At any rate, Expedia.com silently made hotel-merchant model history over the last few months when it remitted taxes on Columbus, Ga., hotel bookings based on the retail rate, which includes taxes and its service fee.
Until now, as online travel agencies fight hotel-tax battles and even win their share of hotel-tax lawsuits across the country, they have been assessed and penalized in some jurisdictions, but no additional tax money is believed to have changed hands as legal appeals were under way.
But, Expedia confirmed to me yesterday that it remitted taxes on the retail rate -- and not merely on the net rate it negotiates with hotels -- in the months since it dropped out of the Columbus, Ga., market so it could comply with a court injunction.
This issue of whether online travel agencies should be taxed on the net rate or the retail rate in merchant-model hotel bookings is at the heart of the tax dispute.
The reason Expedia.com had to remit the taxes on the rate it charges consumers, so it could comply with the court order, is because although consumers pre-pay merchant-model bookings, the hotels invoice Expedia only after the guest stays at the hotel.
This meant that while Expedia stopped selling Columbus, Ga., hotel rooms by mid-September 2008, before a court ordered it to start remitting taxes on the retail rate, the OTA had bookings in the pipeline and travelers staying at the city's hotels after the injunction was issued.
So, Expedia complied with the court order while it was appealing that case to the Georgia Supreme Court. And, earlier this week Expedia lost that appeal in Georgia's highest state court, setting the stage for Columbus, Ga., to dog Expedia for hotel taxes going several years back.
On the Rubicon versus toe-dipping question, I tend to think the latter is in play because the OTAs have indicated they would rather abstain from selling merchant-model hotel rooms in jurisdictions with adverse tax rulings than remit taxes on the higher retail rate. And, on a relative scale, there isn't much tax money involved, perhaps a couple of million dollars at the most, in Expedia's Columbus bookings.
In September, the trial court in the Columbus, Ga., case also ordered Expedia "henceforth" to separately break out hotel taxes and service fees to consumers instead of lumping them together as "taxes and fees" in merchant-model bookings. The court said Expedia.com should detail the taxes and fees either when travelers book on Expedia.com, when they occupy the hotel room, or at both times.
Being transparent about their services fees and therefore their margins is anathema to the OTAs and some of their hotel partners for competitive reasons.
And, this is my problem with the merchant model, as currently practiced. Whether they are legally required to do so or not, the OTAs should spell out to consumers in a transparent manner how much the OTAs charge as a service fee and what the various hotel taxes amount to.
Consumers absolutely have a right to know what they are paying for.
If the OTAs are customer champions, as some claim to be, then hiding behind "taxes and fees" is untenable.
The OTAs have lost recent cases in Columbus, Ga., and Anaheim, Calif., although certainly it is debatable, as Elizabeth B. Herrington, an attorney representing Orbitz, argues, which side has the momentum.
If the OTAs are forced to abandon or severely restrict their merchant-model business, this development would certainly place their business operations under significant stress.
With the recession in full swing, the OTAs already are feeling additional pain because they eliminated booking fees for flights and some have reduced service fees on hotels, as well.
In a new report for PhoCusWright, "Does the Model Work Without Fees?," Jake Fuller details how the OTAs, particularly Orbitz and Travelocity, are experiencing a profit crunch from the fee loss, although waiving fees might enable the OTAs to pick up share from supplier sites.
"Our analysis suggests that OTAs would have to increase ticket volume by 45-90% to fully offset lost fees, and air bookings' share of OTA sales would have to increase from 32% in 2008 to 46-61% (versus the 44% OTA share at the peak in 2002)," Fuller writes.
These pressures are one reason that Expedia is throwing a lot of money into its TripAdvisor advertising/media business, Orbitz is trying to develop a media business and Orbitz and Kayak might be perfect together.
The joke at a recent travel conference was when would Expedia Inc. subsidiary TripAdvisor buy Expedia?
A far-fetched idea, but...