Major hotel operators including Hilton Worldwide Holdings Inc. and Marriott International Inc. are taking a new tack to reduce payments to fast-growing online travel websites: lower prices to direct-purchase customers.
The chains have started offering exclusive discounts as high as 25% this year to members of their loyalty programs who book through the hotels’ own websites, a bid to avoid double-digit commissions charged to the hotels by online travel agents like Expedia Inc. and Priceline Group Inc.
Hilton launched an advertising campaign earlier this year to convince guests to “stop clicking around” and book stays through Hilton’s website or app. The promotion is closely tied to the hotelier’s loyalty club, which offers members discounts of up to 10%. “It’s time to be aggressive,” said Geraldine Calpin, Hilton’s chief marketing officer. “Now, we go big on marketing.”
Although the hotels advertise the “member rates” or “exclusive discounts” broadly, they are technically only available to the millions who have signed up for their loyalty programs, which means the hotel brands don’t have to provide the same discounts to online travel sites.
The contracts that hotels sign with third-party websites often prevent them from offering lower rates on their own sites, though hotel brands say they are free to offer the discounts to members of their loyalty programs.
In the past, most loyalty programs only offered perks like free Wi-Fi service, room upgrades and rewards points. This year, hotels started offering the discounted rates at RoomKey.com, a travel site several own.
Expedia, which owns travel portals including Hotels.com, Orbitz and its namesake website, has responded by penalizing hotels that publicize loyalty discounts by pushing those chains’ search results lower on its own website. A Priceline spokeswoman declined to comment.
“The owners are going to be the ones to pay the price for the discounting strategy,” said Cyril Ranque, president of lodging partner services at Expedia. “We believe that it’s not a sustainable situation,” referring to the loyalty discounts.
Choice Hotels International Inc. started testing its “member rate” in June after a string of competitors rolled out their own discounts. Like Hilton and Hyatt Hotels Corp., Choice offers members up to 10% off at some hotels. The Marriott rewards program discounts range from 2% on weekdays to 5% on weekends. Wyndham Worldwide Corp. offers up to 25% off standard rates, but only on bookings made through September. Hilton’s discounts also ratchet up to 30% this summer.
The moves step up the tug of war between hotel brands, which have tried for years to convince guests to book through their own apps, and websites such as Expedia and Priceline that have been gaining a greater share of hotel bookings. Investment funds and franchisees that actually own the properties are caught in the middle.
Bob Habeeb, chief executive of First Hospitality Group Inc., a Midwest hotel operator that runs 53 hotels for other brands, said hotel brand owners know they have to appeal to price-sensitive customers and “get real with bottom-line pricing.”
Online travel agents captured about 15% of U.S. net bookings last year, up from 11% in 2010, according to market researcher Kalibri Labs LLC. About 19% of bookings are made through hotels’ own websites and apps. The rest come from corporate travel agents, group bookers and offline channels. Outside the U.S., where independent hotels dominate, online travel websites make up an even bigger share of the business.
Priceline’s total room-night reservations rose 25% last year. Expedia clocked 36% room-night growth in 2015 after a string of acquisitions.
The travel websites’ popularity has put hotel brands in a bind. They need the sales that the sites provide, but each new reservation chips into the hoteliers’ profitability. Marriott, Hilton and Starwood Hotels & Resorts Worldwide Inc. all say in regulatory filings that the online travel agencies could cut into their revenue.
“Some internet reservation intermediaries are attempting to commoditize hotel rooms by increasing the importance of price and general indicators of quality (such as ‘three-star downtown hotel’) at the expense of brand identification,” Starwood said in its annual filing to securities regulators.
InterContinental Hotels Group PLC beat the rush by testing discounts as early as 2014. Chief Commercial Officer Keith Barr said he wasn’t worried about fraying ties with online travel sites. “There always will be tension at the end of the day,” Mr. Barr said. “That exists in any sort of supplier-vendor relationship.”
Write to Drew FitzGerald at andrew.fitzgerald[a]wsj.com