US View – December 2007

IHG stands its ground

When InterContinental Hotels Group removed the inventory of its corporate-owned hotels from Expedia and forced its franchisees to do likewise in 2004, it was one of the major web and distribution developments of the year.

If you recall, US hotels were smarting from Expedia’s power and arrogance, and were trying to take back a semblance of control of their inventory amidst the steep discounting that was tearing into profits.

Someone had shown they had the guts to draw the line with mighty Expedia.

IHG revealed that from that moment on it would certify its distribution partners, and Expedia didn’t meet the requirements.

IHG complained that Expedia and its affiliates didn’t respect IHG’s trademarks, were guilty of deceptive marketing practices such as announcing that a property was ‘sold out’ when perhaps rooms were available at other points of sale than Expedia’s, and that Expedia hadn’t sufficiently automated the inventory management process.

IHG played the tough guy and warned its franchisees that if they continued to do deals with Expedia then InterContinental would pull its flags.

Behind the scenes, much of the dispute hinged on economics and there were also rumours that personality clashes between the parties contributed to the mess.

Expedia was stung by IHG’s actions and worked for years to bring about InterContinental’s recently announced return to Expedia Inc’s good graces.

Back in 2004, Expedia Inc had not only lost the inventory of the largest hotel company in the world, but it was deeply concerned that its competitors would take advantage and that other hotel companies would likewise exit Expedia.

Although other chains such as Starwood and Marriott undertook initiatives to certify  distributors like IHG did, none removed their properties from Expedia.

To its credit, Expedia took the criticism to heart. It curbed some of the marketing practices that caused such a storm, continued to automate its inventory management systems, and reorganised its supplier relations teams to try to mend fences with its partners.

Expedia even brought in Paul Brown, who now heads Expedia’s global Partner Services Group and Expedia North America. Brown previously had been senior vice-president of strategic services for IHG.

With IHG and Expedia last month announcing a multi-year agreement that includes a transaction and media-business model with preferred placement throughout Expedia networks, the jury is still out among US analysts as to who ‘won’ the battle.

But, clearly, IHG has to be given the edge. InterContinental stuck to its principles and pacified the once-wild and overly aggressive Expedia. As Bob Offutt, a senior technology and airline analyst at PhoCusWright, puts it: “My take is that Expedia needed IHG more than IHG needed Expedia, so IHG won, and will benefit from a broad-based agreement including preferred placement.”

Offutt notes that US airlines successfully pressured GDSs and travel agencies for pricing advantages last year, and this development “has not been lost on the hoteliers”. Although few are privy to the fine print of the new deal, one Expedia competitor who has worked with IHG over the years, says that InterContinental has consistently espoused its expectations and there are no signs that the company has backtracked on its principles.

However, Diane Clarkson, a travel analyst at JupiterResearch, sees some irony in the preferred placements that IHG will get with the new media model.

“There has been some concern in the industry about preferred search results,” Clarkson says. “Personally, I think it is naïve given ‘special rate’ relationships already have preferred search results. But it would be ironic if the new relationship with IHG-Expedia did lead to a preferred search that pushed the boundaries of fairness, given IHG’s previous position with Expedia on fair practices.”

Henry Harteveldt, a senior analyst at Forrester Research, feels that both companies felt pressure to make amends and the two could gain from the new relationship. “To IHG’s credit, it didn’t capitulate, it found a creative and productive way to work through past differences and move forward,” he says.

The development of the turbulent IHG-Expedia relationship certainly reflected the dynamics of 2004 and continues to echo today’s new demands.

Harteveldt believes that the new agreement reflects the evolved role of online travel agencies as media firms that now can monetise their role in influencing consumers’ buying decisions.

And, IHG certainly influenced the hotel-online travel agency relationship through the take-no-guff stance it took with Expedia three years ago.

US low-costs sign OTA deals

With the lower-price distribution economics for airlines that the GDSs implemented last year, low-cost carriers in the US are branching out beyond their own websites and are notching up new agreements with online travel agencies.

The latest carrier in the US to do so is JetBlue. JetBlue has returned to all of the GDSs over the past year, and just signed a new distributon deal with Travelocity.

The airline now has its flights available on Travelocity and will soon make them available to Travelocity in holiday packages.

In addition to the incremental bookings for JetBlue, the two companies said they found synergies in their customer service policies.

Widely criticised for leaving travellers stranded in aircraft on snowy runways last year, JetBlue drafted a Customer Bill of Rights to protect passengers from similar straits. “JetBlue’s industry-leading Customer Bill of Rights also aligns with the Travelocity Guarantee and our own Bill of Rights,” said Simon Bramley, Travelocity vice-president of flights.

JetBlue’s agreement with Travelocity follows recent pacts with Expedia, Orbitz Worldwide and Priceline.

In addition to distribution through Orbitz and sister site Cheaptickets, the Orbitz Worldwide deal includes distribution through Orbitz for Business.

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