Wholesale Hospitality

The growth of online merchants may help Hawaii hotels

June, 2003

In June 2002, without much fanfare, a new competitor entered the fast crowding world of online hotel merchants, but this one was different. Dallas-based Travelweb LLC, formerly known as Hotel Distribution System LLC (HDS), is a joint venture of hotel giants Hilton Hotels Corp., Hyatt Corp., Marriott International, Six Continents Hotels, Starwood Hotels and reservation technology company Pegasus Solutions Inc.

Some analysts see Travelweb’s creation as an attempt for the large hoteliers to regain control over an online distribution system that is increasingly dominated by travel package portals, such as Expedia, Travelocity and Hotels.com. According to research company PhoCusWright Inc., these three represented 73 percent of all online travel agency hotel sales in 2001. PhoCusWright expects online hotel bookings to jump from 9 percent of total bookings in 2002 to about 20 percent in 2005.

Joseph Toy, president of Hospitality Partners LLC, a local research firm, says some Hawaii hotels have seen tremendous growth in online booking. Toy says, “The Internet systems, such as Hotels.com and Expedia, really benefit the value market.”

Outrigger Hotels and Resorts’ properties are listed on Expedia, Travelocity, Hotels.com and Travelweb. Its parent company, Outrigger Enterprises Inc., counts revenues generated by those Web sites with other traditional wholesale revenues. Outrigger Enterprises Inc. is No. 18 on Hawaii Business’ list of the Top 250 companies with $400 million in 2001 gross sales.

In April, Outrigger Hotels & Resorts and sister brand OHANA Hotels & Resorts launched new Web sites and noted that these must support the hotelier’s “explosive e-commerce growth.” Outrigger estimates that 15 percent of its retail bookings are generated through electronic channels and expects that figure to grow exponentially.Castle Resorts & Hotels’ Senior Vice President Alan Mattson says his properties are participating with the main online travel sites, too. “There’s Expedia and then there’s everybody else in terms of volume and ease of use,” he says. Castle Resorts was the first regional hotel company in the country to launch a private-labeled vacation package in partnership with Expedia. He says online electronic marketing represents about 22 percent of Castle’s total business, a huge jump from 3 percent a year ago.

“We have certain properties that could fill up pretty much 100 percent of their occupancy on electronic distribution, that’s our goal,” says Mattson. “It’s difficult to predict where it goes from here, because it’s grown so quickly.”

Outrigger Vice President of Interactive Commerce Bill Sthay adds, “Some of our online wholesalers have seen triple-digit growth over the last couple of years, so that’s pretty impressive to us.”

In April, Expedia, a subsidiary of USA Interactive, whose chief executive officer is Barry Diller, threw a new wrinkle into the mix with the announcement that it was expanding its merchant relationship with Hilton Hotels Corp. and co-developing direct connection-technology between Expedia’s database and Hilton’s central reservation system, making it easier for Hilton to manage room rates and inventory sold through Expedia.com. Hilton president Tom Keltner called Expedia a “preferred online distribution channel,” in spite of Hilton’s involvement in Travelweb.

Expedia, which was ranked by Travel Weekly as the eighth largest travel agency in the nation for 2001, has been moving strategically in the Hawaii market. In March 2002, it acquired travel wholesaler Classic Custom Vacations, which specializes in vacation packages to Hawaii and other destinations. It also offers Hawaiian wedding packages on its site.

Mattson believes that Expedia is the No. 1 or No. 2 online volume producer for most regional hotels today. He says, “[Expedia has] the eyes and ears of all the hoteliers in Hawaii, because of the volume that they are able to create.”

Travelweb has also shown some strategy in the Hawaii market. In December it reached an agreement with Hawaii vacation wholesaler Pleasant Holidays. Pleasant made Travelweb its exclusive provider of private-label net rate hotel inventory for its Web site, and made those products available to travel agents over the Internet for the first time.

The University of Hawaii’s Matson Navigation Co. Distinguished Professor of Global Business, Tung Bui, says in general Hawaii hasn’t done a good job in moving into what he calls the “Web-time economy.”

Says Bui, “Those [travel] portals are critical to Hawaii and my recommendation is that Hawaii hotels should partner as much as they can with those portals in order to get better exposed to potential online customers.”

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Kelli Abe Trifonovitch