Wednesday, May 13, 2009

How Expedia works... What they don't want you to know


After spending 3 years working in the hotel business, I'd like to share the secrets of one of the biggest rackets in the business: discount travel websites like Expedia.

For the sake of simplicity, I'm just going to refer to these sites as Expedia even though there are a million of them now... Orbitz, Priceline, Lodging.com, Travelocity, etc.

These sites are able to miraculously offer lower rates on their sites than the hotels themselves. It's not very complicated, and in fact it is brilliant.

Here's how it works:

A hotel decides that it needs to sell unsold rooms or increase their occupancy on low volume periods of time. For corporate hotels this could mean weekends, for more leisure based hotels, this could me slow weekends or weekdays. They agree to allot a certain amount of inventory to Expedia for these said days. For each room that is booked by a traveler online, the hotel "sells" this room to Expedia at an absurdly low rate.

Let's say "Hotel A" has a rack rate of $149 for a particular day. Well, when someone books one of these unsold rooms, Expedia has basically agreed to compensate the hotel for that room. Guess how much they pay the hotel...

They pay the hotel sometimes 50% of the rack rate, but generally the price falls between 55% and 70% depending on the agreement.

Then Expedia takes this $149 room, pays the hotel $90 for it, then marks it up to the travel consumer on the website to $120 or $130. In addition, for utilizing these Expedia-type websites, Hotel A will kick back a monthly commission based on booking usage or a flat fee.

(Check out the difference in the Expedia and Fairmont SF website rates)

Why, you ask, would a hotel do this?

The main reason is marketing. Smaller properties or properties that are not part of large chains do this to draw in people that would ordinarily not book at their hotel. The consumers see another option and possibly a very low price to match. More established properties just do it to keep up with the Joneses. If their property isn't up there with the rest of them, the discount-minded consumer will simply book at another hotel. Many properties reluctantly participate with these sites.

There are drawbacks to this for both hotels and consumers though.

Hotels basically break even when it comes to these room bookings. There's a certain amount of money a room must sell for to break even for renting it. Every time someone stays in a room, the cost of cleaning it, replenishing supplies, and providing other services adds up. Throw in the extra commissions that hotels kick back to the website, and it is nothing more than a marketing tool.

In addition, properties have target demographics upset when random internet cheap asses get a great deal online. Think about the white trash couple who ends up staying next to the CEO and his wife in town for a charity golf tournament and some R&R. Inevitably it seems, the hillbillies misbehave, upset the classy people who paid full price, and the front office manager is forced to comp the room for the CEO and his wife. All too common scenario.

Consumers get screwed far more often though. With Expedia, Travelocity, or Priceline, you are required to prepay for your room. You go through all the steps, "request" your room type, and then get your credit card charged immediately after.

So... what if:

1) You have an emergency and need to cancel your room the day of?
2) You have a bad experience and demand a room credit from the front desk?
3) You need to shorten your multi-day stay once you've checked in?
4) What if you requested a King non-smoking and the hotel claims they don't have any?

Basically you're screwed, unless you're dealing with a really friendly hotel.

By prepaying through these websites, you have signed your life away. The only way to get any sort of refund (Priceline and Hotwire don't allow refunds) is to get the hotel to communicate directly with Expedia and agree to waive the charges... that of course is after you spend 45 minutes on the phone during your vacation with Expedia. Many of the lowest rates at 3 and 4 star properties are non-refundable, even on Expedia. They state it up front.

Hotels are basically powerless to give you any kind of discount. If you have a bad experience, there's nothing they can do. You paid Expedia the money, and Expedia pays the hotel up to a month later. The hotel can't simply open the cash drawer and give you money...

Furthermore, many hotels sell "Run of the house" rooms to these websites, which you really have no control of. The dirt cheap sites like Hotwire and Priceline basically are selling you the worst rooms possible. This means you're likely going to end up in a double smoking room on the freeway. If the hotel is nice and a non-smoking room is available, they can choose to accommodate you, but are under no obligation to give you your preference. And no, they can't give you a discount.

Specifically with Expedia/Hotels.com, you can request a King or Double room. You will get whichever one you booked. However, you can only choose a preference for smoking or non, you are not guaranteed it. This happens constantly. People get to their room, say "I requested a non-smoking room, this isn't going to work," and receive the explanation that they weren't guaranteed one. And no, they can't give you a discount.

This invariably leads to scathing online reviews that hurt the hotel, but Expedia gets away scot free.

And God help you if something goes wrong with your plans when you book a flight through these sites. I've heard some real nightmare stories. Like this one here.

Or this one.

Alternatives:

Look up the price on these sites, then call the hotel directly. Many times they are more than happy to check with their manager, confirm the online rate, and match it or come within $10 of it. In this case, you have more control over your stay, room type and preferences. If the first hotel doesn't accept your proposition, call their competition.

If you are a carefree traveler just looking for the best deal, by all means these sites can save you money. But if you are a complainer who wants a Cadillac for the price of a Kia, you're going to be upset.

You are officially a smarter consumer.

Labels: , , ,

295 Comments:

Anonymous Anonymous said...

Some need for clarification here.
It doesn't make sense to "lump together" all of the websites you mention.
The online travel agents such as expedia,travelocity,orbitz and booking.com are not discount sites, they should always reflect the hotels rate of the day if they are properly managed at the hotel level. All of the hotels that i know of including my own practice rate parity.
Most hotel chains have a Best Rate Guarantee policy in place. If you find a lower rate on a third party site than is offered by the brand you can contact the hotel and receive a discount

The opaque websites - hotwire and priceline are entirely different in that the hotel is not directly advertising lower rates.

It's true that the online travel agencies pay a lower net rate to the hotels than that paid by the guest directly to the ota concerned, this varies by hotel and chain .

Friday, January 01, 2010  
Anonymous Anonymous said...

I made a phone call to EXPEDIA to find me a hotel (Knights INN in MASS) since I didn't have internet access to search it myself online. The representative from Expedia sent me to this place and told me that all cancellations could be made by 6pm EST, I called at 3pm to reserve but by 3:10pm I called back to cancel my reservation because I was not satisfy from what I saw outside this place and I refused to check-in even if they paid me. Expedia told me that my cancellation was supposed to be done the day before... "according to the Hotel's Rules.... huh? Using basic logic: How can I buy a pair of shoes right now but if they don't fit... return them by yesterday??? What kind of policy is that, I thought.
Expedia charged me 139.14 for a place I never check in, a place where the surroundings felt unsafe for anyone. I didn't even get close to the parking lot...it was a terrible place..well.... you can read other people's reviews.
Expedia doesn't take any responsibility of anything, Expedia is just a middle man to take money out of your credit card... be careful also with this hotel... they lied "according to Expedia" about the reason why I cancelled my reservation. The person on the hotel who lied about it... Expedia told me was Aruba. I don't trust Expedia anymore. ... I feel very disappointed .. I used to buy vacation packages thru them.. not anymore. After seemed this lodge I rather sleep at the airport. Do.t stay in this "hotel/motel" and if you have any complain against Expedian then talk to a corporate representative not just a "supervisor" because supervisors are just like any other customer service representative.

Wednesday, June 02, 2010  
Anonymous Anonymous said...

WARNING !!!
This warning especially for Turkish people.
Dont buy anything from Expedia.com
They are totally thief
i was buy airplane ticket in expedia.com for domestic flight in USA Then when i was in airport the fly company didnt find my reservation then i talk on cell phone with expedia on 1 hour all minute they tell me sorry sorry soryy but they didnt fix it anything when End of conversation.
Soo i buy new 2 tickets on airport
and i fly
When i return my home in Turkey i start to investigation for that and i still trying to fix it (past 2 months) They still didnt payback my 580 dollar.
SOO BE CARREFUL AND DONT BUY ANYTHING ON EXPEDIA.COM

Thursday, July 29, 2010  
Anonymous Anonymous said...

WARNING !!!
This warning especially for Turkish people.
Dont buy anything from Expedia.com
They are totally thief
i was buy airplane ticket in expedia.com for domestic flight in USA Then when i was in airport the fly company didnt find my reservation then i talk on cell phone with expedia on 1 hour all minute they tell me sorry sorry soryy but they didnt fix it anything when End of conversation.
Soo i buy new 2 tickets on airport
and i fly
When i return my home in Turkey i start to investigation for that and i still trying to fix it (past 2 months) They still didnt payback my 580 dollar.
SOO BE CARREFUL AND DONT BUY ANYTHING ON EXPEDIA.COM

Thursday, July 29, 2010  
Anonymous Anonymous said...

WARNING !!!
This warning especially for Turkish people.
Dont buy anything from Expedia.com
They are totally thief
i was buy airplane ticket in expedia.com for domestic flight in USA Then when i was in airport the fly company didnt find my reservation then i talk on cell phone with expedia on 1 hour all minute they tell me sorry sorry soryy but they didnt fix it anything when End of conversation.
Soo i buy new 2 tickets on airport
and i fly
When i return my home in Turkey i start to investigation for that and i still trying to fix it (past 2 months) They still didnt payback my 580 dollar.
SOO BE CARREFUL AND DONT BUY ANYTHING ON EXPEDIA.COM

Thursday, July 29, 2010  
Anonymous Anonymous said...

Expedia is HORRIBLE!!!!! How do I book a room with a King bed and end up with 2 Queen beds? "No guarentee" was what I was told. SO, are you just booking rooms in general? You can't choose your bed? Why give the option? The hotel blames Expedia for "overbooking" and "force-booking". Expedia says "there's no guarentee". EXPEDIA IS A SCAM!!!!!

Sunday, January 23, 2011  
Anonymous Anonymous said...

Booked a room using Expedia on July 17, 2011, I thought. Got an email from travelnow.com confirming the reservation. Their cancellation policy stated: "We understand that sometimes plans fall through. We do not charge a change or cancel fee. However, this property imposes the following penalty to its customers that we are required to pass on: cancellations or changes made before 4:00 PM Eastern Time on July 24, 2011 are subject to a 1 Night Room & Tax penalty. Cancellations or changes made after 4:00 PM Eastern Time on July 24, 2011 are subject to a 100% Cost of Stay Penalty. The property makes no refunds for no shows or early checkouts. If you have any questions please feel free to contact us: TravelNow.com etc." I realized I had booked a hotel in the wrong area of the city and I called them. I could not change to another property- same chain, but was told they would cancel it and I would have to make a new reservation. Thirty-six minutes (yes, less than an hour)later I was sent a cancellation email. I made a new reservation in the same city, same chain.
The next month, my Discover Card showed a charge by TSP. Only by cross referencing numbers and the rate on emails did I figure out it was hotels for everyone, hotels.com, and probably Expedia. I emailed them twice to clear this up and got no response. I got left on hold twice, then forwarded, and then cut off when I called them. I tried disputing the charge with Discover. I told them I had called the hotel and was told it was not anonrefundable reservation. This company with many names only makes non-refundable reservations. DO NOT USE THEM! They say they don't charge you for a change or a cancellation but that's exactly what they do- they charge your card instantly. It's not the hotel, it's them! I am amazed this is legal, or is it illegal for them to say they don't charge anything when in actuality they always do? Reread their policy stating "...before..." not the typical "after" that hotels state. It's twisted but so similar to general hotel policies. That is a sneaky way to say all reservations are nonrefundable. These companies probably have prepaid rooms they want to sell. They state that they don't charge you if you need to make a change or cancellation but it's not true. Based on how Discover Card handled it, I guess they think it's legal.

Friday, October 14, 2011  
Anonymous Anonymous said...

I have nothing bad to say about Exoedia! We have had many great experiences with them. Two years ago we booked a hotel in Myrtle Beach SC for three nights. While vacationing with family in NC our baby got sick with the flu we were unable to travel. I contacted Expedia, I dealt with a very helpful young lady who went the extra mile and called the hotel in Myrtle beach fir us. The Manager gave us a full refund which we seen about a week later. We knew that not going would cost us almost 700 but things happen. Expedia and the manager from Monterey Bay Suites were amazing.

Tuesday, April 03, 2012  
Anonymous Anonymous said...

I love Expedia, I have used it to travel to Europe, Australia, and all over the USA including Hawaii. I have also had great luck with Priceline via their name your own price feature and to a lesser degree hotels.com. When booking with Expedia I often times book the hotel and flight together for convenience and great deals. I often times use the Priceline name your own price feature when booking rooms in NYC for a night or two and have had amazing success especially when I wait until the last minute to book. I am not rich but also not white trash so to my knowledge I have never ruined the stay for another hotel guest staying at the same property as me as mentioned in this blog or article. Use these sites if you are a budged conscience traveler.

Wednesday, June 20, 2012  
Anonymous Corrisa said...

These sites all have their purpose...but you must read the small print.

When you book a room you are indeed taking that room immediately "off the market" for someone else to book. This is why a lot of hotels/resorts don't allow cancellations (or have strict cancellation policies).

Knowing all this going in you should always double check your dates, the location of the hotel/resort (if not familiar with the area), etc... before booking with these types of travel portals.

It can be nightmare if you don't know what you're doing or what you're getting yourself into.

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The other problem is that crappy hotels can sell their rooms cheap, but you get what you pay for.

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