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Online hotel bookings are on the rise, with research firm Forrester (Nasdaq: FORR) predicting that consumers will spend US$30 billion between 2002 and 2006. But according to a Forrester report, the new Hotel Distribution System (HDS), a cooperative effort between five major chains, will not challenge the top players in the market.
HDS -- formed by Hilton, Hyatt, Marriott, Six Continents Hotels, Starwood and hotel technology provider Pegasus Solutions -- is the hotel industry's answer to Orbitz, which was launched last year by airline heavyweights American, Continental, Delta, Northwest and United. Orbitz's stated goal is to cut airline costs and challenge online travel agents such as Expedia (Nasdaq: EXPE) and Travelocity (Nasdaq: TVLY).
In an effort to help hotels control distribution costs and expand their reach, HDS said it plans to sell hotel rooms through multiple Web sites. The company already has signed a deal with Orbitz and is in discussions with several other sites, according to interim CEO Joe Humphry. Eventually, HDS plans to open a direct-to-consumer site.
No Orbitz
But according to the Forrester report, HDS will not evolve into an Orbitz look-alike. "Like Orbitz, HDS will be a low-cost provider. But any similarities between the two end there," Forrester analyst Henry Harteveldt said.
According to Harteveldt, HDS faces several challenges that will prevent it from wresting the top spot away from competitors like Hotel Reservations Network (HRN) (Nasdaq: ROOM), Expedia and Cendant's Trip.com.
Among those challenges: there are many more hotel companies than airlines; hotel pricing varies widely, unlike the centralized prices offered by airlines; and hotels already sell discounted rooms through various sites, while airlines sell Web deals only through their own sites and Orbitz.
In addition, HDS will not be a full-service travel agency that sells airline tickets, cruises and other travel products as Orbitz does. "HDS, in contrast, will be a one-trick pony, selling just lodging," Harteveldt said.
A Contender
Even though it will not reach the level of the biggest hotel sites, Harteveldt said HDS still could be a "significant contender" if it offers a personalized, upscale experience for bookers and creates a strong consumer brand, perhaps by taking over Pegasus' TravelWeb site.
The company also should resist the temptation to focus on the cheapest rates. "Not only will this help HDS to compete against sites like Travelocity, it will also help protect hotels' brand reputations," Harteveldt said.
Stiff Competition
The site will have plenty of competition, both from third-party sites and from hotel chains themselves.
HRN saw a 74 percent increase in rooms booked in 2001 and set a company record in January with $2.5 million in sales and 22,000 room nights booked. According to HRN president Bob Diener, the company plans to launch a new brand and Web site by summer, accompanied by a $10 million ad campaign.
In addition, more and more consumers are using hotel
Web sites to make travel arrangements. The Leading Hotels of the
World saw online bookings increase more than 140
percent from 2000 to 2001. And Wyndham International said its January
bookings were up 100 percent year-over-year.
