Dara and Barney: Gamesmanship and the Orbitz Zero-to-Hero Hotel Plan

In a post, Expedia's Booking Fees: The Trigger Point in late March, and in the finest traditions of New York Post Page Six and TMZ, I recounted a rumor making the rounds that Expedia CEO Dara Khosrowshahi had supposedly gone after Orbitz and eliminated flight-booking fees because he was angered at Orbitz for hiring Barney Harford, an ex-Expedia exec, as the Orbitz Worldwide CEO.

Actually, the flight- and hotel-fee wars, which Expedia kicked off March 11, had nothing to do with personalities and much to do with Expedia losing bookings to airline sites, as well as to Priceline, which nixed air-booking fees last year.

And, the timing of Expedia's booking-fee deletion also coincided nicely with subsidiary TripAdvisor's launch of its flight metasearch product. With the air-fees gone, Expedia could compete nicely on flights with airline websites.

But, if Dara wasn't miffed at Barney's hiring in January, Khosrowshahi should be upset about it now.

That's because Harford is hellbent on putting some muscle into OWW's relatively small hotel business, and in the process he's taking on Expedia's sweetspot.

In the process, some of Harford's actions have caught Expedia flat-footed.

Since late April, Orbitz has reduced its hotel-booking fees, a development that impacts Expedia at a rate of around $3 million per month because Expedia matched Orbitz's trims.

And, Orbitz also began displaying the total cost of a room in initial display results, and this week introduced its Hotel Price Assurance program, both of which were industry firsts.

And, Harford, who helped build Expedia's hotel business in Asia-Pacific a few years back, promises much more to come on the hotel front.

"We believe that the hotel business is the long-term area of focus for us and we are committed to making the appropriate investments behind that," Harford told financial analysts yesterday.

The company that was founded by major U.S. airlines almost a decade ago, before being bought by Cendant/Travelport and then spun off into an IPO, now is refocusing its tech teams and hoping to transform its hotel infrastructure and clout.

Harford characterized the global hotel business as "huge, yet the online hotel distribution landscape is still very immature."

"We have scale at the level of customer demand and have the opportunity to close the gap by focusing on initiatives that make it easier for those customers to book hotel(s)," Harford said.

Meanwhile, Harford claims that Orbitz has been able to weather Expedia's booking-fee attack and will be able to offset its own loss of those fees.

Factors in recouping the lost fees, Harford said, include increased air-ticket volumes because of the fee elimination; incremental bookings of vacation packages; the renegotiation and rationalization of e-marketing agreements; an increased focus on SEO (Search Engine Optimization) and CRM; $40 to $45 million in expense reductions since November; and a year-over-year jump of 12 percent in Orbitz’s advertising and media business to $14 million in the first quarter.

Considering these offsetting factors, Harford added, Orbitz has “the flexibility” to “sustain” its actions on air- and hotel-booking fees.

Translation? This could be Barney's smoke-signal to Dara that if Expedia intends to drive the online travel agency business into the ground by making permanent the now-temporary implementation of flights-without-booking fees past the end of May, then Orbitz can survive the pressure and will maintain its own reduction in hotel-booking fees, which causes Expedia great pain.

On Harford's part, this could be gamesmanship or it could be resolve.