Hotel Industry Lambasts Pending Merger Between Expedia, Orbitz

By the end of August, the U.S. Department of Justice will likely approve a proposed acquisition of online travel agency Orbitz by one of its largest competitors, Expedia, the New York Post reported last week. The $1.3 billion transaction, which is currently being reviewed by antitrust officials, was first announced in February and according to the parties involved would improve the customer experience by allowing Expedia and Orbitz to leverage one another's respective strengths. At least one constituency, however, is crying foul: the hotel industry.

In a statement released today by the American Hotel & Lodging Association (AH&LA), President and CEO Katherine Lugar said the lodging industry opposes the merger on grounds that consolidation of online travel agencies (OTAs) will limit consumer choice and drive up fees for owners of small and franchised hotels.

"Today, the American Hotel & Lodging Association is announcing its opposition to the proposed acquisition of Orbitz by Expedia. We believe this transaction and the resulting consolidation of the online travel marketplace will result in significant negative consequences, particularly for consumers, but also for the large number of our members who are small business owners and franchised properties," Lugar said. "This proposed acquisition would severely reduce consumer choice in the online marketplace. It would result in Expedia, and its numerous associated brands, which would include Orbitz, Travelocity, Hotels.com, Hotwire, Cheap Tickets, and Trivago, controlling nearly 75 percent of the U.S. online travel agency business."

The loss of Orbitz, Lugar said, could be "detrimental" for many reasons. "First, as a search platform and potential distribution partner, it would reduce the number of OTAs willing to work on innovative promotional efforts that benefit consumers," she continued. "Secondly, hotels currently pay Expedia on average 11 percent higher commissions than they pay Orbitz. The acquisition could result in Orbitz raising its rates to that level, further driving up distribution costs for hotel operators. Finally, should this acquisition go forward as proposed, it will result in a duopoly with over 95 percent of the online travel agency bookings in the United States being controlled by two competitors, Expedia and Priceline."

Lugar concluded by emphasizing the acquisition's potential harm to small businesses. "This acquisition would result in increased concentration among the OTAs that could adversely affect many independent and small hotel owners who rely on OTAs to reach consumers directly," she remarked. "Indeed, as a result of previous OTA consolidation, as well as this proposed acquisition, the small, economy, and midscale hotel segments have become increasingly reliant on an ever-shrinking number of OTAs that have the potential to impose steep commissions and demand restrictive contract provisions. 

"AH&LA believes the proposed acquisition will accelerate these trends, which are likely to increase distribution costs and ultimately reduce value to consumers. We also believe the combination of Expedia and Orbitz will cause small and independent hotels to pay significantly more to advertise online in the increasingly pay-to-play ecosystem of online search. Taken together, these effects could substantially drive up the cost of doing business for small and independent hotels to the ultimate detriment of consumers."

So far, neither Expedia nor Orbitz has commented on AH&LA's opposition. When they announced the acquisition earlier this year, however, they dismissed accusations of "monopoly."

"In the grand scheme of things, we're only a small player," Expedia CEO Dara Khorowshahi said, according to The Wall Street Journal, which reports that Expedia has no plans to raise hotel commissions if the deal is approved.


Check out the all-new MeetingNews Minute, featuring exclusive research on industry trends!