Everyone knows that hotels can put more heads in beds by selling their rooms through Expedia, the giant of online travel agencies.
What’s less well known is that hotels can sell their rooms on Expedia.com (US) via a global distribution system (GDS), minimizing Expedia’s share of the pie.
The commissions for these so-called GDS hotel bookings are about 10%. That’s 5 to 15 percentage points lower than the typical commission for standard bookings, depending on the payment model (agency or merchant) and the level of service.
Expedia.com only sells GDS hotels whose rate and content information is powered by two systems, Worldspan, owned by Travelport, and Pegasus Solutions.
Tnooz was unable to find an authoritative estimate of the size of the GDS hotel bookings market. It can’t be large, of course, given how few people know about it.
But this data point is intriguing:
Travelport has seen 30% year-over-year growth in GDS direct bookings for Expedia. The statistic covers the 12 months to end of March 2014, the latest data available.
Tracie Carillo, head of hospitality sales at Travelport, says:
We are working to continue to grow our support of their distribution through Travelport.
Pegasus, the largest global switch provider that Expedia works with, has a similarly sized hotel portfolio. But it declined our requests for comment.
Expedia pullback brewing?
Based on the the Worldspan data, it seems like GDS bookings are growing. But the growth, if real, may be short-lived.
There’s a sign that an Expedia pullback on GDS bookings is in the works.
Tnooz has seen an e-mail exchange between an Expedia market manager and a local hotel whose owner was upset that its GDS listing had been pulled.
The market manager said that, earlier this year and regionally in San Francisco, the brand did remove GDS properties from its sites, “due to the inferior customer experience”. The manager added:
Our goal is to present our customers with the best “store”/shopping experience possible and we were finding that conversion on the GDS properties was nowhere near as strong as the properties we work with directly.
Expedia’s spokesperson declined to comment on this specifically.
Speaking broadly, Expedia noted that it does not sell all of the hotels offered through the GDS. A spokesperson says:
There are many various reasons that would cause us to go one way or the other. But it’s best if we don’t get into the discussion about the strategy behind this for competitive reasons.
It’s worth noting something that the spokesperson didn’t say:
The revenue and profit on GDS bookings is much lower than for standard ones. That matters to Expedia, where last year, hotel bookings counted for three out of every four dollars of earnings.
GDS bookings versus standard
Hotels opting for the GDS model participate with Worldspan or Pegasus (or both), either through their chain or, for non-chain hotels, through a property management representative.
Hotels upload their rates and inventory from the central reservation system (CRS) to Pegasus or Worldspan, which passes it along to Expedia. (Worldspan’s GDS relationship with Expedia dates from the mid-2000s.)
Commissions are paid via Expedia. But the transaction is passed to the hotel, which then settles the transaction with the guest.
GDS hotels don’t benefit from the full service Expedia provides to the hoteliers it has a “direct” relationship with.
Unlike GDS listings, partner listings come with several perks:
better visibility; in other words, GDS bookings are instead buried several pages deep in the Expedia search results order
a star rating and guest review score are displayed on direct listings but not GDS bookings
an option for promotional messaging e.g. “most popular” “just booked” “only one room left at this price” and slash-through pricing
“better and more extensive marketing and targeting”
the ability to “customize” the hotel listing and include a phone number for the property
market management support, i.e., “production reporting, market intelligence, and strategic counsel”
This Expedia page references GDS hotels and how they are integrated into the company’s points of sale.
The solution is yet one more example of how complicated the travel industry can be. GDS bookings presumably provide a couple of benefits for Expedia, such as coverage in geographic areas where it is under-represented.
They can also, presumably, introduce hotels to the Expedia experience and open the door to upselling later.
For GDSs, it’s a way to “re-mediate” themselves into a system where OTAs have partly displaced their model, or, less dramatically, pick up a few extra transactions here and there.
For hotels, it’s an opportunity to enjoy the billboard effect on Expedia, assuming that effect still exists, without paying the full price.
Yet despite the benefits to multiple parties, this service loses its appeal if it starts cannibalizing sales via other channels. So it’s likely to remain a small channel.
EARLIER: Does the Expedia billboard effect still exist for hotels?
NB: Main image courtesy of Pandora_666/Flickr/Creative Commons.