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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Marriott International    MAR

MARRIOTT INTERNATIONAL

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Marriott's Size Could Trim Expedia Tab -- WSJ

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12/26/2018 | 02:48am EST

By Aisha Al-Muslim

Marriott International Inc. and Expedia Group Inc. are in the final stages of negotiations over how much the world's largest hotel company will pay the online booking giant, a development that will have broad implications for other hotel operators, property owners and millions of guests world-wide.

These commission contract negotiations between online travel agencies and large hotel chains happen every few years. Typically hotel brands have limited leverage because they can't afford to be left off of listing services like Expedia.com or Booking.com, industry experts say.

But Marriott might have more clout in the wake of its acquisition of Starwood Hotels & Resorts Worldwide two years ago. This showdown with Expedia is an early test of its bigger-is-better strategy.

"When they negotiate with the [online travel agencies], everyone is paying attention. Then everyone follows suit," said Max Starkov, founder of digital consulting and marketing firm HEBS Digital, which helps hoteliers boost direct bookings and lower distribution costs. He expects that a new contract will be signed in January.

Since the Expedia-Marriott contract expired in November, the two companies have been working under an extension agreement that goes until early next year, a Marriott spokeswoman said.

"We've agreed to general terms and have signed an extension while we finalize the legal details of the contract," an Expedia spokesman said. Neither company would comment on the specific negotiations.

Marriott also might benefit in the talks because, like other hotel chains, it has been campaigning to get travelers to book rooms directly with them by providing discounted rates and incentives, experts say. These efforts, aided by Google's search engine, may broadly tilt the balance of power toward the hotel companies.

"I imagine Marriott is playing hardball here," said SunTrust Robinson Humphrey analyst C. Patrick Scholes. "They realize that Expedia can't lose Marriott."

After the $13.6 billion Starwood acquisition closed, Marriott found that its commissions contract with online travel agencies were better than Starwood's, Marriott executives have said. The merger created a hotel giant with more than 6,700 properties and more than 120 million loyalty program members.

Bethesda, Md.-based Marriott has 30 hotel brands including Sheraton, The Ritz-Carlton, Westin, Le Méridien, Courtyard and Aloft. Bellevue, Wash.-based Expedia's hotel listing brands include Hotels.com, Trivago, Orbitz and Travelocity.

Marriott has been looking to reduce its costs to increase the profit margins of its hotel owners, who pay franchising fees and own the majority of branded properties. The push comes after the Starwood merger left some hotel owners competing against brands from their own company.

"All of these actions are to benefit the owners," Sanford C. Bernstein analyst Richard J. Clarke said. "If [Marriott] can make their hotels more profitable, then more people want to open their kind of hotels."

Commissions that hotels pay to agencies like Expedia have been declining steadily. Analysts estimate that about six years ago, Marriott was paying about 18% of each booking as a commission to Expedia, but now it is paying less than 12%. Marriott will likely push Expedia to accept 10%, which is much less than the 18% to 30% independent hotels pay, analysts say.

"Some distribution channels are just too expensive for the value of the business they deliver," Marriott Chief Executive Arne M. Sorenson said during an earnings call with analysts on Nov. 6, sending a strong signal to the agencies.

Expedia may agree to lower commission rates if they can get access to all room types at all times. Or, Marriott may decide to exclude from Expedia certain hotels in areas or nights with high demand, analysts say.

Most of Marriott's bookings come from its websites or apps, while online agencies contribute about 12%, Marriott executives have said. In comparison, about 40% of Expedia's revenue is from hotel reservations, SunTrust analysts estimate.

Online agencies, which market and fill unsold inventory, tend to serve leisure travelers who want the best deal and aren't loyal to a brand. Other travelers book directly with a hotel because they are looking for consistency and getting rewarded for their loyalty, analysts say.

In the U.S., 29% of travelers typically use an online agency to book their hotel, compared with 22% who book direct, according to travel-research company Phocuswright.

Google is also helping hotels boost their direct booking by showing hotel loyalty rates against the online agency rates through Google's map-based system, Bernstein analysts said.

Google, where most hotel searches start, has invested in Google Flights and Hotel Search to help travelers compare costs. It also offers a feature that allows users to book hotels on a Google-hosted reservation and payment page without going to a third-party site.

"We got to make sure that we are customer-centric, that we create loyal relationships with our customers.... If you don't, then the risk is that more of your business shifts to Google," Expedia Group CEO Mark D. Okerstrom said during an industry conference in September.

In response, a Google spokeswoman said: "We value our close relationships with many different partners, including online travel agencies, and we believe that the better job we do at answering user queries, the more qualified leads we can provide to our partners."

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EXPEDIA GROUP, INC. 2.80% 111.85 Delayed Quote.-0.71%
MARRIOTT INTERNATIONAL -0.55% 140.57 Delayed Quote.29.49%
TRIVAGO N.V. 1.11% 2.74 Delayed Quote.-51.33%
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Financials (USD)
Sales 2019 21 139 M
EBIT 2019 2 633 M
Net income 2019 1 601 M
Debt 2019 10 701 M
Yield 2019 1,30%
P/E ratio 2019 31,3x
P/E ratio 2020 21,6x
EV / Sales2019 2,68x
EV / Sales2020 2,61x
Capitalization 45 958 M
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Technical analysis trends MARRIOTT INTERNATIONAL
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Mean consensus OUTPERFORM
Number of Analysts 28
Average target price 138,32  $
Last Close Price 140,57  $
Spread / Highest target 17,4%
Spread / Average Target -1,60%
Spread / Lowest Target -12,5%
EPS Revisions
Managers
NameTitle
Arne M. Sorenson President, Chief Executive Officer & Director
John Willard Marriott Executive Chairman
Kathleen Kelly Oberg Chief Financial Officer & Executive Vice President
Bruce Hoffmeister Global Chief Information Officer
Lawrence W. Kellner Lead Independent Director
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