Expedia Hotel Settlements Turn Lemons into Lemonade

In two proposed settlements with consumers on the "taxes and fees" issue in hotel sales, Expedia and its Hotwire unit got very creative.

Make no mistake about it: Expedia's $123.4 million settlement and Hotwire's $5.5 million tab are financial blows to the companies, and you hear few online travel company whispers these days that the momentum in the consumer and municipal hotel-tax battles is in the OTCs' favor.

But Expedia, Hotwire and the consumer plaintiffs added a marketing element to the proposed settlements that may substantially ease the fiscal burden.

Expedia consumers eligible for the settlement can opt for cash equal to 30 percent of what they paid in service fees or take their compensation in the form of an Expedia travel credit for 65 percent of what they initially paid.

Similarly, Hotwire consumers can get 25 percent in cash or 65 percent as a credit toward travel through Hotwire.

This formula seemingly reduces the financial blow to the companies, attracts bookers to their websites and gives them the opportunity to upsell the aggrieved consumers with higher-end hotel rooms and packages.

When you also consider that Expedia and Hotwire notify eligible consumers about the settlement using e-mail addresses that the travelers might have retired years ago, the financial scope of the settlements narrow even more.

Another interesting element of the Hotwire settlement is that Hotwire is required to change the way it explains the total cost of a hotel room.

"Website Changes: Hotwire will, for two years following the Effective Date, revise its website to include a statement that the total cost shown will include all taxes, charges, surcharges, shipping/handling and Hotwire Request resubmission or other fees. The amounts will be posted on their website but will not be separately itemized," according to the settlement.

And, another provision: "In addition, the Frequently Asked Questions section of their [Hotwire's] website will contain revisions that were negotiated as part of the Settlement. Hotwire may, at its discretion and good faith, modify the negotiated text to make it consistent with any changes to its business practices, to increase its clarity, or to comply with a legal obligation or court order."

It's all about transparency.

Expedia and Hotwire -- although they continue to deny it -- got slapped with these settlements because of consumer allegations that the websites weren't forthcoming about the real nature of their fees.

Even the language changes at Hotwire, as outlined above, don't go far enough in detailing to consumers what they actually are paying for when booking a hotel room online.

So it looks like Expedia, Hotwire and other online travel companies will continue to be able to protect their hotel merchant models and dodge the transparency bullet for now.

Expedia Reaches Proposed Settlement in Washington State Consumer Class-Action

Expedia Inc. reached a proposed settlement with a certified class of consumers in Washington State related to hotel taxes and service fees.

The amount of the proposed settlement was not disclosed, but in late May, Superior Court Judge Monica Benton found that $184.5 million in damages, allegedly covering "services fees" collected from Feb. 18, 2003, to Dec. 11, 2006, "based on Expedia's breach of contract is warranted."

In that earlier proceeding, Benton, hearing the case in Washington's King County, found that Expedia had breached its contract in a previous version of its Terms of Use regarding the way the online travel company collects taxes and service fees in merchant model hotel sales.

The breach finding apparently led to settlement talks.

On July 8, attorneys for the plaintiffs and Expedia signed a proposed settlement, which would satisfy remaining claims in the case.

The court is scheduled to hear a motion for preliminary approval of the settlement on Aug. 10.

The development follows procedural setbacks for Expedia, Hotwire, Priceline and Travelocity in San Francisco, where they were required to "pay first" before challenging assessments, and in Columbus, Ga. The latter two litigations, however, were brought by municipalities, and not by consumers, as was the case in the Washington State.