44

I was recently booked in to the Hyatt Ziva All Inclusive in Puerto Vallarta booked direct through the Hyatt website. The room rate was approx. $650 per night.

This evening, I was casually browsing on Expedia and found that same room, room type and for the same dates availabel for $300 per night all in.

Expedia was indicating that the room was 55% off as of tonight.

This is a significant discount...how does Expedia manage to provide the same room for this price?

enter image description here


Update 24h after posting the question: the price on Expedia is now higher than that being quoted on the Hyatt website (consistent with what I had seen originally when I was trying to decide if I should book with Hyatt or Expedia)

  • 13
    It could be a sales trick exploiting the anchoring effect (en.wikipedia.org/wiki/Anchoring). They are willing to sell at the lower price (Expedia price - commission), but list a high price at a different place. So people who see both can hopefully snatch the "bargain" without too much thought. – jf328 Jan 2 at 13:26
  • 6
    Expedia buys hotel rooms in bulk from many chains and many individual hotels. They get a good price from the hotel because the hotel gets guaranteed income for that room - and they can pass all or some of that price difference to you - but that means Expedia is on the hook to sell it. Everyone is trying to maximize revenue, and it works out in your favor, because a hotel room night, like an seat on a flight, has to be sold by a deadline or there's no money in it at all. (This is called the "merchant model" and Expedia does a lot of it, though I don't think they release their numbers.) – davidbak Jan 2 at 20:58
  • @davidbak your answer seems like the right one, why not post it. I was just thinking...business partnerships... – takintoolong Jan 3 at 3:55
  • 1
    Hotels often have a posted room rate - check the sign near the door and you'll see a room's value at some absurd multiple of what you paid. That value is used as their valuation of the room's cost in the event that they need to seek damages. Using that value, they can easily say that a room is selling for 20% of the true value, but nobody is ever actually paying 'face value'. – Brian R Jan 3 at 15:18
  • 3
    @cbmeeks I'm not sure scam is the right term. The economics term for this is price discrimination. If you charge everyone a high price, you lose customers, if you charge everyone a low price, then you lose the money you would have gotten from the customers willing to pay more. The goal is to get all the customers possible to pay the highest price they are willing to fork over. It's extremely common across many categories of goods and services. – JimmyJames Jan 3 at 21:18
53

Hotels have revenue management departments that seek to maximize profit for the hotel by selling rooms at different prices through different sales channels. The hotel may well have sold the room to Expedia for that price (actually, less than that price, since Expedia needs to take its commission) (or, as Tor-Einar Jarnbjo notes, Expedia could be taking a loss if they gave the hotel a guarantee).

It's important to make sure the prices are exactly comparable. Sometimes rooms are significantly cheaper if they're 100% prepaid in advance (non-cancellable or stricter cancellation policy). There can also be differences in the room type, package offers (such as breakfast), and sometimes amenities (I've even seen a charge for WiFi if you don't book directly with the hotel).

Many hotels, including Hyatt, have a best-rate guarantee program if you book directly through them. They'll match a lower price and give you a bit extra. The hotel would rather get your direct booking (and not have to pay a commission to the agency website). If you see a better deal online than what the hotel offers directly, it's usually worth contacting the hotel to see if they can match or beat it themselves.

  • 13
    That last paragraph is worth a +1. I've walked into hotels to ask for a room after checking their prices online, and if they quote me a higher price, I show them the online price and so far I've always immediately received the room at the price listed online, whether on their own website or some booking service. – Tom Jan 2 at 15:44
  • 7
    I even heard that some hotels tell walk in customers to check a certain booking site and book the room from there, rather than from the hotel, as the site was a lot cheaper and they could not meet that price. (May also be that the direct bookable rooms were full.) – Willeke Jan 2 at 16:08
  • 6
    @Willeke "May also be that the direct bookable rooms were full" - don't believe the "number of rooms still available" quoted either on booking sites or at the hotel desk. Often the number is set artificially low, to encourage people to "book something now while they still can" rather than carry on searching for a better deal. – alephzero Jan 2 at 17:24
  • In this case the deal on the site was much better than what the hotel was offering from its front desk. – Willeke Jan 2 at 17:25
  • 1
    @alephzero: It's actually worse than that, most hotels don't even know how many rooms they have available because some distributors (possibly Expedia) pre-reserve a number of rooms in advance but will return the non-sold ones only 24h (or less) before check-in time. So the hotel is blind, Expedia is blind (they only know of the rooms they reserved), etc... nobody knows how many rooms are available :/ – Matthieu M. Jan 4 at 12:19
74

The last time I booked a room with a seemingly ridiculous discount rate from Expedia, I think it was around 85%, I asked the hotel manager how the hotel manages to operate with so low income. Expedia is likely to have different agreements with different hotels, but in this case the hotel was actually paid the normal price and Expedia was obviously trying to minimise their own loss.

In this particular situation, Expedia managed a fixed number of rooms through their booking system and not only did they charge a commission for all successful bookings, but they also guaranteed a certain occupancy rate. If fewer rooms were sold, Expedia would still pay the hotel the full price (minus commission) for the vacant rooms. If all indicators seem to show that noone will book such a room, it may make sense to offer the room with a very high discount.

If Expedia is e.g. paying the hotel 80€ in any case for a 100€ full price room and they have to offer it for 10€ to get it sold, they have at least minimised their anticipated loss by 10€.

  • 47
    In short, selling for $300 is better than not selling it for $650. – anaximander Jan 2 at 15:44
  • And of course, as Expedia and similar companies often charger pretty high "service fees", "booking fees", etc. etc. and sell overpriced addons to bulk up their income, they can afford to charge less for the room itself, advertise that low price to draw in lookers, and then when they're halfway through the booking process heap on the surcharges. Same way low cost airlines sell "$10 ticket from New York to Miami" that ends up costing several hundred on your credit card. – jwenting Jan 3 at 4:47
  • I don't know if this is related or a separate question, but my experience with third-party online booking is you could very well show up at the hotel, having paid for the room weeks previously, and be told the room is not actually available, go away, and please call the booking site if you want to complain about it. – The Photon Jan 3 at 17:48
  • So Expedia may be giving you a good price because you're not actually going to get a room in the end after all. – The Photon Jan 3 at 17:49
  • 1
    @ThePhoton I've heard these horror stories, but mostly on the hotel's own web sites as an encouragement to buy direct from them. I've never had this happen, nor do I personally know of anyone who has. If you've actually had that happen to you, your the first that I've "known" (in the internet sense), and I'll give the claim slightly more credence... – FreeMan Jan 3 at 19:10
9

Expedia buys hotel rooms in bulk from many chains and many individual hotels. They get a good price from the hotel - a really good price - because the hotel gets guaranteed income for that room - and they can pass all or some of that price difference to you - but that means Expedia is on the hook to sell it. Everyone is trying to maximize revenue, and it works out in your favor, because a hotel room night, like an seat on a flight, has to be sold by a deadline or there's no money in it at all.

BTW - they are truly buying rooms in bulk. Significant percentages of available room nights at some hotels. Another answer here is suggesting "If Expedia is e.g. paying the hotel 80€ in any case for a 100€ full price room". My guess is that's not right: You should think wholesale, not retail.

This is called the "merchant model" and Expedia does a lot of it, though I don't think they release their numbers for how much business they do this way vs. other kinds of bookings. This article discusses various business models in the travel business including Expedia's.

On the web you can see financial results from Expedia and analyst reports that suggest Expedia gets a very large percentage of their profit from hotels. They do cars and flights too of course but the profit there is much slimmer - especially for flights which is a totally cutthroat sector. But: people going on a trip usually need flight + hotel or flight + car + hotel. That means there's a lot of ways Expedia can make the whole package be really attractive to you - especially compared to what you get when you shop flight independently from car independently from hotel - while still taking in plenty of money.

Oh, and by the way, Expedia isn't just Expedia.com. Look at wikipedia's article on Expedia Group to see in the first paragraph just a few of their many brands:

Expedia Group is an American global travel technology company. Its websites, which are primarily travel fare aggregators and travel metasearch engines, include CarRentals.com, CheapTickets, Expedia.com, HomeAway, Hotels.com, Hotwire.com, Orbitz, Travelocity, trivago, and Venere.com.

If you rent a hotel room from any of these sites (and several others) it is from Expedia and it is coming out of their inventory of hotel rooms (if it is from a hotel they're buying rooms from).

(Bookings.com is similar: they sell via multiple brands.)

Other answers that point out that you can sometimes get a matching price from a hotel: that's true. And what's also true - in my experience, so anecdotal - is if you book directly with the hotel you can easily get a better room and certainly better service while you're there. So there's some trade-offs there that you can use if you're a more experienced traveler than I am!

(Expedia has sure come a long way since they were a tiny Microsoft product group selling a CD-ROM travel encyclopedia ...)

  • Expedia or any other aggregator or re-seller do NOT BUY rooms. They have agreements to get a specific discount They gather availability data and present rooms at their prices. If the hotel or another aggregator sells all the rooms at a higher/different price, expedia, etc are out of luck. There are a lot of nuances to hotel room pricing and sales. Hotels are in the business of maximizing per room income. Sometimes that means selling through expedia at a deep discount. – Tim Nevins Jan 4 at 15:53
  • @TimNevins - sorry, but you're wrong. They do buy room nights, and those room nights become Expedia's inventory, not the hotel's. They also sell rooms through agreements where they have discounts. They also sell rooms where they get a commission. They have a lot of different business arrangements with different hotels. Here's an article that talks about Expedia's "merchant business model". – davidbak Jan 4 at 16:19
  • You are welcome to your opinions.BTW, your example is well over 2 years old. – Tim Nevins Jan 4 at 20:52
5

Just another thing that hasn't been mentioned: when you browse the hotel's own website, they are not competing with anyone else, at least at the same time -- you are already on their website, they only have to have a reasonable enough price. Through Expedia, customers will prefer the lowest price rooms, so hotels can't charge as much as they would otherwise.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.