Expedia is slowly testing its Expedia Traveler Preference (ETP) program as a new payment model. A traveler who books a room through one of the company's branded sites can choose to pay Expedia upon booking or at the hotel on checkout.
Hilton, Marriott, Melia, Iberostar, and many independent hotels have signed up to participate, according to Expedia's July 26's earnings conference call.
Importing Expedia's overseas trial
Expedia has tested its flexible model internationally and hotels may simply have to accept the new foreign style.
In 2008, Expedia first delved into the model after buying Venere, which has long given customers flexibility in paying in advance or at checkout.
The following year, Expedia unveiled its Easy Manage Program in Europe, which is essentially the same model as what Expedia's ETP will be for the US and which has 15,000 properties in Europe, the Middle East, and Africa signed up for.
Major side effects
Expedia will give the hotel the same commission regardless of whether a customer choose to pay through its website or through the hotel's front desk. This commission structure could have several side effects.
- A hotel might rake in a higher average daily rate (ADR)when a guest pays at the front desk. The figure will not yet have the commission deducted, and rumor has it that commissions are typically at least 14% and sometimes as high as 24%.
- Some chain hotels may have to pay higher franchise and management fees because of the higher ADR. It will depend on their contract terms and the volume of transactions ETP brings in.
- Cancellations might spike. If customers can wait to pay until arrival, they're more likely to change their mind. This may mean that hotels will have to tighten their cancellation policies.
- Credit and debit card processing costs could rise. If Expedia handles a transaction, that's a savings of between 1 and 3 percent for the hotel owner, depending on the payment.
- Hotel accounting departments may have greater book-keeping hassles. ETP transactions will need to be recorded separately from standard Expedia bookings.
- More customers could be confused at the front desk. Guests may not remember when or if they've paid, causing headaches.
- Hotels can collect more data -- and upsell directly-- from guests who opt to pay at the front desk.
- Litigation between Expedia and US municipalities on the collection of sales taxes could get even more complicated.
- Expedia's star merchant business might suffer. Under the merchant model, Expedia negotiates with hotels for wholesale room rates, which it then markets at a higher retail rate. Expedia pockets the difference. This year, 68% of the company's revenue came through these direct sales.
- More guests from overseas funnelling through the Expedia-branded sites. International visitors to the US who are familiar with the pay-at-the-desk model could use Expedia more frequently to make US bookings because its new interface may seem more familiar.
In any event hotel owners may simply have to get used to the "Old World-style." Said President and CEO Dara Khosrowshahi at the start of the earnings call:
In general, our suppliers pay us based on the considerable scale and breadth of our distribution platform and not based on a specific model under which we do business.
Priceline Inc. is rumoured to be planning to push a similar model in the US shortly.
N.B. Image of the Seattle Sheraton Downtown in Seattle, Washington.