Tuesday, August 11, 2009

Where in the World is the Orbitz Hotel Business Model?

Orbitz Worldwide is about to change its hotel business model and go-to branding in Asia-Pacific.

It's an evolution of OWW's global, multi-brand strategy, where its core hotel business model varies from region to region.

In North America, where full-service online travel companies Orbitz.com and CheapTickets.com prevail and vacation packages are vital, and in Europe on ebookers' turf, OWW sees the merchant model remaining its dominant practice.

But, in parts of Asia-Pacific, Orbitz will tweak the RatesTogo.com modified retail model by expanding the booking window from 28 to 365 days, and in many markets OWW will designate HotelClub as the lead brand.

RatesToGo is a unit of OWW's HotelClub, a hotel-only site that is strong in Asia-Pacific and Europe. Today, HotelClub uses the merchant model for gateway and other major destination cities, and RatesToGo uses the modified retail model, where consumers prepay the RatesToGo commission and booking fee in the form of a deposit and pay the balance to the hotel upon checkout.

The commission generally is 10 percent to 15 percent.

Mike Nelson, president of the Orbitz Worldwide Partner Services Group, said the strategy soon will change so that HotelClub will be the lead brand in emerging markets and in "secondary cities" in Asia-Pacific, and HotelClub will offer both the merchant and modified retail model with the longer 365-day booking window.

However, the strategy will vary market to market, Nelson said, with RatesToGo and HotelClub coexisting in the current status quo in Australia, for instance, where RatesToGo is strong.

OWW's initial focus for expanding the modified retail model from last-minute inventory to bookings 365 days' out, and pairing it with merchant model rooms on HotelClub is in Asia-Pacific, Nelson said, but he doesn't rule out a broader rollout.

Asia-Pacific is fertile ground for the modified retail model because, among other advantages, it eliminates the need for the hotel to set up a commission-payment system, Nelson said.

And, that makes it easier for HotelClub to sign new hotel partners, especially among smaller or independent hotels.

And, in focusing on a niche of emerging markets and secondary cities, OWW may be able to avoid head-to-head competition with some of the region's strongest hotel players like Ctrip in China and Rakuten in Japan.

At least, that's the hope.

Oh, by the way, HotelClub's new modified retail model will have it's own catchy branding.

At least, that's the hope, too.

Related Post

As the Online Travel Companies Turn


Dennis Schaal said...

I received some feedback about this post. One guy who knows the hotel business tells me that the Orbitz approach sounds "convoluted;" that the multi-brand apporoach and pursuing second markets won't drive volume; and that expanding the RateToGo.com booking window to 365 days would kills its nice, last-minute niche.

If anyone else has a perspective on the evolution of OWW"s hotel strategy, feel free to contribute here.

Dennis Schaal said...

Along the same line as above, the following are some interesting comments I recieved via e-mail. This hotel guy wrote:

"I’m not totally negative on the modified merchant model, it just occurs to me that Orbitz should be reducing its marketing cost and streamlining the number of brands it needs to support.

a. Look at 2Q OTC performance – profitable not just due to selling hotels, but a huge reduction in marketing expense.

b. Priceline did great – Single brand, but the Name Your Own Price product is well differentiated – Orbitz is pushing Orbitz, Cheap Tickets, Away Network (Away, Gorp, Outside, GorpTravel, Trip.com), ebookers, Hotel Club and Rates to Go. For dormant brands, they have Lodging.com is dormant and Cendant killed the Neat Travel consumer product in 2003. That is a lot of marketing spend to maintain reach, frequency &differentiation.

c. Would think the Rates to Go last minute model could work as a product under a main Orbitz brand umbrella. Orbitz is still missing an opaque product play as Priceline, Expedia (Hotwire) and now Travelocity all have them. They also need an advertising driven model to compete against TripAdvisor, IgoUGo, etc.

d. By going to 365 days, they killed the Rates to go last minute consumer positioning – not a great move unless they are totally reworking/repositioning all their brands.

2) My thoughts on the modified retail model:

a. The modified retail model is not inherently bad as there are some positives:

i. It simplifies the hotel merchant tax issue for the cities as the OTC fees are isolated from the hotel’s base room rate & tax. (Good for Cities)

ii. It eliminates hotels having to pay commissions to the OTC’s, so they can reduce any overhead or transaction cost for those incremental commission payments. (Good for Hotel)

iii. OTC’s don’t need to settle payments for the hotel room & tax with the hotels – this saves them the overhead of running the ghost credit card settlement process transmit. (Good for OTC)

b. But, there are also downsides:

i. It exposes the underlying hotel rate to the consumer – hotels are not too fond of overtly revealing their wholesale pricing as it provides consumers, corporations and groups with a number to start basing negotiations. (Bad for Hotel)

ii. The margins are likely to be lower for the OTC if the net is exposed – hotels may be fine with 10-15% for standalone hotel bookings (most traditional merchant model hotel-only deals are 15-20%), but they will hesitate before opening higher margin tiers (20-25%+) for standalone hotel bookings due to the wholesale price transparency. (Bad for OTC)

iii. The consumer gets two charges on their credit card statement – that add confusion, which translates into customer service expense for either the hotel or the OTC. (Bad for Consumer)

I think the net is that the downsides somewhat outweigh the upsides.

iloilo hotels - bacolod hotels said...


Thanks for this post about " Where in the World is the Orbitz Hotel Business Model? ". The analysis confirms the number 1 position for Intercontinental Hotel Group, can help us... What are their strategies behind.

Marc Jansen

Carson said...

Orbitz provides best information on hotels!! I prefer to use Orbitz services for booking air tickets and hotel room...