Direct Connect Disconnect.
By Vijay Dandapani
Tuesday, 4th January 2011
American Airlines's and Expedia have just escalated their dispute to a new level with the latter blanking off the former from all its websites while improbably claiming that "the pricing model the third-largest US carrier developed may raise costs and cut transparency for passengers."

Expedia's move was supposedly an act of "solidarity" with Orbitz which earlier in October was ejected by American in an attempt to cut its distribution costs. The outcome from the broadsides being launched by both sides should be of immense interest to the hospitality industry.

Barely a year ago Choice Hotels launched a very public dispute with Expedia that resulted in no Choice hotels for Expedia customers. After an initial brave front which included statements that Expedia's distribution amounted to a mere 3-4% of Choice hotels revenue the hotel company folded in less than a month. Expedia heaped salt on the wounds when announcing a "settlement" with its CEO saying that the effect of a lack of Choice hotels on their platform was minimal to non-existent with the OTA giant being able to "recapture the volumes from other chains and independents."

That Expedia out-muscled Choice in the dispute is unsurprising. For Expedia and other OTAs, it is hotels and not airlines that fill a majoirty of their bottom line and Expedia can be expected to bring out its biggest and best guns when it encounters any challenge to its distribution primacy.

Hotel companies, big and small, long ago gave away control of their distribution channels when the OTAs struck with first-mover advantage and built up a technologically superior model that left hotel companies, particulalry franchisors, in the dust. Presciently, Smith Travel Research in an article written seven years ago called it the "billion dollar leak" with some estimates putting the loss at nearly $6billion (and climbing) to the hospitality industry.

Franchisors, instead of recognizing that they need to ramp up their technological IQ by becoming interactive online travel brands with a seamless distribution platform in a customer-centric enviroment have instead thrown in the towel and entered into longer term agreements with OTAs that, will in effect, give away any remaining distribution clout in the near future.

OTAs continue to turn the screws on the industry on a number of fronts including launching loyalty programs. (recently, Expedia introduced its Hotels.com loyalty programme, WelcomeRewards, internationally) while audaciously thumbing their noses at jurisdictions seeking to collect occupancy taxes thereby, giving them yet another competitive advantage over hotels.

Contrary to the spurious claims of Expedia and Orbitz a direct to consumer distribution system does not preclude comparison of fares across airlines and routes as anyone who has used fare comparison sites such as farecompare.com can attest.

Like Choice Hotels, American Airlines is more than likely to "settle" before long with Expedia but, hopefully, it will not be a near total capitulation as the airline does have more cards than any similarly situated hotel company not the least of which is its soon to be developed (in conjunction with HP) internal reservation system. The denouement should not be long in coming.

Vijay is Chief Operating Officer and part-founder of Apple Core Hotels- a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.Member of the board of Directors - Hotel Association of New York.

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