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The golden age of finding cheap Internet rates for well-known hotels may be over. Where online travel agencies like Expedia and Hotels.com from the InterActive Corporation once snapped up available rooms from a broad range of hoteliers - often selling those rooms for rates lower than the hotels' own Web sites - brands like Marriott, Starwood and Hilton are pushing back.

E-travel agents are still selling those brands, but at the same prices available everywhere else, and often without loyalty program benefits that accrue to customers of the hotels' own sites. And although this has translated into decreased profits for the travel Web sites, analysts said the trend was actually healthy for all parties involved.

"For a couple of years, there was a sense of anarchy in terms of hotel pricing, where you could go to an agency site and get a better price" said Michael Rietbrock, who directs lodging and gambling research at Smith Barney, an investment firm. "Things are getting more rational now."

The hotel market is among the fastest-growing segments of online travel, which itself dominates e-commerce spending. According to Forrester Research, 2003 online hotel bookings among leisure travelers totaled $8.7 billion. Research firms say the hotels' own sites collect between half and 75 percent of that spending.

The anarchy began building after the Sept. 11 terrorist attacks, when hotels were desperate to fill rooms in a slumping economy and abysmal travel environment. While the Internet was emerging as a popular booking tool for customers, the hotels had little money to invest in the medium.

Not so for Expedia and Hotels.com, which were constantly upgrading their Web sites as they battled Travelocity, Orbitz and others for online supremacy. At the same time, Expedia and Hotels.com were pioneering the so-called "merchant model" of online hotel room selling. Under that approach, the Web sites would extract from hotel property managers bargain rates that the sites could sell at a profit of 30 percent or more.

Hotel owners loved the arrangement because it put heads in beds. Expedia and Hotels.com enjoyed this approach because it yielded much greater profits than the traditional mode of selling, in which they collected only the standard travel agency commission of 10 percent for a booking. And, of course, consumers liked the savings, which varied a great deal. For example, travelers could book $159 rooms at some Marriotts for $129 through Expedia, according to Marriott franchisees.

But the corporate parents were not pleased that their franchisees, who pay them about 12 percent of their revenues in exchange for using the brand, were offering discounts to agency sites, and leaving their corporate hotel Web sites with more expensive rooms to sell - or no rooms at all, since hotels sometimes guaranteed a minimum number of available rooms to the agency sites.

"The whole premise of giving discounts to third-party sites that you wouldn't offer on our site was preposterous," said Bala Subramanian, senior vice president of the Hilton Hotels Corporation. "You can fill up rooms today, but you're training the customer to shop your product at a discount, and it makes a poor statement about what the brand stands for."

Hotel franchise executives also complained that the extensive marketing campaigns by the online travel agencies reinforced the message that the franchise sites were a more expensive place to shop - a contention hoteliers were powerless to fight, since they could ill afford to spend heavily on TV ads themselves.

"These online outlets were controlling the advertising message for the lodging industry more than the chains were," said Bjorn Hanson, the head of the PricewaterhouseCoopers hospitality and leisure practice.

To combat the rise of the e-travel agencies, hoteliers last year embarked on a several-part strategy. First, they began investing more heavily in their own Web sites. Last spring, Hilton, for example, upgraded its six franchise Web sites (Hilton.com, EmbassySuites.com, HamptonInn.com, HiltonGardenInn.com and HomewoodSuites.com). Among other things, Hilton simplified its online reservation processes and improved its search technology.

Hotel chains have also started guaranteeing consumers that their brands' sites would offer the same prices available anywhere else. Marriott, one of the latest with such an offer, said in January that prices on Marriott.com would match the best rates elsewhere - on or off the Web - or customers would receive the lower price, minus a 25 percent discount.

According to Bruce Wolff, Marriott's executive vice president for sales and marketing programs, the guarantee has been inexpensive to maintain. "We've had very, very few people call in," he said.

Like other chains, Marriott has helped ensure the validity of its guarantee by striking deals with online travel agencies. Marriott , for instance, in January began allowing Expedia and Hotels.com to offer its more than 2,000 properties on their Web sites - a deal similar to one it struck late last year with Travelocity, which, along with Orbitz, is aggressively working to catch up to the InterActive Corporation brands. In exchange, the travel agency sites have agreed not to undercut Marriott.com's prices.

Hoteliers say such arrangements also insure competitive prices for their franchisees, which, the franchise executives hope, will prevent franchisees from striking under-the-table deals with online travel agencies. Such deals still happen, but infrequently, executives said.

But big hotel franchises have not been satisfied with simply maintaining price parity between themselves and the e-travel sites. To encourage bookings on their own Web sites, hoteliers have in recent months denied loyalty program rewards to those who book at the e-travel agencies. Hilton and Starwood have adopted that tactic, and the Intercontinental Hotels Group, which includes Holiday Inn, among other brands, will follow suit.

And although hotels still cannot match the hundreds of millions spent by online travel agencies on TV ad campaigns to promote their Web sites, they are marketing their sites in other ways. "Consumers may book the first time through Expedia or whatever, but they'll get an absolute barrage from us about our site when they set foot in that hotel," said Tom Botts, vice president for distribution strategy for Starwood Hotels and Resorts, which includes the W hotels and Sheraton hotels, among others.

Mr. Botts said the hotels are promoting their Web sites on a wide range of media, including keycards listing the benefits of booking on the sites. "It's a full frontal assault," Mr. Botts said.

"We're not saying that Expedia isn't a valued partner," Mr. Botts continued. "But they're a very strong brand, and we're concerned about customers building loyalty to them, instead of our brands."

Expedia, whose management team now oversees the operations of Hotels.com, says the trend toward online pricing parity with the hotel chains will do little damage to its business. "We need a broad enough selection of recognizable product to maintain our value, so we continue to do corporate deals with the bigger chains," said Spencer Rascoff, vice president for lodging at Expedia and Hotels.com.

"But with the best rate guarantees, and with suppliers driving traffic to their own sites, we've had to focus more on independent hotel properties," Mr. Rascoff said.

So even though big hotel brands may have secured a spot for their franchisees in Expedia's listings, Mr. Rascoff said, they could suffer in other ways. For instance, a smaller independent hotel chain like Aston, which offers Expedia exclusive discounts and guaranteed room availability, could appear higher on a customer's search for Hawaii hotels than Aston's competitor, Starwood, even though their rates may be the same.

"You get out what you put in," Mr. Rascoff said.

And although the companies' inability to set prices for big-brand hotel rooms has hurt its profit margins somewhat, analysts said Expedia's highly profitable hotel-and-air vacation package business continues to flourish. (Because the base rate of the hotel is invisible to the consumer, Expedia can mark up those prices as it sees fit.)

Online travel agencies who strike deals with hotel chains benefit in other ways. Mr. Rietbrock of Smith Barney noted that occupancy rates were rebounding and within two years could approach the levels of 2000, when rooms were harder to find. "At first glance, these deals may sound bad for the agency sites," he said. "But by locking up much better access to rooms, they're ensuring their viability in a better economic environment."

Source: New York Times