Marriott International Inc., the world’s largest hotel operator, has battled back against online travel agents such as Expedia.com to become the eighth-biggest Internet retailer by sales. That’s one reason the stock may rise over the next year even after a 10-percent tumble this year.
Through Marriott.com, the Bethesda, Md.-based lodging company sold $3.7 billion worth of rooms in 2006, more than doubling revenue from the site in 2004. For the first half of 2007, Web sales for Marriott hotels, which range from luxury Ritz-Carltons to lower-priced Fairfield Inns, were up almost 25 percent.
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“You’re looking for efficiencies any way you can, and this is a terrific place to find them,” said Joseph Betlej, who manages $1.2 billion including Marriott shares for Advantus Capital Management in St. Paul, Minn. “A room that they sell on their own Web site is the cheapest way they can sell a room.”
Marriott’s online success is a “contributing factor” in deciding to buy the stock, he said.
The shares will climb an average of 27 percent over the next year, according to analysts surveyed by Bloomberg. Profit this year is predicted to surge 29 percent, the biggest increase in four years, to a record $781 million.
Expedia Inc., the world’s largest online travel agent and owner of Expedia.com and Hotels.com, has climbed 38 percent this year through yesterday after losing 12 percent in 2006.
Although Marriott used to rely on third-party sites such as Expedia.com to sell rooms online, the lodging company discovered that by pitching the rooms itself, it could save money, raise prices and increase earnings.
Marriott.com contributed 3 cents to the hotel company’s per-share profit of $1.41 in 2006, says Jeff Donnelly, an analyst with Wachovia Securities in Boston. That should climb to about 4 cents this year, he said.
“Not a quarter has gone by when the Internet is not the fastest-growing channel” of room sales, Donnelly said.
To attract guests, Marriott created incentives to book through its Web site, awarding points that can be redeemed for free rooms. The points can’t be earned on third-party sites like Hotels.com and Orbitz Worldwide Inc.’s Orbitz.com.
Marriott.com is the eighth-largest retail Web site in the world, based on revenue, the hotel operator says, behind sites such as Amazon.com and Expedia.com and ahead of computer-makers Dell Inc. and Hewlett-Packard Co.
“In 2001, 2002, the question we got from the press was whether Hotels.com was going to put us out of businesses,” Marriott Chief Financial Officer Arne Sorenson said in a March interview. “It took a few years but the question became, ‘Are those guys going out of business?”’
Selling rooms online means Marriott doesn’t have to pay a commission to online agencies, and it’s cheaper than taking phone reservations. Online bookings cost 20 percent less than the $4 to $5 per room cost for phone transactions, Sorenson said.
Other lodging companies have also had success. Inter- Continental Hotel Group Plc, the London-based owner of Holiday Inns and Crowne Plazas, said bookings from its Web sites make up 12.5 percent of all room nights, four times as much as in 2001.
Hotels were attracted to third-party sites as a way to help fill additional rooms when travel slumped, said Bjorn Hanson, the head of PricewaterhouseCooper’s global hospitality group in New York.
Instead, guests whom the hotels had counted on to pay the normal rate migrated to the Internet and the discounted costs, Hanson said. Online agents allowed customers to compare multiple hotels in the same market, forcing hotels to cut prices.
To fight back, hotels invested in their Web sites, which often lacked details about the properties, such as room photos, that could be found on the third-party sites, Hanson said.
Hotel companies have renegotiated contracts to prevent Web sites from saying rooms were sold out when only the sites’ allotments of rooms were gone, said Del Ross, InterContinental’s vice president of distribution marketing for the Americas.
They also began guaranteeing the lowest price at their own sites, either by writing that into contracts with online agents or agreeing to match those prices, Ross said. •
