Dealing with the Impact of Online Reservation Systems

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | February 16, 2009

These services also pose serious challenges for hotels, threatening to commoditize hotel rooms, dilute the value of brands, and place too much influence over pricing in the hands of third parties. Leaders of the hotel industry are now beginning to understand those issues - both management and legal issues - and develop tactics for dealing with them and harnessing the power of Internet marketing to their advantage.

Online travel services today account for approximately five percent of all hotel bookings. Some experts estimate that about 15% of all bookings will be made through these services by the year 2006. Clearly, while it is not cutting into the majority of bookings, this phenomenon is touching a significant portion of the market, as properties find themselves having to compete with themselves for bookings offered at their own properties by third party reservation services at lower prices.

Unfortunately, the advent of online reservation services and their increased accessibility to a traveling public with widespread access and greater comfort with Internet purchasing, has come at a time when the hospitality industry has gone through a major slump. Initially, faced with steep declines, many properties were happy to sell blocks of rooms at deep discounts to online resellers, who would then market and sell them to the public. But as travel industry began to recover, and these third party services began aggressively advertising and selling rooms at deeply discounted prices, the hotel industry quickly realized that they were, in effect, competing against themselves.

How can properties adapt to this new reality? What issues should concern them and how should they deal with them?

The first issue involves the relationship between the hotel and the reservation service. If a guest arrives believing they have a reservation that was booked through an online service, and the hotel reservation system has no record of it, who's responsible? Does the hotel have to honor it? Does the hotel have to offer a refund if a room is not available?

Agreements to purchase bulk rooms at a discount must make it clear that the service is doing no more than just that. It should be clear that the service is not an agent of the hotel and cannot hold itself out as one. Whatever terms and conditions it attaches to the resale of rooms to travelers should be its own - in no way binding on the hotel itself. The hotel's contract with the online service should make it clear that the service is an independent entity, that is merely buying and reselling blocks of rooms, and that the reservation service must place a disclaimer to that effect on its website.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.