AH&LA Says Transaction Would Create Duopoly, Restrict Consumer Choice, Harm Small, Independent Hotel Owners
Washington, D.C. – Thursday, August 6, 2015 – The American Hotel & Lodging Association (AH&LA), the sole national association representing all segments of the 1.8 million-employee lodging industry, today announced its opposition to the pending Expedia-Orbitz combination currently being reviewed by the Department of Justice. Katherine Lugar, president and CEO of AH&LA issued the following statement:
“Today, the American Hotel & Lodging Association is announcing its opposition to the proposed acquisition of Orbitz by Expedia. We believe this transaction and the resulting consolidation of the online travel marketplace will result in significant negative consequences, particularly for consumers, but also for the large number of our members who are small business owners and franchised properties.[1]
“With 480 online hotel bookings per minute,[2] the hotel industry welcomes the innovation, convenience and competition that online bookings provide. The hotel industry was among the first industries to encourage consumers to book online. Consumers expect, and hotels offer, a variety of choices and diversity in their online travel selections.
“However, this proposed acquisition would severely reduce consumer choice in the online marketplace. It would result in Expedia, and its numerous associated brands, which would include Orbitz, Travelocity, Hotels.com, Hotwire, Cheap Tickets, and Trivago, controlling nearly 75 percent of the U.S. online travel agency (OTA) business.[3] The loss of Orbitz could be detrimental for many reasons. First, as a search platform and potential distribution partner, it would reduce the number of OTAs willing to work on innovative promotional efforts that benefit consumers. Secondly, hotels currently pay Expedia on average 11% higher commissions than they pay Orbitz.[4] The acquisition could result in Orbitz raising its rates to that level, further driving up distribution costs for hotel operators. Finally, should this acquisition go forward as proposed, it will result in a duopoly with over 95 percent of the online travel agency bookings in the United States being controlled by two competitors, Expedia and Priceline.[5]
“Beyond severely restricting consumer choice, we believe the acquisition could exacerbate the problem of deceptive practices by rogue OTA affiliates posing as direct hotel booking sites. Both companies have affiliate relationships with thousands of smaller websites that offer hotel rooms for booking, some of which have misled consumers who think they are booking directly with a hotel. According to our latest research, there are some 2.5 million misleading bookings a year.
“Deceptive practices harm consumers, who don’t get what they want or expect, suffer the loss of reservations, or face unexpected charges and fees. This concern was raised by the Federal Trade Commission which recently warned consumers about these deceptive practices through two consumer alerts highlighting the scams and offering tips to avoid misleading booking sites. These practices also damage hotel reputations and reduce consumer confidence in the online booking process.
“Finally, this acquisition would result in increased concentration among the OTAs that could adversely affect many independent and small hotel owners who rely on OTAs to reach consumers directly. Indeed, as a result of previous OTA consolidation, as well as this proposed acquisition, the small, economy and midscale hotel segments have become increasingly reliant on an ever-shrinking number of OTAs that have the potential to impose steep commissions and demand restrictive contract provisions.
“AH&LA believes the proposed acquisition will accelerate these trends, which are likely to increase distribution costs and ultimately reduce value to consumers. We also believe the combination of Expedia and Orbitz will cause small and independent hotels to pay significantly more to advertise online in the increasingly pay-to-play ecosystem of online search. Taken together, these effects could substantially drive up the cost of doing business for small and independent hotels to the ultimate detriment of consumers.
“We look forward to the results of the Department of Justice’s careful review of this proposed acquisition.”
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[1] STR, June 2015 census
[2] Cindy Estis Green and Mark Lomanno, Distribution Channel Analysis: A Guide for Hotels, AH&LA and Kalibri Labs, LLC, January 2012, preliminary data from revision due out January 2016 (update in process July-December 2015)
[3] Schaal, D. (2015, February 13). Expedia Will Pay Orbitz $115 Million if Antitrust Complications Scuttle Acquisition. Retrieved from http://skift.com/2015/02/13/expedia-will-pay-orbitz-115-million-if-antitrust-complications-scuttle-acquisition/
[4] Cindy Estis Green and Mark Lomanno, Distribution Channel Analysis: A Guide for Hotels, AH&LA and Kalibri Labs, LLC, January 2012, preliminary data from revision due out January 2016 (update in process July-December 2015)
[5] Chetan Kapoor and Lorraine Sileo, U.S. Online Travel Agencies 1Q15: When Expedia and Priceline Corner the Market…, Phocuswright, June 2015, http://www.phocuswright.com/Travel-Research/Market-Overview-Sizing/U-S-Online-Travel-Agencies-1Q15-When-Expedia-and-Priceline-Corner-the-Market-#.VZVYRflVhBd.
