Expedia is the goliath of the online travel agencies. Hotwire is an Expedia company, along with Hotels.com and popular travel sites like TripAdvisor.com and SmarterTravel.com.

Basically this new offer from Expedia just placed Hotwire.com hotel inventory on the Expedia website as “Unpublished Rate Hotels”.

Opaque Travel Agency Model

Opaque hotel sites like Priceline and Hotwire provide deep discounts on hotel rates by not revealing the name of the hotel until after you have successfully purchased the room. You, as the consumer, have control over the general vicinity in a city where the hotel will be located and the option to choose a hotel star category rating to get a general market segment from economy to luxury class hotels.

The hotel sells a room at a discount through the online travel agency, but does not publicly advertise the low rate. The opaque site makes a profit based on the service fee and any difference between the purchase price the consumer pays and the block rate the online travel agency (OTA) paid for the hotel rooms.

I find good value in opaque sites when there is not a reasonable hotel rate in the vicinity I want to stay. That being said, I haven’t used an opaque site since 2007 when I needed a cheap room in Washington, D.C. and the 12,000 points for a Starwood Hotel just didn’t seem like a good use of points when I could stay at the Marriott Key Bridge for $100 all-in through Priceline. Room rates were over $300 per night for the same Marriott Hotel I booked through Priceline.

Rates are on the rise again in many city locations and the opaque booking sites will likely continue to grow. These sites have done well despite the past two years of unprecedented low hotel rates and amazing hotel loyalty program promotions available directly through the hotel chain’s own booking sites.

So how can a hotel charge $300 for a room at its own site and $100 through an opaque hotel booking site?

Rooms are a perishable commodity.

A room that goes unsold tonight is lost revenue. The hotel can choose to let the room go empty or unload excess capacity at a discount to an opaque site or an online travel agency like Expedia, Travelocity and Orbitz.

Hotels do not operate like airline frequent flier programs where you get miles for flights regardless of what channels are used to purchase your airline ticket. Hotels have owners and generally the hotel loyalty program is not the owner of the hotels it represents.

Research I have read indicates the hotels lose about 25% of their profit margin when a room is sold through an online travel agency (OTA) like Expedia. The hotel’s profit margin is reduced further when selling room inventory to an opaque site like Priceline or Hotwire. When you fly United Airlines that means you are not flying American Airlines. But when you stay at the Westin, there is a reasonable probability that the Marriott Hotel down the street is owned by the same people. Hotels are branded and many hotel owners own hotels branded in different programs.

The high cost of selling rooms through online travel agencies compared to direct sell through the hotel’s own site and loyalty program sites is one of the primary reasons hotel loyalty programs can be so generous with loyalty member benefits like points bonuses, free breakfast, free internet, club lounge access and complimentary upgrades. Most hotel loyalty programs like Starwood Preferred Guest, Marriott Rewards, and Hilton HHonors only receive about 40% of their bookings from hotel loyalty program members. Yet, hotel loyalty program members are the most profitable segment of hotel guests. Business travelers want their loyalty program perks and are willing to pay more for them than the average guest.

Hotel Loyalty Programs are Marketing Organizations

The top ten hotel loyalty programs represent over 35,000 hotels globally. Priority Club is currently offering “Stay two times and get a free night” promotion. This offer applies to around 4,000 hotels worldwide (Asia-Pacific hotels excluded). A business traveler does not need to check individual promotion offers at various IHG brand hotels to see if there is a good promotion. The “Stay 2 and Earn 1 Free night” applies to almost all IHG properties across the board. There might be a $200 per night hotel in Miami with one chain or $250 per night with an IHG brand hotel. The Priority Club business traveler wants to earn a free night and will possibly go for that higher rate. The uncertainty of the specific hotel keeps many business travelers away from opaque sites like Hotwire and Priceline. These deals are primarily for leisure travelers seeking a deep discount as the primary factor over specific location of hotel.

The leisure traveler might be well out of budget range at $250 per night. This is when an opaque hotel room might be the better option for around $100 per night. The drawback is no loyalty credit for the hotel stay, even if it turns out to be an IHG brand hotel.

Your “Expedia Unpublished Rate Hotel” will not qualify for the Priority Club or Hyatt or SPG promotions.

The advantage for leisure travelers is the option to select hotels based more on price and less on immediate location. This is what makes opaque sites a great opportunity to cut the room rate if you have flexibility on your hotel location.

Loyal or Not – Here We Come

An even better strategy though for the leisure traveler is to plan your hotel stays to take advantage of low published rates that qualify for promotions and limit opaque purchases for locations where the hotel room rates negate the value of promotions and potential hotel loyalty benefits and a hotel reward night is also too costly or unavailable.

In Chicago last week many hotels were over $300 per night due to a major city-wide convention. I stayed at the Crowne Plaza Avenue Hotel in Chicago when the rate was $375 all-in per night. I used 25,000 points; effectively cutting my rate down to $150 for the cost of 25,000 points.

Some friends used Priceline for Chicago and secured a room at the Red Roof Inn right around the corner from the Crowne Plaza  for about $90 all-in. That is a good deal for someone in Chicago that night when most hotels were over $200 per night.

Was my room worth an extra $60? I had a room upgrade with a Mac computer on the desk and a great high-floor view of Michigan Avenue. I received two free drinks at the British pub off the hotel lobby.

All-in-all that may have not been a $60 added-value night, but I had the comfort of knowing exactly where I would be and I booked the hotel room using points less than two hours before I checked in to the Crowne Plaza.

Fooled Around and Fell in Love

Hotels have a love-hate relationship with Expedia, online travel agencies and opaque booking sites like Hotwire and Priceline. A room is a perishable commodity that is lost revenue every night it sits unsold. These online booking sites help advertise a hotel and sell rooms.

But hotels want to maintain higher prices than many potential guests will pay. Published room rates fluctuate; often by hundreds of dollars per night ($300 weekday or $99 weekend is not uncommon in major cities like San Francisco, Los Angeles, Atlanta).

Loyalty program members who can balance paying low published room rates and earn hotel loyalty member benefits like points, upgrades, and complimentary services during hotel stays can find that the overall value of staying loyal and booking through the hotel’s own channels will have a much higher added-value than simply getting a hotel room at a bargain rate through an opaque booking site.

But sometimes you just need a room and the promotions, upgrades, and benefits are not the primary concern.

Do your Homework before Using Opaque Booking Sites

Expedia’s Unpublished Rate Hotels, driven by Hotwire, or Priceline bargains may just be the savings needed to make the trip affordable. And if you do decide to go this route, then do your preparation.

BetterBidding.com and BiddingforTravel.com are two sites that have been operating for years where successful bids at specific hotels are posted and shared.

For example, I was able to see on BetterBidding.com the Portola Plaza Hotel, Monterey, California sold for $80 per night on Priceline on the weekend nights of November 5-7, 2010. This hotel was the Doubletree Monterey several years ago. These same dates will cost $215 per night (AAA rate) booking through the Portola Plaza hotel website. That opaque rate is a great deal for Monterey.

BetterBidding.com allows date search and location for winning bids and hotels

Opaque sites for booking hotel rooms have some incredible discounts. As Loyalty traveler I do not spend much time discussing these low rate booking options. I may pay more per night on average as a loyalty traveler, but often I do not pay much more.  Expedia unpublished hotel rates, Hotwire and Priceline do not earn free night credits.

I have had plenty of opportunities to compare the rooms I receive as an elite loyalty program member compared to the room category received through opaque booking channels.

BetterBidding Hotwire.com $98 for Parc 55 Wyndham Hotel weekday rate

Kayak.com published rate for Wyndham Parc 55 is 60% more.

Hotel News Now published a story on “10 hotel booking trends” from a presentation at the inaugural Hotel Data Conference by Brian Ferguson, Expedia VP of Lodging Demand and Analysis. Hotel News Now is the newsletter publication of Smith Travel Research, a leader in hotel rate data and research for the hotel industry.

The consumer trend of the past year has been a swing in hotel bookings made through online third-party hotel reservation sites like Expedia, Travelocity, and Orbitz. The viewpoint of Expedia, expressed by Ferguson, is the increased volume in bookings does not directly increase profits for third party online travel agencies due to the lower revenue generated as a portion of lower room rates across all hotel market segments.

What I want to share is the “10 Booking Trends” discussed by Expedia’s Lodging Demand and Analysis VP. I am just a hotel consumer who tries to figure out how to get great value from hotel rates. Reading what the industry experts have to say helps me focus my Loyalty Traveler work on a targeted audience who will benefit from my reporting on hotel rate trends as a frequent guest.

1.       Expedia VP Ferguson: Exchange rates are shifting travel patterns.

Hotel rates in UK have dropped primarily due to the better exchange rate for Americans. Combine the exchange rate with promotions and the UK is a bargain.

Loyalty Traveler: I totally agree, but the window appears to be closing on the exchange rate issue. Winter 2009 offered some of the best deals in years for UK and Europe due to the combination of a much better exchange rate for the US Dollar and hotel loyalty program promotions. The dollar has been losing ground as the stock market goes up. Anyone thinking Wall Street inflation?

2 nights for the price of 1 has been an ongoing deal for the past couple of years to entice travelers to the major chain hotels in Europe and Asia.

2.       Expedia VP Ferguson: Consumers are looking for a deal. Bookings made with promotions are increasing as a share of total hotel reservations.

Loyalty Traveler: I’ll take some credit for this one. I take the time to analyze hotel promotions for readers. Loyalty Traveler rarely books a room without a promotion offer. “Hotel value for the frequent guest” is the Loyalty Traveler motto. 10,000+ unique visitors a month are reading Loyalty Traveler to learn more about hotel loyalty program promotions.

3.       Expedia VP Ferguson: Promotions matter more than ever.

Loyalty Traveler: I get a chuckle out of all the news articles showing how to get better value from your spending in all segments of consumer purchases from groceries to hair cuts to travel.

I had an oil change yesterday for 25% off. The coupon took two minutes to locate on the internet. All the other people at Jiffy Lube paid full price.

Friends have commented I am a cheap ass when I pull out a 2-for-1 dining coupon. I rarely eat out for more than half-price.

I frequently stay in hotels for less than half-price. Promotions matter if you want more money for life’s other necessities and pleasures.

4.       Expedia VP Ferguson: Promotions are getting more creative. It used to be about cutting rates and now hotels add free nights and value-added incentives.

Loyalty Traveler: Promotions are more creative and take more time to analyze for this Loyalty Traveler. I’m looking for the deal whether it is a bargain rate now (free parking, free breakfast) or will result in a bargain hotel rate in the future (free hotel night).

5.       Expedia VP Ferguson: Customers who book online are trading up. Four and five star hotels are getting more affordable.

Loyalty Traveler: I have stayed in some of San Francisco’s finest hotels this year and only once paid over $125. And I received a $500 per night suite for that stay. 2009 is a leisure traveler’s hotel dream.

6.       Expedia VP Ferguson: There are massive swings in online market share.

Loyalty Traveler: No real comment to make here. I haven’t tried the phone call reservation this year. I’ve read articles on Hotel Chatter and Budget Travel about people getting a much better deal through the phone. I’ve been an online customer for 10 years and my experience has rarely been to find a better deal over the phone. I do recall my mother getting good phone rates when my mom and the hotel reservationist could not locate the online promotion I was telling her to book.

7.       Expedia VP Ferguson: Booking compression. People are waiting closer to stay date to book.

Loyalty Traveler: I reported in several posts that my rate analysis of San Francisco hotels revealed the lowest rates typically are found between 7 and 14 days before the stay date. Smart shoppers wait (or at least go with a rate allowing cancellation in case a better rate appears).

8.       Expedia VP Ferguson: Leisure rates went down first and are going down more.

Loyalty Traveler: My hotel rate focus is geared for the leisure traveler. I don’t stay in San Francisco on paid rates when a convention is in town and the hotels go up to $300+ per night. The same hotel room is around $100 per night, a 50% decrease from average leisure rates a year ago, during weeks when business travel is light. And getting an upgrade is much easier when there are not corporate executives buying up the suites.

9.       Expedia VP Ferguson: Increased use of rate fences in packages.

Loyalty Traveler: I am not a marketing person and I need to study this concept since I have been seeing it more frequently lately. Basically it seems the concept is to hide the room rate in a package of bundled services such as airfare, rental car, or hotel amenities like champagne and spa treatments.

I generally find these to be a poor value for a hotel when the components are broken down. Packages are convenient and there are some great deals if you need the car or the airfare. I think this is generally a better strategy for reducing high-cost airfare rather than getting a better value on a hotel room.

10.   Expedia VP Ferguson: Opaque channels are growing faster than non-opaque channels.

Loyalty Traveler: Opaque channels are hotel reservation sites like Priceline and Hotwire where you get a really low rate for an unspecified hotel. Opaque channels are the way to go when hotels are priced at high nightly rates. I opt for Priceline when the alternative is a $200+ night room.

My basic loyalty traveler argument is over the course of the year when traveling and staying 20 to 50 nights in hotels, the hotel loyalty program strategy can be used as effectively as Priceline to pay for rooms when they are relatively low priced and redeem points for high priced rooms.

I have saved a couple thousand dollars in past years using Priceline for trips when the chain hotels were high priced.

2009 has seen incredible promotions from hotel loyalty programs. My Starwood Hotels stays in May averaged less than $60 per room night at upscale hotels, frequently in suites, while allowing me to book $500 per night rooms with the free nights I earned.

Try doing that with Priceline.

St. Regis San Francisco "Priceline may be cheap, but this room was free"

Is there a Priceline Master in the House?

I am not a real doctor (PhD). I only have a Master of Science. That is why I work for consumers instead of pocketing the lucrative research paycheck from the hotel industry.

The doctor, Chris K. Anderson, Ph.D., at the Cornell Center for Hospitality Research has come out with a report advising hoteliers how to squeeze more pennies out of our consumer pockets. This time the research is aimed to maximize hotel profits from Priceline.

http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-14705.html

The report is available for free download upon registration with the center.

Loyalty Traveler has a few comments on the report.

Cornell Report Statistic:
60% of online hotel rooms are booked through hotel-branded websites (I assume this is what is meant by “supplier-managed” websites).

Loyalty Traveler view: Hotels have provided incentive for customer reservations through hotel-managed channels by offering exclusive loyalty program benefits. In other words, Hotel points and frequent guest member perks are only guaranteed when booking through hotel-managed websites. The hotel websites generally offer a better rate , although special offer rates are often hidden from view to the casual online reservationist of a hotel room.

Report Statistic: 40% of online hotel bookings are made through online travel agencies like Expedia, Travelocity, Orbitz, and Priceline.

Loyalty Traveler View: Expedia and Travelocity and Orbitz are convenient. Priceline and other opaque sites like Hotwire.com generally offer the best discounts on room rates. A traveler has to weigh the factor of cost with the uncertainty of hotel location and brand. A frequent guest member does not earn hotel points and the reservation is likely to be booked in lowest category hotel room on property.

Priceline Bidding data:
A graph shows the number of bids in the two weeks prior to the date of arrival for the sample hotel. Data shows about 50% of all Priceline bids occurred in the 2 days before arrival.

The minimum acceptable Priceline bid for the hotel, within a one week period, ranged from mostly $55/night to $65 per night with one outlier night at $235/night.

An interesting chart is Exhibit 8, which if I have interpreted correctly, indicates that about 1 in 25 Priceline winning bids represented a 90% discount on commonly published rates for the hotel. And about 5% only got a 20% discount on the going room rate.

The vast majority of bid winners receive less than a 50% discount on the regular room rates. About 60% of winning Priceline bids received a 28%-36% discount on the room rate. Technically, the Priceline slogan “Save Up to Half Off” appropriately represents the Priceline reality. The Cornell graph shows about 10% of bidders received between 67% and 90% off the regular room rate.

The last time I used Priceline was for a night in Washington D.C., June 2007. I ended up with the Marriott Key Bridge, Arlington, VA for about $100 and the lowest available room rate through the Marriott site was $329 for that night.

My initial analysis of the Priceline tool provided for hotel managers seems to indicate some trends for consumers.

Consumers may find the most favorable room rates booking Priceline the day before or day of arrival. Booking at 10 to 14 days in advance of arrival may also provide the best opportunity for higher discounts. The Cornell Priceline tool appears to encourage hotels to not discount Priceline inventory rooms as deeply between 2 and 10days before arrival as a means to maximize profits.

An interesting analysis would be to compare the Cornell Priceline data with consumer bidding data from www.biddingfortravel.com to see if there is useful consumer information to be gleamed from the comparison.

Anyone planning to make a hotel bid through Priceline.com or Hotwire.com should check out www.biddingfortravel.com to see what successful bids are pricing out and then try and use that data with the knowledge that 10-14 days before arrival may provide the best opportunity for deep discounts on Priceline. And if you are desperate and lucky, the day before and day of arrival Priceline bids may save you enough cash to buy gas and pay for hotel parking.

The PointsWizard blog on BoardingArea.com had a link to this article detailing strategies for successful Priceline bidding.