HOTELMARKETING.COM

Merchant model: Ready for final runway walk?

March 16, 2004 |

According to the world of John Davis, president and CEO of Pegasus Solutions, the merchant model will not exist anymore by the end of the year.

Is the Internet hotel merchant model on its last legs? Some are predicting that it’s going the way of the dinosaur, but the giant Web retailers say it isn’t so.
John Davis, president and CEO of technology firm Pegasus Solutions, told attendees at the National Business Travel Association’s Masters Program here that the merchant model—Web retailers buying blocks of rooms at wholesale for markup to consumers—won’t exist by the end of the year.

Davis explained that as the economy rebounds, hotels will fill rooms via traditional methods, like GDS and hotel-direct bookings, and won’t need to allot blocks of rooms to Internet giants like Expedia and Hotels.com, Web sites that have generated millions in revenue over the past two years by marking up rates anywhere from 18% to 30%.

Davis supported his argument with Pegasus research that revealed January hotel bookings through the GDS channel reached their highest level since 2001. Hotels may pay healthy commissions to Web sites that sell a lot of rooms, but the allotment deals will not be a part of doing business, he said.

“Expedia and Hotels.com had a great run [during a depressed economy], when hotels were willing to trade anything for a head in the bed,” Davis said. “The days of the 25% margin are long gone.”

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