Thursday, July 30, 2009

Expedia Mulls Negotiating with Hotels About New York City Tax Law

Expedia CEO Dara Khosrowshahi said this morning that the online travel company is considering how to react to New York City's new law, slated to become effective in September, which targets hotel remarketers for occupancy taxes on their service fees.

Khosrowshahi told analysts that Expedia was considering:

• Passing along the higher hotel taxes to consumers, which “we think would be a really bad thing.”

• Talking to hotels about adjusting their margins to compensate for the tax.

• Or Expedia itself absorbing the cost.

With hotels facing their own pitched challenges in this economic climate, I doubt it is welcome news that Expedia, a powerhouse in online hotel sales, may attempt to push its increaesed tax obligations on the lodging industry.

Khosrowshahi said tacking on a new fee for consumers would hurt its competitiveness with hotel websites.

The Expedia Inc. CEO said no determinations have been made regarding which approach to take.

Khosrowshahi added that Expedia's hotel volumes in New York City are so substantial that any loss of business for Expedia in the city would hurt tourism dollars in New York City.

One "option" that Expedia is not considering is dropping out of the New York City hotel market as it, and other online travel companies, did in relatively tiny Columbus, Ga.

Khosrowshahi's statements came as the Business Travel Coalition released a "Dear Mayor Bloomberg" letter, urging the city to repeal the new law.

The letter stated: "Industry stakeholders were not given an opportunity to provide expert comment on this new law. The legal obligations, accounting complexities and audit and compliance requirements alone are overwhelming to contemplate. Add higher taxes to that and you have a recipe for economic disaster for NYC as a business travel and meetings destination. Organizations worldwide will drive business to other cities because of this new tax. NYC hotels will lose existing business during an unparalleled downturn in business travel demand; the city will lose jobs and revenues."

In other business travel news, Khosrowshahi said Expedia Inc. sees huge potential in corporate travel and has been running its Egencia unit as "a break-even business."

However, Khosrowshahi said he would be surprised if Egencia didn't become profitable in 2010.

Unlike the leisure travel business, where bookings come quick, Khosrowshahi said the corporate travel business is a protracted, drawn-out affair characterized by months of dealing with RFPs, wooing corporate clients and implementations in a "war of attrition" with competitors.

He added that corporate travel has "huge" strategic potential for Expedia, and expressed satisfaction that Expedia is successfully scaling the business.


Claude said...

Do OTA have same trouble in other countries with city tax law?

Seems a big OTA problem in USA and more opportunities for direct sales channel to Hotel web sites

Dennis Schaal said...

Claude: Consumers in Canada recently sued Expedia Canada, alleging was deceptive about the way it presents "taxes and fees." So besides the U.S. and Canada, I have not heard about problems in any other countries -- but I know the plaintiffs' lawyers have considered actions in other countries.
Yes, this is an opportunity for hotels and their own channels. As you know, many of the hotels resent the power of the OTAs and would love to drive more direct sales.
For that reason, after writing this post, a hotel consultant told me he thinks Expedia will absorb the cost of the NYC tax itself because tacking on new fees for consumers would make Expedia not competitive with hotel-direct channels.