Hotels Need a Chance to Compete, Including Through Consolidation
The research by Morning Consult for the American Hotel and Lodging Association reveals a significant dominance of Online Travel Agencies (OTAs) in the U.S. hotel market, controlling 90% of online bookings and receiving over $50 billion annually from hotels. Despite higher customer satisfaction when booking directly with hotels, OTAs, such as Expedia and Booking.com, benefit from aggressive marketing and the fragmented hotel industry. This dominance challenges hotels, particularly those operating under franchise models like Hilton, which owns none of its 7,000 properties, diminishing their bargaining power. However, the proposed merger of Choice Hotels and Wyndham, with respective market capitalizations of $6.4 billion and $5.9 billion, aims to counterbalance this trend. The merger would enhance their negotiating leverage with OTAs, potentially lowering booking commissions and fostering direct-to-consumer marketing, benefiting both franchisees and consumers. This move, amidst the challenging economic climate for hoteliers, highlights the dynamic and multifaceted nature of the hotel industry, where even a combined Choice-Wyndham would still face competition from larger brands.
Three Takeaways:
- OTA Market Dominance: OTAs like Expedia and Booking.com control a vast majority of the online hotel booking market, putting them in a powerful position to dictate terms with hotels, particularly impacting franchise model hotels.
- Choice-Wyndham Merger as a Strategic Move: The proposed merger between Choice Hotels and Wyndham represents a strategic attempt to gain more negotiating power against OTAs, aiming to reduce reliance on these agencies and increase profitability for hotel franchisees.
- Competitive Hotel Industry Amidst Challenges: The hotel industry faces significant challenges, including inflation, pandemic aftereffects, and rising wages. However, strategic moves like the Choice-Wyndham merger indicate a dynamic market where competition persists, including from larger hotel brands aggressively expanding into economy and midscale segments.
