The American Hotel & Lodging Association today announced its opposition to Expedia’s pending $1.6 billion acquisition of Orbitz, which is currently being reviewed by the Department of Justice (DOJ).
Katherine Lugar, president and CEO of AH&LA, says the association believes this transaction and resulting consolidation of the online travel marketplace will result in negative consequences for both consumers and small business owners who franchise hotels.
“With 480 online hotel bookings per minute, the hotel industry welcomes the innovation, convenience, and competition that online bookings provide… However, this proposed acquisition would severely reduce consumer choice in the online marketplace,” Lugar said.
If the deal goes through, Expedia and its associated brands, which would include Orbitz, Travelocity, Hotels.com, Hotwire, Cheap Tickets, and Trivago, will control nearly 75 percent of the online travel agency (OTA) business in the United States. This dominant position raises anti-competitive concerns, Lugar said, including higher commission costs incurred by hotels.
“The loss of Orbitz could be detrimental for many reasons,” she explained. “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 percent higher commissions than they pay Orbitz. The acquisition could result in Orbitz raising its rates to that level, further driving up distribution costs for hotel operators.”
Furthermore, the transaction would result in a duopoly, Lugar said, with more than 95 percent of OTA bookings in the United States being controlled by two competitors, Expedia and Priceline.
“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,” Lugar said. “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.”
An increased concentration among the OTAs could adversely affect many independent and small hotel owners who rely on this channel to reach consumers directly, Lugar added. As a result of previous consolidation, the small, economy, and midscale hotel segments have become increasingly reliant on a smaller number of OTAs that could potentially impose steep commissions or demand restrictive contract provisions, she continued.
“AH&LA believes the proposed acquisition will accelerate these trends, which are likely to increase distribution costs and ultimately reduce value to consumers,” Lugar said. “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.”
Last week, U.S. Sens. Amy Klobuchar (D-Minn.) and Mike Lee (R-Utah) called on the DOJ to closely scrutinize the proposed acquisition.