as a David vs. Goliath war.

JetBlue: $31 Fares on the 31st - Everywhere!

JetBlue is really starting to get creative in using unique pricing to generate consumer buzz - the latest is $31 seats on Halloween.

Using seats that would otherwise probably go empty to generate media excitement is a very smart strategy. It differs from Ryanair and others who often price at 1 Euro - consumers in Europe have grown accustomed to those"teaser" fares that actually end up being much higher after all sorts of fees and taxes are lumped on.

Rather, JetBlue is making the story the pricing with very targeted sales around specific holidays or ideas. We saw $9 fares on 09/09/09 and who can forget the media blitz that ensued after the All-You-Jet Pass.

Now JetBlue is offering seats on Halloween evening for just 31 bucks. Again, Saturday nights are generally pretty light in terms of traffic and that is probably even more acute this Saturday night as it is Halloween. So, rather than flying around a bunch of empty planes, JetBlue is going for another media sensation. $31 flights from JFK to the West Coast? Even if it is Saturday night, that is a an amazing fare - and here we are writing about it. Case closed. Nice move, JetBlue.

Monday, October 19, 2009

Choice Hotels and Expedia: We've Seen this Movie Before

Hotels Magazine just broke a nice story on a squabble that has erupted between Choice and Expedia that is eerily reminiscent of a fight between Expedia and IHG several years ago.

This time around, Choice Hotels brands are no longer showing on Expedia and This even includes white labels such as Expedia's co-branded AARP product. It is unclear if Egencia users are also shut out from Choice properties. It also isn't clear (yet) if Choice made the move or Expedia did but one thing is for sure - it is lights out for Comfort Inn et al on Expedia.

As you may recall, the last time we saw a major, public hotel riff was when Intercontinental Hotels (IHG) and Expedia went to war several years ago over a number of issues including display, content and, of course, margin. All the parties closely involved in that dispute (on both sides) have moved on to bigger and better things (think real estate site Zillow for the Expedia gang) but everyone we've talked to would largely like to forget the incident. There were no real winners in the long term.

The timing of this fall-out is interesting. The lodging sector is hardly strong right now - most hoteliers are looking for every penny of revenue they can scrape - harder to do when you are not appearing on the world's largest online travel agency. And Expedia has been working hard to cultivate a new culture of positive supplier relations. On the other hand, the budget-oriented chains such as Choice have fared better in this downturn than the up-scale brands so maybe Choice felt they could withstand going dark in order to make a point.

So, did Expedia make a choice or did Choice make a choice? We'll be watching this closely....

Wi-Fi is Wi-Free on Virgin America Over the Holidays!

Virgin America just announced free Wi-Fi over the holidays - and it is quite a definition of the holiday season - almost as long as Bloomingdales defines it - November 10th to January 15th.

Google and Virgin have partnered to make Gogo Internet Wi-fi free as "two California-based companies known for innovation, entrepreneurialism and for connecting people in new ways, have again joined forces to give Virgin America fliers the gift of in-flight connection." Wow.

Possibly of greater interest is that Virgin estimates that 12-15% of their passengers are using the service with 20-25% of passengers on long-haul routes using it. That is some serious ancillary revenue for all the airlines.

Boston - Baltimore: Low Cost Carrier Battle Royale!

The Boston to Baltimore air market is starting to look like the Boston to New York bus market with fares almost at the same level of the Fung Wah bus! Of particular interest, BOS-BWI is one of the few markets where all three of the nation's largest low-cost carriers compete head to head - and that will make it fun to watch.

Just last week, Southwest announced an increase in flights (to 7) in the Boston-BWI market starting in March. As you may recall, Southwest recently entered the Boston-proper market with 5 daily flights to BWI as well as several other cities.

Fellow low-cost carrier AirTran has served the Boston-BWI market for some time and now operates, count 'em, nine daily flights in the market.

Not to be out done, JetBlue also began operating four daily flights in September on the same route. And today, JetBlue announced a further increase in service next year by adding an additional round trip for a total of five daily flights. JetBlue's press release takes a funny swipe at Southwest: "Customers in Baltimore have discovered what those in Boston have known for years: JetBlue offers more than just an unassigned seat and a handful of peanuts to their destination"

This makes a somewhat incredible 21 daily flights in the Boston-BWI market. Unreal.

And these are not rinky-dink regional jets. Those have already been driven from the market with the exit of Delta and American over the last few years as AirTran in particular has ramped up service.

Translation of all this: get ready for a blood-bath. Fares, even without a sale, are often $39. We've seen them as low as $29 or even $19 during a sale. And JetBlue has offered a one-day sale with fares starting at $9 one way. AirTran is offering free wi-fi on all flights in the market. And Southwest is offering all the peanuts you can eat....

Saturday, October 17, 2009

Orbitz new homepage - where's the love? TLC no more?

This morning Orbitz rolled out a new home page - gone are the jarring deep blues and oranges of the old site. Many of the changes are subtle but overall, it has a much cleaner look and feel. The site has also gained some heft with a new wider display - all the rage these days.

Most surprising is the total removal of the Orbitz TLC branding. TLC has been at the heart of the Orbitz brand for years and has been featured in all kinds of commercials and goodness knows how many airline in-flight magazines (no doubt where it was often viewed by someone who was on delayed flight that didn't book with Orbitz!)

We actually viewed TLC as a differentiator in the otherwise commoditized airline ticketing space - something that Orbitz had that even the airlines themselves couldn't match. But with Orbitz pushing hard on hotels, maybe it was decided that TLC needed to take a back seat. TLC isn't even listed under "Why book on Orbitz" on the home page. (TLC is still there, just reached from a rather boring link titled "Traveler Update")

Speaking of hotels, Orbitz is also taking an interesting approach with the chain hotels with direct link-offs to branded landing pages right off the home page - the first we've seen such prominent placement of Marriott, Starwood and the like on an OTA home page.

We also just noticed that hotel search results also have a new "sponsored listing" area at the top of each sort. Similar to Expedia's Google-esq listings, clicking on this advertisement brings you to a landing page for the specific hotel. Oddly, clicking on the ad brings you to a different landing page than clicking on the hotel in the regular sort order.
But what about that (new?) interstitial page between clicking on a hotel and getting to the booking page? Hmmmmm

Thursday, October 15, 2009

Airline offers free luggage (tags!)

OK, so we are not usually excited about luggage tags, but this is a pretty cool promotion from KLM. Click here and order up some luggage tags complete with family (or other) pictures along with the usual name, address and phone deets on the back. Best of all, they are free.

No word on if they actually improve the odds of actually getting your luggage when you arrive. The real question is how long it will be before United offers something similar for the low price of $15. Or $25 if bundled with Economy Plus.

Wednesday, October 14, 2009

Tweetyourtrip - win a trip! is running a cool promotion using Twitter to drive traffic and awareness. The rules are simple: Tweet your perfect vacation to @voyagetv and become a follower. Every Friday, they announce a winner. What caught our eye was last week's winning tweet from jeffreynordrum:


Maybe it is just the airline geek is us, but we love the creativity this winner used by Tweeting in airline codes! Not all of them are real but the requested destination, PTY, is Panama City - a great destination that is just getting discovered. Decode your airline codes here

This is one use of Twitter that dosent SUX. (And yes, that is a real code - poor Sioux City, Iowa.)

More details on tweetyourtrip here

Full Disclosure: Tom's wife works at