Last updated: 02:17 PM ET, Thu August 13 2015

Proposed Expedia-Orbitz Deal Causing Widespread Concern

Hotel & Resort | Ryan Rudnansky | August 13, 2015

Proposed Expedia-Orbitz Deal Causing Widespread Concern

The proposed $1.6 billion deal that would allow Expedia, Inc. to acquire Orbitz Worldwide, Inc. has sent shockwaves throughout the hotel industry.

Last week, the American Hotel & Lodging Association (AH&LA) publicly denounced the agreement and urged the Department of Justice (DoJ) to stop the deal from going through.

A major concern is that the proposed merger would create a duopoly in the online travel agency (OTA) market. If the deal went through, Expedia and Priceline would control a great deal of the market.

This could lead to higher commission rates for hotels. This could be particularly harmful to small and independent hotels that aren’t as well known and largely depend on OTAs to spread the word and increase bookings. AH&LA notes that Orbitz’s commission rates could be increased to mirror Expedia’s if the deal goes through. Expedia’s rates are currently 11 percent higher than Orbitz’s rates.

Two recent intelligence reports by PaRR (Policy and Regulatory Report) shed more light on the issue.

According to Tong Zhang of PaRR, if Expedia acquires Orbitz, the combined company will control nearly 75 percent of the OTA market in the United States.

Per the report, Expedia and Orbitz have contended that there is rising competition in the marketplace. TripAdvisor, for example, launched direct booking in May 2014. Amazon also recently entered the travel space with its travel site Amazon Destinations.

How Google Flights and Google Hotel Finder develop is also worth monitoring, for all concerned. Right now, Google Flights and Google Hotel Finder only work as aggregators, or metasearch engines, that allow travelers to book through other sites. These sites need to pay for ad space to be featured, which actually benefits OTAs because, well, they have the money (you will see a lot of OTA links on both Google Flights and Google Hotel Finder, particularly Google Hotel Finder).  

But if Google ever set up a booking site of its own that could be highly disruptive and give Expedia and Orbitz a better case.

Sarah Gavin, head of communications of Expedia, Inc., told TravelPulse: "The $1.3 trillion global travel market is more fiercely competitive than ever as evidenced by the sheer number of ways in which people shop for and book travel. We compete with a host of regional and global online and offline travel agencies, metasearch sites such as TripAdvisor and Google Hotel Finder, search sites like Google and Bing, and the travel suppliers themselves who are aggressively seeking to induce consumers to book directly with them. Booking options for consumers continue to expand with Google, TripAdvisor, Amazon, and others now facilitating bookings directly on their sites. Expedia’s acquisition of Orbitz will generate cost savings and other synergies that will enable Expedia to better serve consumers and travel suppliers."

Critics of the proposed deal say it could hurt travelers. If Expedia and Priceline control most of the market, travelers could have less variety in their travel choices.

HotelTonight, Skyscanner, GetGoing and Groupon are other alternatives beyond TripAdvisor and Amazon, though. And whether the DoJ includes Airbnb in the equation could also have a major impact on the department’s ultimate decision, according to a PaRR report by Ryan Lynch and Susan Mandel in Washington D.C.

Some of the hotels that have issue with the lack of distribution options, such as Farnam Guest House and The Stanton House Inn in Connecticut, are listed on Airbnb.

Some of the smaller hotels and bed-and-breakfast businesses are “freaked out” about the proposed deal, according to the report.

One source said, “If they only can distribute through Expedia, then Expedia could have them over a barrel. It hurts their ability to distribute their product.”

Lee Eulgen, partner at Neal, Gerber & Eisenberg LLP, told TravelPulse, “The rise of online booking consolidators has been great for consumer choice, but this is a step backwards as it consolidates substitutional market power into one single player.

“It could be particularly detrimental to independent hotel flags as their revenue likely gets squeezed because the independent flags often do need the online booking sites for free exposure in a heavily infiltrated market.”

AH&LA has reached out to the DoJ “multiple times” since the agreement between Expedia and Orbitz, according to Zhang’s report. “Dozens of small hotels and independent properties, state associations and other lodging-related groups” have also sent letters urging the department to block the deal.

The DoJ has reportedly not “arrived at any conclusions” yet, and the review isn’t expected to conclude any time soon.

During an earnings call on July 30, an Expedia spokesperson relayed that Expedia CEO Dara Khosrowshahi said, “We continue to believe that the transaction should be approved and then close in the back half of the year.”


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