Expedia is the goliath of the online travel agencies. Hotwire is an Expedia company, along with Hotels.com and popular travel sites like TripAdvisor.com and SmarterTravel.com.
Basically this new offer from Expedia just placed Hotwire.com hotel inventory on the Expedia website as “Unpublished Rate Hotels”.
Opaque Travel Agency Model
Opaque hotel sites like Priceline and Hotwire provide deep discounts on hotel rates by not revealing the name of the hotel until after you have successfully purchased the room. You, as the consumer, have control over the general vicinity in a city where the hotel will be located and the option to choose a hotel star category rating to get a general market segment from economy to luxury class hotels.
The hotel sells a room at a discount through the online travel agency, but does not publicly advertise the low rate. The opaque site makes a profit based on the service fee and any difference between the purchase price the consumer pays and the block rate the online travel agency (OTA) paid for the hotel rooms.
I find good value in opaque sites when there is not a reasonable hotel rate in the vicinity I want to stay. That being said, I haven’t used an opaque site since 2007 when I needed a cheap room in Washington, D.C. and the 12,000 points for a Starwood Hotel just didn’t seem like a good use of points when I could stay at the Marriott Key Bridge for $100 all-in through Priceline. Room rates were over $300 per night for the same Marriott Hotel I booked through Priceline.
Rates are on the rise again in many city locations and the opaque booking sites will likely continue to grow. These sites have done well despite the past two years of unprecedented low hotel rates and amazing hotel loyalty program promotions available directly through the hotel chain’s own booking sites.
So how can a hotel charge $300 for a room at its own site and $100 through an opaque hotel booking site?
Rooms are a perishable commodity.
A room that goes unsold tonight is lost revenue. The hotel can choose to let the room go empty or unload excess capacity at a discount to an opaque site or an online travel agency like Expedia, Travelocity and Orbitz.
Hotels do not operate like airline frequent flier programs where you get miles for flights regardless of what channels are used to purchase your airline ticket. Hotels have owners and generally the hotel loyalty program is not the owner of the hotels it represents.
Research I have read indicates the hotels lose about 25% of their profit margin when a room is sold through an online travel agency (OTA) like Expedia. The hotel’s profit margin is reduced further when selling room inventory to an opaque site like Priceline or Hotwire. When you fly United Airlines that means you are not flying American Airlines. But when you stay at the Westin, there is a reasonable probability that the Marriott Hotel down the street is owned by the same people. Hotels are branded and many hotel owners own hotels branded in different programs.
The high cost of selling rooms through online travel agencies compared to direct sell through the hotel’s own site and loyalty program sites is one of the primary reasons hotel loyalty programs can be so generous with loyalty member benefits like points bonuses, free breakfast, free internet, club lounge access and complimentary upgrades. Most hotel loyalty programs like Starwood Preferred Guest, Marriott Rewards, and Hilton HHonors only receive about 40% of their bookings from hotel loyalty program members. Yet, hotel loyalty program members are the most profitable segment of hotel guests. Business travelers want their loyalty program perks and are willing to pay more for them than the average guest.
Hotel Loyalty Programs are Marketing Organizations
The top ten hotel loyalty programs represent over 35,000 hotels globally. Priority Club is currently offering “Stay two times and get a free night” promotion. This offer applies to around 4,000 hotels worldwide (Asia-Pacific hotels excluded). A business traveler does not need to check individual promotion offers at various IHG brand hotels to see if there is a good promotion. The “Stay 2 and Earn 1 Free night” applies to almost all IHG properties across the board. There might be a $200 per night hotel in Miami with one chain or $250 per night with an IHG brand hotel. The Priority Club business traveler wants to earn a free night and will possibly go for that higher rate. The uncertainty of the specific hotel keeps many business travelers away from opaque sites like Hotwire and Priceline. These deals are primarily for leisure travelers seeking a deep discount as the primary factor over specific location of hotel.
The leisure traveler might be well out of budget range at $250 per night. This is when an opaque hotel room might be the better option for around $100 per night. The drawback is no loyalty credit for the hotel stay, even if it turns out to be an IHG brand hotel.
Your “Expedia Unpublished Rate Hotel” will not qualify for the Priority Club or Hyatt or SPG promotions.
The advantage for leisure travelers is the option to select hotels based more on price and less on immediate location. This is what makes opaque sites a great opportunity to cut the room rate if you have flexibility on your hotel location.
Loyal or Not – Here We Come
An even better strategy though for the leisure traveler is to plan your hotel stays to take advantage of low published rates that qualify for promotions and limit opaque purchases for locations where the hotel room rates negate the value of promotions and potential hotel loyalty benefits and a hotel reward night is also too costly or unavailable.
In Chicago last week many hotels were over $300 per night due to a major city-wide convention. I stayed at the Crowne Plaza Avenue Hotel in Chicago when the rate was $375 all-in per night. I used 25,000 points; effectively cutting my rate down to $150 for the cost of 25,000 points.
Some friends used Priceline for Chicago and secured a room at the Red Roof Inn right around the corner from the Crowne Plaza for about $90 all-in. That is a good deal for someone in Chicago that night when most hotels were over $200 per night.
Was my room worth an extra $60? I had a room upgrade with a Mac computer on the desk and a great high-floor view of Michigan Avenue. I received two free drinks at the British pub off the hotel lobby.
All-in-all that may have not been a $60 added-value night, but I had the comfort of knowing exactly where I would be and I booked the hotel room using points less than two hours before I checked in to the Crowne Plaza.
Fooled Around and Fell in Love
Hotels have a love-hate relationship with Expedia, online travel agencies and opaque booking sites like Hotwire and Priceline. A room is a perishable commodity that is lost revenue every night it sits unsold. These online booking sites help advertise a hotel and sell rooms.
But hotels want to maintain higher prices than many potential guests will pay. Published room rates fluctuate; often by hundreds of dollars per night ($300 weekday or $99 weekend is not uncommon in major cities like San Francisco, Los Angeles, Atlanta).
Loyalty program members who can balance paying low published room rates and earn hotel loyalty member benefits like points, upgrades, and complimentary services during hotel stays can find that the overall value of staying loyal and booking through the hotel’s own channels will have a much higher added-value than simply getting a hotel room at a bargain rate through an opaque booking site.
But sometimes you just need a room and the promotions, upgrades, and benefits are not the primary concern.
Do your Homework before Using Opaque Booking Sites
Expedia’s Unpublished Rate Hotels, driven by Hotwire, or Priceline bargains may just be the savings needed to make the trip affordable. And if you do decide to go this route, then do your preparation.
For example, I was able to see on BetterBidding.com the Portola Plaza Hotel, Monterey, California sold for $80 per night on Priceline on the weekend nights of November 5-7, 2010. This hotel was the Doubletree Monterey several years ago. These same dates will cost $215 per night (AAA rate) booking through the Portola Plaza hotel website. That opaque rate is a great deal for Monterey.
Opaque sites for booking hotel rooms have some incredible discounts. As Loyalty traveler I do not spend much time discussing these low rate booking options. I may pay more per night on average as a loyalty traveler, but often I do not pay much more. Expedia unpublished hotel rates, Hotwire and Priceline do not earn free night credits.
I have had plenty of opportunities to compare the rooms I receive as an elite loyalty program member compared to the room category received through opaque booking channels.