Posted on January 23, 2012 by Ruth Walters

Buzz, Skepticism about Room Key Hotel Search Site

Room Key, a brand new player in the on-line hospitality market, launched in beta on January 11, 2012 to some excitement and some hard questions. Room Key is a joint venture among six U.S.-based hotel chains—Choice Hotels International, Hilton Worldwide, Hyatt Hotels*, InterContinental Hotels, Marriott International* and Wyndham Hotel Group—that allows users to search for available rooms at almost all of the chains’ global properties, or about 23,000 rooms total. More Kayak than Expedia, users search the Room Key site for inventory and are then redirected to the individual property (or chain’s) home site to complete booking. The idea is to drive traffic to the hotel websites and away from on-line travel agencies (OTAs) like Expedia, Priceline, and Travelocity. And, of course, to provide a customized, personable hotel booking experience to the user--and who better to do that then a group of hoteliers--says CEO John Davis.

While often perceived—accurately—as partners with hotels, OTAs also compete with them. Virtually all hotels, whether chain or independent, have their own websites and booking capabilities. Expedia et al. can provide greater distribution, higher booking percentages and the convenience of packaging flights, rental cars and activities, but it’s at a price to the hotel. Room Key is making an effort to lower or eliminate that price, while still providing some meta-search convenience and, later, social media components. Room Key’s launch reflects hoteliers’ growing concerns with the cost of distribution, particularly on-line, and their understanding of the shifting roles hotel booking websites might play in 2012.

The OTAs will almost always have more and more diverse inventory and currently they are not participating in the Room Key platform. It’s an open question as to whether they will be permitted to do so; for example, TravelWeb, a similar multi-chain venture in the early 2000’s, was partially owned by Priceline which then acquired a majority ownership position and folded the TravelWeb brand and function into the main Priceline site. It is also not clear whether any GDS will be able to participate.

While called a “shot across the OTAs’ bows” by industry analyst Henry Harteveldt, there is also skepticism on the part of certain financial analysts who see Room Key’s limited inventory and high start-up marketing costs as significant negatives in the on-line hospitality space. Then again, Room Key did announce the day after launch that Best Western International was to be its inaugural commercial partner and other hotels interested in participating are invited to simply email Room Key at partners@roomkey.com.

The site officially launches in March, so stay tuned for more developments.

*Full disclosure: Marriott and Hyatt are clients of our firm.
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Posted on July 20, 2010 by Ruth Walters

Travel Agent "Victory" on Occupancy Taxes in Missouri: Developing Trend?

Missouri governor Jay Nixon signed HB 4211 into law on July 8, adding another point in the travel agent column in the contest with hoteliers, cities, counties and states over hotel/motel occupancy tax issues. The Missouri law codifies the current practice of all municipalities that assess occupancy taxes, namely, the hotels pay tax on the income they receive for their rooms and the travel agents (primarily on-line travel agents or OTAs) pay nothing. No occupancy tax, that is. Normal corporate income tax applies.

This is the latest in a series of disputes at all levels of play on occupancy taxes, including municipal lawsuits against large OTAs for back taxes owed as a result of the wholesale or “merchant” model used by those OTAs, to federal legislation proposed by the Interactive Travel Services Association and opposed by the AH&LA (but supported by, for example, the California Lodging Industry Association), to these types of state efforts to unify the taxation practices of their municipalities.

(You can skip this next part if you know the drill or don’t like math). The dispute arises because of the lower dollar amount of tax paid when rooms are booked through OTAs using the merchant model, as opposed to the more traditional travel agent commission model.

Sample Calculation: Traditional Commission Model

  • Hotel provides rooms for OTA to distribute at retail, say, $100.
  • OTA collects the $100 plus per room plus 10% tax ($10) from the traveler
  • OTA pays the hotel $110 and the taxing authority gets $10.
  • Hotel pays OTA a 20% commission on the $100 ($20) on top of that and nets $80.

Sample Calculation: Merchant Model

  • Hotel provides rooms for OTA to distribute at a price lower than retail, say, $80 per room.
  • OTA marks up the “wholesale” price to, say, $110 and collects that amount from the traveler.
  • OTA pays hotel $80 and the taxing authority gets 10% tax ($8).
  • OTA keeps the rest ($22) as profit.

You see the problem, from the taxing authorities’ perspective. What happened to that $2 they feel they are owed in taxes? The hoteliers certainly don’t want to pay it, as that would effectively raise their tax rate, which can’t be right. The OTAs maintain that it’s not their tax to pay. All they’re doing is making profit by facilitating transactions; they aren’t hotel operators, they’re middlemen.

It’s a contentious issue, with all three sides having serious money at stake. Travelers have gotten into the fight as well with at least one class action lawsuit filed against Expedia on its home court in King County, Washington. The class action settled, but demonstrates this isn't one of those arcane tax issues exciting only to tax geeks.
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