Online sales have changed the face of hotel distribution. While 46 percent of U.S. hotel sales will be sold through the hotel call center in 2004, that figure will decline to 36% by 2006.

At the same time, online sales will grow to nearly one-third of all hotel sales, according to From Property to Screen: Managing Online Hotel & Lodging Distribution, a new report by PhoCusWright Inc. Sales for both online travel agencies, such as Expedia and Travelocity, and hotel-branded Web sites will continue to grow, with the two channels battling for market share. While hotels are enjoying increased control over their properties, as well as higher occupancy rates, third-party sites offer compelling sales and shopping options, and will continue to represent the greater share of Web hotel bookings. The report projects that online travel agencies will represent 54% of the market in 2006.
Chains Become Web Savvy

In 2003, the leading hotel chains stepped up their efforts to route business through their branded Web sites by improving functionality and offering Best Rate Guarantee programs that challenge customers to find lower rates on online travel sites. To lure customers, these sites also offer benefits for loyalty members, upgrades, looser cancellation policies, concierge services or other special features.

Although hotels have struggled with price parity and rate integrity on the Web, they are finding that sites, such as Priceline and Hotwire, are attractive vehicles for selling distressed inventory.
Online Travel Agencies Concentrate Market Power

The online travel agency market shifted dramatically in the past year. According to From Property to Screen, five companies now account for over 90% of non-branded hotel bookings: IAC (Expedia, Hotels.com and Hotwire), Sabre's Travelocity, Orbitz, Cendant (Lodging.com and Cheap Tickets) and Priceline.

The report cites several reasons why online travel agencies are experiencing such rampant growth:

• Accelerated merchant programs by Orbitz and Travelocity that increased sales for both sites.
• A dramatic increase in the percentage of total sales that come from hotels, as online travel agencies continue to promote the higher-margin product.
• An exploding international segment that already ranks Expedia among the top three online travel agencies in Europe. Although European online hotel sales are small compared to the U.S., they are growing rapidly and will significantly impact 2005-2006 growth rates.
• An increasing online presence for independent properties, which are being forced to invest in online travel agency distribution to compete with the chains and their brand prominence.

Property Managers Increase Influence

Several factors, including the improving economy and the increasing involvement of chains to provide properties with strategic advice, information systems, portals and negotiation power, are shifting the authority to control price, availability and content to local property management. However, the biggest obstacle to empowering managers at the local level is the absence of a fully integrated system and set of display screens with which to view the information needed to make critical channel distribution decisions.