How Fat Are Expedia’s Hotel Margins?

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Lasts week, I stayed at a property in eastern Bali that I had booked using Expedia. I invoked Expedia Price Guarantee, as the hotel was available at a lower rate on Booking.com. You can read my experience of using Expedia’s price guarantee here.

expedia-margin

When I was checking into the property, I had a peek of the reservation confirmation that the property had received from Expedia by email and took a photo of it using my phone. It showed the pricing and other info for the hotel to process the payment from Expedia for my prepaid stay.

expedia-pricing-3

The total price on Expedia was $67.92 ($11.79 taxes/fees) and the total that the property got reimbursed was $50.94 ($8.84).

expedia-rama-candidasa-2

The Expedia’s margin off of the $67.92 price was exactly 25% that cannot be a coincidence.

Of course, there is a note at the bottom of the email to remind the property to not to show the confirmation to the guest.

Conclusion

No wonder, why the properties wish to generate more direct bookings, if Expedia’s margins are in the tune of 25%.

Also, Expedia has inherently a conflict of interest, when it shows the “best matching” hotels for any one city. Do they show the hotels that are truly best match for the traveler or the ones that generate the fattest margin for them?

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  • Or, third choice: whichever hotels give them the biggest amount of block space relative to their competitors. Those may or may not be the biggest margins, but they may be the biggest profit.

  • It would be nice to book direct with smaller hotels but they usually don’t have secure credit card processing online. Using the large booking engines gives them more business than they could get on their own.

    • But it doesn’t really make sense that many of these smaller hotels have HIGHER pricing on their own website compared to Expedia’s of the world.

  • Andy

    Laterooms, Booking.com etc standard commission is 15% (Source: my sister’s 90-bed 5-star in England).

    • Yep. My friend was managing a small B&B in Koh Samui and they paid 15% comission to booking.com.

  • I prefer Booking,com and GlobRes

  • I prefer Booking.com and GlobRes

  • Daniel

    This is also why the cashback sites can often offer 10-15%. BTW I’d suggest blocking out that Expedia credit card info that’s displayed.

    • I updated the photo. The cards that Expedia etc.use hotel reimbursements are one time use virtual cards.

      • Daniel

        Ah, interesting. They must churn through a lot of numbers…!

      • Tyler C.

        Actually John that depends……At my hotel we use the same number for each company over and over. So when you check in with Expedia we route the room charges to the “Expedia Card” When you check in Hotwire we route the charges to the “Hotwire Card.”

        • Interesting. They must have coded each of the hotels correctly in their system, so that they can match the charges coming through with the reservations.

          Can you imagine the number of unmatched charges they must get?

          • Tyler C.

            Yes I can imagine, anytime something doesn’t match they send you an email where you must fax/email a copy of the reservation back over again. I would say this happens at least twice a week.

  • Jerry

    when i was working for a hotel chain, we gave out around 15-20% commission to Expedia, but it was a few years ago back to when i had a nose into web distribution,
    from it might be possible that this commission increased…
    but still, a 15-20% commission is normal

  • Nic

    They margin can be higher. I asked a small b&b in Morocco and if I remember correctly it was above 30%

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  • Boddingtons

    I used a $50 coupon to book the Holiday Inn Bangkok-Silom.

    The confirmation email sent from IHG shows the rate type as: TPI 15P HVY FENCE

    I assuming this translates to Third Party Intermediary (TPI) 15% commission

    • Yeah. That should be the commission amount.

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  • ang_dagat

    Expedia (Expedia collects): 25%
    Expedia (Pay at Hotel): 17% – 19%
    Booking.com (Pay at Hotel): 15%
    Agoda: 17% (variable)

    *Hotels.com and a few other OTAs are part of Expedia. All transactions are through Expedia Partner Central

    • Thanks! You work for a hotel?

      • ang_dagat

        work? yes. for? no. 😉

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  • tu11

    Here’s another real odd one! I booked a hotel through RocketMiles (to earn United MP Miles) rather than booking elsewhere/direct, as the prices were all the same ($139 + tax) for a Hilton stay in Boston. Upon checkout, Hilton posted my folio to my HHonors account as usual. Low and behold, the actual rate including tax/fees for the room was only $119, not the $159 I had paid. I understand the markup for RocketMiles, as they need a commission, have to purchase the miles to give out, etc … but the rate was the same even DIRECT with Hilton, which is totally weird. Any thoughts? I emailed RM to play stupid and ask for my $40 back .. and received this silly response:

    “Rocketmiles sells hotel rooms for similar prices as other sites at the time of booking, and does not “mark-up” to compensate for the mileage rewards we offer. Similar to buying a television, it would probably be very disconcerting to see what the manufacturer charges the retailer for the product.
    The rate that was provided to you on that invoice was intended for the wholesaler and would not have been available to the public. We assure you that the rate you paid was similar to rates that other guests paid.”

    I call shenanigans, but didn’t want to get myself thrown off their program/rewards site, so I just kept my mouth shut and ate the $40 :(.

    • Here’s how the RocketMiles works.

      They basically mark up (regardless what they say on their response to you) the opaque/tour/distressed hotel inventory price for the same level as is the hotel’s own headline price and then throw some miles for you for the difference.

      I believe that you can find some of these hotels using the LMTC that I have written about here.

      • tu11

        I “overpaid” LMTC by about $60 for two nights at the Hilton in Toronto this past July (same issue.. what I was billed versus what the Folio said), and just noticed it recently when the RocketMiles faux pas came through. Not a huge deal, because the savings was actually pretty huge (about 50% off the Hilton price). I want in with these Tourico guys! Haha 🙂 Thanks for the info, John! Hope you and yours are enjoying the holiday season.

        • I think that some of these RocketMiles offers are good when you consider the number of bonus miles they throw in, but obviously they pay for the airlines for those, so the are not “free” per se.

        • BBK

          Pleas tell me more about the Tourico guys, I frequently book hotels with AA Miles, and I see that the reservation is made through Tourico.

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  • Mike Robinson

    I manage a hotel in Costa Rica (http://www.adventure-inn.com) and I can vouch that these numbers are, in fact, true. However I wanted to comment on what you said at the end. There are two ways to list your hotel with Expedia. The first is to list directly through their Extranet, and when you do this, you pay 25% commission and get prime placing. The second way is by having your hotel inventory loaded by a third party. You then pay a commission to the third party (usually around 10-15%) and an additional 10% to Expedia. Either way, the commission is roughly the same.

    All of the hotels who list directly with Expedia pay a 25% commission for every booking and it isn’t possible to pay more to get a higher placing (believe me, I’ve asked). Your position is based on performance (how many reservations your hotel generates, how good your reviews are, promotional offers, etc). The only other way to be at the top is by purchasing “TravelAds”. Do a search on Expedia and you will notice the word “Sponsored” practically hidden on a few of the listings. They look identical to regular listings with this very minute difference and Expedia purposely makes them look almost identical because every click means more revenue for them since the hotel pays per click. So if the hotel pays for TravelAds, they will actually be paying more than 25% per booking, but the additional cost is not directly built in to the reservation. On average, we probably pay a whopping 35-40% for all bookings that come through Expedia.

    Of course, it is both a blessing and a curse to be listed with companies like Expedia, booking.com, etc. It hurts because the hotel has to pay a commission, but it is beneficial because these companies typically do amazing marketing and getting a booking and paying a commission is better than not getting anything and having the room sit empty. Look at TripAdvisor, for example. That’s owned by Expedia. Search for hotels in any city on the planet and TA is almost always in the #1 position.

    To offset this, most hotels are forced to increase their rates to help counter the steep commissions paid to travel agents, so in the end YOU, as a consumer, are paying the commission. Of course I’m biased being a hotel manager, but I always recommend booking directly with the hotel. We tend to be significantly more flexible on things such as cancellation policies for people who book direct, but we’re never flexible for people who book with Expedia. It is also against Expedia policy, but I’m sure many hotels will give preferred rooms to people who book direct as well. We often upgrade people if we have a better room available. If I have to choose between upgrading someone who booked direct and someone who is using a third party that we have to pay steep commissions to, well, the choice is obvious. So yes, you won’t get your rewards points, but you may be rewarded in other ways, and you’re contributing towards allowing hotels to offer more competitive rates when you book direct. This is especially true for small bed & breakfasts and mom and pop hotels who don’t have the backing of a large hotel chain to do the marketing for them.

    • mary

      Hi Mike,

      Are you still there? I have an interesting situation that could perhaps be enlightened by comparing with your situation.

      Can you confirm if your contract with expedia is on net or gross room rate basis? Net room rate in my definition is the room rate without tax and other hotel room rate charges.

      Thanks.

      • Mike Robinson

        For prepaid reservations we pay a commission on the total price of the room, including taxes and any other fees (if we had any other fees, which we don’t). However for the reservations where the hotel collects payment I believe we don’t pay a commission on the tax because we are the ones that collect it and therefore have to pay the full amount to the government.

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  • Ricky Anthony

    I have worked at several small to medium scale hotels, and yes those commission figures for the major OTAs are correct or thereabouts. These sites do also rank search results commission-wise. For example, booking.com’s current ‘preferred partner’ which displays a thumbs up and booking.com endorsement for a property, required ‘qualifying’ properties to pay 3 or more percent extra. The description to guests went along the lines of best reviewed properties chosen by booking.com and shown first. It was the same with their Genius guest programme. The hotel could also decide to up their commission at any time for a better ranking on search. Hotels usually have over 75% of their bookings from the major OTAs who have gotten very big. It did sadden me to see how a lot of travelers had the impression that hotels were making huge profits out of their stay, but, at least for small operators who are hit with high running costs, tax and commissions, that is not true.