Transcript of Hotel-Booking Sites Panel from “Building Trust on the Web,” Consumer Reports WebWatch’s First National Summit on Web Credibility

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  • RM: Robert Mayer, University of Utah
  • BM: Bill McGee, Consultant to Consumer Reports WebWatch
  • JH: John Hawks, Association of Retail Travel Agents
  • KM: Kevin Mitchell, Business Travel Coalition
  • GD: Gary Doernhoefer, Orbitz
  • AC: Al Comeaux, Travelocity

Note: This is an edited transcript of the proceedings. 

RM: I’m a member of the Consumer Reports WebWatch board of advisors and professor at the University of Utah. Thanks for coming to our session on travel sites, the subject that we love to hate. We all want to be out there — we love the thrill of the chase for the great airfare, the great hotel rate, and we like to brag about it when we do well, but we also [LONG PAUSE]…

…hotels. That’s the end. The airline is the means. We want to get somewhere. But we want to get to the hotel. And so their quality and brand image makes much more difference to us.

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In preparation for today, just to get things going before I turn it over to our major panelists, I did a little comparison for this hotel. I first went to the hotel’s Web page, which is one of the things Bill McGee will tell us is what we should do when we know where we want to go.

It was a little confusing. There was one thing you could click on for rates, so I went there. And then I clicked on “leisure,” because if I was just coming in, I wouldn’t have any corporate discounts. And under “leisure” I found “corporate” and “concierge” rates. The lowest rate that would have applied for me if I didn’t have corporate was the $239 corporate rate.

But then there was another link on the page for this hotel which said to actually make a reservation. So I went there, and I put in my dates, and I got a $189 leisure rate.

Then I went to a variety of other sites that either I knew of in advance, or I found going to Google. At hoteldiscounts.com, you couldn’t get a room. Actually, I went for next week, because I didn’t know how many rooms we’d be using for the conference. So I went next week, Tuesday and Thursday night.

They had no room available. All the other sites I tried had rates, but you see they’re fairly significant price variation between $168 and $124 at Orbitz. But Gary [Doernhoefer], before you get too happy, there are asterisks here, because it was little confusing about whether or not the rate applied to the date of when you booked it, or when you would stay there. And you couldn’t find out before you put your credit card information in.

So some consumers would have been confused about — it said April 1st to April 18th. And it was unclear whether you have to pay during that period or whether you had to stay in that period.

But there wasn’t much variation among these five sites or, really, these six sites, in price information. But quite a big discount from what the hotel was offering on its site. Which is actually the exact opposite of what Bill found on a much bigger sample of sites.

I also did the same thing for my airline. I live in Salt Lake City, which is a Delta hub, and I like getting frequent flyer miles there, so I started with Delta. On February 11th, when I knew I was coming, I went to their Web site and asked for a fare, leaving on a Tuesday and coming back on a Friday. And I went back every couple of days, the way a consumer might.

It was amazing to me how much price variation there was. It wasn’t a huge price variation. It was always within $100 or less, but almost every time I looked the price had changed by a few dollars. And certainly any consumer who assumed the earlier you book, the better off you are, would have been in error. Because prices do drop, for example, during this period.

And then, two weeks before the conference, the prices exploded from the $600-700 range up to the $2,000 range. So there’s quite a bit of price variation out there, depending on when you book.

The last thing I’ll show you is, about three weeks before the conference, I went to not just the Delta site, but I went to some of the sites that you’ll be hearing from today. And, to avoid controversy, because this is just one case, and I don’t want to generalize too much about it, I have Orbitz and Travelocity and a competitor up there, but just calling them Site 1, 2 and 3.

Delta’s flight price at that point, on their Web site, was $753. But two of the other sites were significantly lower, and one was much higher. Inputting the exact same information of when I want to leave, what time, etc. So for the same flights, actually, this is the best fare they could offer me, given the parameters I had given them.

I want to leave at 10 o’clock, because that was the default on Delta, so I kept that. I only allowed flights that were within three hours before or after that, and these are the price variations. So you have 100 percent variation between Site 2 and Site 3, in terms of the best fare they offer on that particular day and time. So just to give you a sense of what the consumer is facing out there.

Q: What days of the week were you traveling on?

RM: Leaving on a Tuesday, coming back on a Friday. If I’d been willing to stay till Sunday, that would have made a big difference. But most business travelers don’t do that.

We have a great panel today. The way we’re going to structure it is, Bill McGee will be our first speaker, and he’ll present the findings of Consumer Reports WebWatch’s new study. Bill will take about 15 minutes to discuss the results.

Then we have a terrific bunch of panelists. I’ll ask them first to respond to the study, and then I’ll throw out a few questions, unless you have them. We’ll have question and answer, and they can ask each other. But it’s better to have a common enemy like Bill, when the panelists are such as Orbitz and Travelocity, who are direct competitors, and travel agents as well. So, Bill, that will be your role, but nothing personal.

BM: I think this is really instructive in a way, because what we’ve found is that a lot of organizations and people that do this type of testing find very anecdotal results. They may go in and, on a different routing rather than La Guardia/Salt Lake, would find completely different results from these exact same sites.

When we were first trying to get our hands around this at Consumers Union about three years ago: How do you quantify and qualify the results from integrated or competitive travel Web sites? We realized that what we needed to do, for one thing, was to go in and go in often.

One of the advantages of Consumers Union: tremendous resources are available. Another one is a statistics department that provided models for us. You may see other publications or other entities that may or may not have biases of their own, going in and doing similar type testing, but to our knowledge, as far as independent testing, this is about as thorough as there exists right now.

The models that we created several years ago were for Consumer Reports Travel Letter, a monthly travel newsletter published by Consumers Union that ceased publication in December 2002. But we used that same type of model and that same methodology when we decided at Consumer Reports WebWatch to continue that type of testing.

In the past, we had always tested based on looking for airfares. We made a conscious decision to do that, because as Rob said, there’s a general agreement in the industry that airline products are to a great extent commoditized. With few exceptions, consumers are price-driven and very few other factors come into it.

We knew we had a bigger challenge on our hands when we decided to look at hotel sites, because there are a lot of factors involved. We created some testing methodology that we hoped would address that.

First of all, we made a decision on what sites to include. We looked at market share data and other factors. The three biggest sites were easy: Expedia, Orbitz and Travelocity. We also included one of the fastest growing sites, Hotels.com. Obviously, as the name implies, specific to lodging. We also included Lodging.com, which is owned by the Cendant Corporation, which also owns nine hotel chains, as well as many other travel companies.

In addition to these five sites, we benchmarked the testing that we did, as we have in the past every time, by using an outside consultant who has access to a computer reservation system or GDS, as it’s referred to now, global distribution system. This consultant was working with the largest GDS, Sabre.

Then, finally, we had a seventh tester, who was going in and looking at branded hotel sites, that is, the actual hotel chains or even property sites maintained by Marriott, Hyatt, Hilton and several other chains.

All seven of these testers, just to briefly recap our methodology — and we could go into greater detail, if anyone has questions on it — but I can assure you it was all done in real time, and we strive to have the most apples-to-apples type testing we can.

That was a little difficult in looking at hotel sites, because all these sites have different functionality, different tools available to consumers. What I’ll do, just to briefly recap, we did five tests in all.

Each site was tested for 30 cities, domestic cities for the most part. U.S., Caribbean and Hawaii, all the United States cities. Thirty cities, five tests, for 150 queries for each site, for a total for this whole test of 1,050 queries. Statistically we felt that we were on pretty firm ground there.

The five tests were broken up so that, in the first test, it was very broad parameters. Simply searching for lowest rate in those cities. The second test was a little more specific. We asked for a specific location within the cities: Times Square in New York, Faneuil Hall in Boston.

Test number three was more specific, and it was getting a little harder to do an apples-to-apples type test. We were looking by star ratings: three-star hotels, four-star hotels. Some of the sites don’t use that type of categorization. We had to do a lot of research to try and make it as apples-to-apples as possible. Some use terminology such as “moderate” or “luxury.” We strove to make it as comparable as possible.

The last two tests were probably the most interesting of all. Test number four, we searched by hotel chain. We simply said, “We’re looking for a Marriott in New Orleans, Miami,” whatever. And then test number five, which was the most specific test, we actually came up with 30 specific properties, one in each city, and said, “We’re looking, in fact, for the Marriott Marquis in Times Square in New York, and the MGM Grand on the Las Vegas Strip.”

When we then set out to do the testing, we did it in real time. We simulated a variety of trips likely taken by leisure travelers and business travelers, with long advance purchase windows and short advance purchase windows, and various lengths of stay. We strove to try and encompass as many types of different itineraries as we could.

Since we had done a lot of similar testing at Consumer Reports Travel Letter, it was always confined to air. We found some striking things when we finally started looking at hotels. One of the issues that Consumers Union has been very involved in as far as travel distribution has been the issue of potential bias. Travel is unlike most products in that the actual purchasing process can be more complicated than the actual end product.

Deciding how you want to buy the product can actually involve more energy and more time than actually what product it is you want to buy, since there are so many different channels and so many different cost structures associated with those channels involved with buying the exact same products. When we looked at integrated travel Web sites, we found wide variances in these hotel rates.

As far as the issue of bias, we cite in the research paper that we’ve just put online today, which has just been published, a paper that was put out by the Hotel Electronic Distribution Network, HEDNA, which is a not-for-profit trade association, with members who are involved in electronic distribution of lodging products.

They put out a white paper in 2001 entitled “Biasing: What You Need to Know,” for its members. It’s a 126-page document, and in its executive summary it states: “The precedent for delivery of unbiased information appears to be changing. Increasingly, the hotel industry is citing examples where information delivered on travel displays is no longer non-discriminatory and neutral, but displays a preference to another hotel or group of hotels.”

Now, the environment in which much of travel is distributed in recent decades was through the global distribution systems, which are in fact regulated by the Department of Transportation [DOT]. The air sectors are regulated by the Department of Transportation, to ensure that those displays are fair and unbiased.

Up until a few years ago, the overwhelming percentage of travel products came through those GDSs, and through travel agents. Now, of course, with the advent of the Internet, things have changed radically.

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What we saw in looking at these results, we have found each time we’ve done these tests, that we keep raising more and more questions. One of the things that struck us about the issue of potential bias in these sites, since these sites maintain marketing and advertising agreements with the travel companies that they list in their integrated listings, is the displays themselves. In some cases, there are advertisements embedded in the displays.

But one of the most striking things, to us, was that in each of these sites, the functionality for acquiring the listings was in itself a little difficult, in that the functionality to obtain lowest to highest pricing is not always an easy thing.

We would think that default should be automatic. That once you’re searching, whether it’s by chain, location, what have you, it should provide the listings in a lowest to highest manner. In fact, we found that it usually required a second step, and you needed to go in and do some work to have those resorted.

In addition, one of the things that struck us is that, since we have benchmarked this test as we have in the past with all of the testing that we did at Consumer Reports Travel Letter, we benchmarked it with the Global Distribution System, with Sabre. There has been growing controversy within the travel industry in recent months and years about the issue of Web-only rates.

In fact, a few months ago, Gary and I participated in a panel at a travel conference on this topic, about rates that are available only in independent Web sites, and not through other channels, through global distribution systems and other means.

One of the things that struck us is that when we first started doing this testing with airfares in 2000, and we used Sabre as a benchmark, it was just that. It was the benchmark that the other sites bounced off of, and either performed fairly well against or not.

What struck us this time is that the hotel rates that were returned by Sabre, the GDS that’s regulated by the DOT to provide complete and thorough listings, Sabre in fact performed very poorly. Only 15 percent of the lowest rates in these tests were returned by Sabre.

All these percentages, I should say, include ties. So theoretically each site could have provided 100 percent of the lowest rates. It was rather striking, because the advent of Web rates, to us, we had firm evidence of it. Just about all of these sites did better than Sabre did. I can go through the individual rankings, but it was a point that we felt needed to be made up-front.

There’s a lot going on on these sites. There’s a lot of different ways in which rates are being provided to these sites. I want to say right off the bat that obviously in some ways that’s very, very good for consumers. There are tremendous bargains to be found on these sites, particularly the three largest sites, which did the best. Alphabetically, they are: Expedia, Orbitz and Travelocity.

But there are also questions about how these rates are being offered to consumers, and how these integrated listings are being put together.

That said, once we crunched all the numbers, and there were a lot of numbers to crunch, we found that Travelocity, in fact, returned the highest percentage of lowest rates, at 29 percent. I’ll just run through these numbers so that you have them, and certainly we can provide this as backup for anyone who needs it.

Orbitz came in second with 21 percent of the lowest rates provided. Expedia at 17 percent, and Hotels.com at 15 percent, along with Sabre at 15 percent. Lodging.com was at 11 percent. And then the branded sites were at 10 percent.

I could speak at length about the individual tests. I won’t take up too much time doing that, but I think there were some interesting things, when we looked at the results by test, that are worth noting.

Probably the most interesting thing we found was that these branded sites — that is, when we use the term “branded,” going into the brand name of the hotel chain or even the specific property, when you’re going in looking at Marriott.com or Hyatt.com — for the most part they didn’t perform very well, except when we were looking by specific property.

The lesson there for us was very clear, that in that case, in 10 of the 30 tests, the lowest rates were returned by Travelocity and by the branded sites. The lesson for us was that, if in fact you know the specific property you’re looking to book, it’s always a good idea to take that added step of going to the branded site as well, after you’ve shopped on the integrated sites. As far as the issue of shopping, it’s important to note that this is advice that Consumers Union has issued before, and we’re issuing it again.

Travelocity provided the lowest number of rates 29 percent of the time, as we note in the press release. The inverse of that is that the best site at this task did not provide the lowest rates 71 percent of the time. We’re kind of in the range here of major league batting averages. When you bat .300, you go to the Hall of Fame if you do it for 20 years. But, of course, what’s not said is that you’ve failed at the plate seven times out of 10 to get a hit.

That being said, obviously there’s a lot of competition here. I think that’s one of the good things that we saw here. But it’s clear that we can’t wholly endorse one site over the others. Shopping is still the way to go when the best site provided the lowest rates 29 percent of the time.

In addition, as far as the methodology goes, we also broadened our test results this time. And, quite frankly, it was due to feedback from some of the Web sites that we tested in the past. Some of them said, “You’re only giving percentages for those that provided the lowest rates, and there may be sites that come in very close, and we’ll never know about those, because they just got lumped in with the losers.”

So what we did was, we modified the scoring system to include a category that we’re calling “closest rates.” And that is, in each case, we saw who returned the lowest rate. We then went in and came up with a figure of five dollars per night, which seemed about right, looking at these average rates, and said: For each test, whichever site provided a hotel rate that was no more than five dollars more per night for that test, received credit for that.

The interesting thing is that once we did that, the order didn’t change very much. The lowest rates were provided by Travelocity, Orbitz, Expedia, Hotels.com, Sabre, Lodging.com and the branded sites.

The closest and lowest rates combined were provided by Travelocity, Orbitz, Hotels.com, Expedia, Sabre, Lodging.com and the branded sites. There was only one change in position there, that Hotels.com surpassed Expedia when the closest rates were included.
The other thing that was noticeable is that the percentage of lowest and closest rates from Travelocity was 37 percent, from Orbitz was 32 percent. The gap between Travelocity and Orbitz was narrowed when these closest rates were included.

There is quite a bit more that we found, and the research paper, which is now available, I believe, on the Web site, as of this morning. The full research paper is available on the Consumer Reports WebWatch Web site, which is also, I guess, connected through Consumers Union Web site, has greater detail and specific charts.

I think in the interests of creating a dialogue here, I’ll probably stop here. But certainly, if anybody has any specific questions, I’ll be happy to address that.

RM: Our first panelist is going to be John Hawks. John is the president of ARTA, the Association of Retail Travel Agents. ARTA has established the Consumer Travel Rights Center, which has a very interesting Web site called Mytravelrights.com, where you can learn what your legal rights are as a travel consumer, and how to effectively lodge complaints. John, I’d like to hear your impressions of this study, or the role, more broadly, of Consumer Reports WebWatch in trying to create honest, useful Web sites.

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JH: I should clarify at the beginning, and I want to just give a couple of quick comments, as Bill mentioned, so we can get around to all the panelists and get some dialogue going, I’m here primarily representing the group that ARTA began with a grant. There’s a separate organization, a 501(c)4, called the Consumer Travel Rights Center.

In that context, I’d point out that the work that the Consumer Reports WebWatch is doing now, when Bill was with the Travel Letter, starting with air and then going now to hotels, and I hope that you’re going to be going on to cruises and some of the other travel segments.

This is really the age of the buyer. There’s a book many of us have read, a best-selling business book called The Next Economy, and the author of that book, probably his common point throughout the whole book is that this is the age of the buyer.

In America we started with the importer back in the colonial days, and we’ve run the full cycle now. The age of the importer, the manufacturer, the wholesaler, the retailer, and now these days are the time of the buyer. And the work that the Consumer Reports WebWatch is doing really fills a big gap in the travel industry.

We are one industry which has never really had “independent testing.” The car manufacturers have had to deal with Bill and his fellow folks at Consumers Union, and the cereal makers and the baby chair manufacturers and all the other consumer elements. Many of them have had to deal with facing the facts of independent testing. And we think it’s a good thing that this trend has now come to the travel industry. And we really would recommend and endorse the idea that Consumer Reports WebWatch continue this with other travel segments beyond hotel.

I’d point out two quick comments in response to the paper that Bill presented. First is the issue of display bias. The Department of Transportation for some time now has had federal regulations prohibiting display bias when it comes to airlines. The airlines in ’94 reached a consent decree with the Justice Department regarding a subsidiary they owned called Airline Tariff Report, a publishing company that prohibited signaling using electronic means.

And our group does support the idea of expanding the current CRS regulations, as they’re called, the federal regulations that the DOT has, prohibiting display bias with airlines. We do support some expansion of that to online travel agencies.

There are concerns. Bill’s study, the paper points it out in very good detail, that there is a capacity. As long as there’s capitalism, there will be the sense that some of the folks who run capitalistic enterprises want to present the very best public face that’s going to bring in the most sales.

Particularly with the merchant model, that’s really common, with a lot of the online hotel sites. There is a really good business reason on their part to promote the best deals they have. And that does lead to, as Bill pointed out, not so much a low-to-high rank of prices as it does a display that comes up with the very best “deals” that that particular company is putting forward. That is an issue that we think the DOT and, hopefully, other agencies will look at.

I would point out, as far as the big difference in rates compared to Sabre. I think it is interesting that Travelocity came in at 29 percent, and the parent company came in at 15 percent. My uneducated guess is that a lot of that probably results from merchant model arrangements, where Travelocity and other online agencies have a merchant model set up with different hotel chains. I’m real curious to see what Al’s [Comeaux] thought is on that.

I’ve got a handout that I brought with me on the plane that I’ll just leave up here if you’d like to take a copy. Another issue — I get the sense that we’re going to talk a lot about rates today. And I want to raise another issue that we hear a lot of complaints about from travelers.

That revolves around what the Consumer Reports WebWatch folks call “transparency.” We have concerns about the terms and conditions that consumers are forced to agree to when you purchase travel online. And it’s not just the big online agencies. It’s also the branded sites that each company or supplier puts up, and that many travel agencies, brick and mortar travel agencies also have.

You see legal disclaimers that don’t have any warranties about the accuracy of the information. If you really go to some of these sites and pull up the terms and conditions and try to wade through that fine print, you’ll see that many sites disclaim any warranty about the accuracy. In other words, if the fare’s loaded wrong, it’s your problem as a consumer.

There are no warranties of what lawyers call “suitability for a particular purpose.” In other words, if a site doesn’t work the way you think it should, as a consumer, it’s still your problem. We’ve waived that responsibility.

Many of these sites — and again, let me stress, it’s not just the big online agencies. These are brick and mortar travel agencies and the suppliers’ own branded sites — have damage waivers. Many of them, particularly, require you to waive cash damages.

In other words, if you take the site to court, and you were able to win a judgment, you would get certificates of some sort. You’d get something other than the cash. And you agree to this when you make a purchase.

A final concern is what lawyers call “form selection clauses.” If you want to sue — I’ll pick on Expedia, since it’s not here today — you have to go to Washington. You have to sue in Washington State. Many attorneys would argue that’s a very common clause in many commercial contracts. I think our concern, from the consumers’ standpoint, would be that many consumers don’t always understand that.

When it’s buried in 8-point print in a very tiny terms and conditions link at the bottom of a homepage, in legal terms, yes, it’s a binding arrangement. You agree to abide by those terms and conditions when you use the site. But many consumers don’t understand how deeply that binds them to some negative conditions for their sale.

I wanted to get that point out, and I have a handout for that, because I’m assuming we’re going to talk a lot more about rates than anything else.

RM: Our second panelist is Kevin Mitchell. Kevin is the chair of the Business Travel Coalition, which he founded in 1996. The role of the Coalition is to influence public policy in the interests of the business traveler.

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KM: Just as a way of framing what I heard as the results of Bill’s study today, back in the spring of 2000 I was testifying in Congress. One of the members of the congressional panel said: “What are we going to do about these fortress hubs?”

And I sat there and I listened and I thought “My God, we’re still fighting the last war!” Right now, we should be worried about the Internet, because where it took 10 or 15 years for us to get to a point where economists called these fortress hubs either “concentrated” or “excessively concentrated,” it might just take 18 months, and it’s all going to be settled on the Internet.

I left that hearing and I went to the DOT and said “We’ve got to do something here.” It led to an Internet summit in September or October of 2000. And here we are 30 months later, and nothing got settled. I think what Bill’s report shows is that there’s a tremendous amount of competition out there. And I think from a public policy standpoint, we have to be awfully careful.

Because on the one hand, you don’t want what happened on the fortress hubs to happen on the Internet. On the other hand, when you intervene with public policy, such as with the CRSs, you vest someone. You make someone extremely defensive down the road to undo what was done.

Certainly with the CRSs, while the airlines are losing billions of dollars, they are continuing to be able to put 4 percent, 5 percent and 6 percent price increases across every year. So that public policy, while it was well intended, and it did serve a purpose in the early years, ended up being something that caused a lot of dysfunction in the airline industry.

My takeaway from the whole tension between “get something in place right away, but don’t make a mistake” is, we should seek to extend CRS rules or other regulatory interventions only as a last resort. The Internet is still very, very young. It’s not static; it’s evolving. What might be pro-competitive today, if you look at it, might end up being anti-competitive in 18 months and vice versa. So there are my thoughts.

RM: Let me ask you a quick question: In the airline travel, there’s always been the assumption that the business traveler subsidizes the leisure traveler. Is it the reverse in hotels?

KM: I have always felt that you could make either argument on the airline side. Very convincingly you could say that, were it not for those extra 10 leisure passengers that fill the back of the plane, folks in the front would be paying a little bit more. Or you wouldn’t have the frequency. I would not feel expert enough to comment on that on the hotel end.

RM: But the business traveler doesn’t feel ripped off by the airlines?

KM: That’s a different question. Ask the average business traveler, they’re subsidizing it.

RM: Our third panelist is Gary Doernhoefer. Gary is vice president and general counsel at Orbitz. He was senior counsel for government affairs at American Airlines. And you can imagine, as the head of legal affairs for Orbitz, he’s had a number of challenges over the last two years, as the Orbitz concept arose, and it’s gone through all of the challenges with the Congress and the regulatory agencies. So far he’s doing a very good job.

GD: I owe my introduction to that role to Kevin, in fact, because it was the conference he just referred to in September of 2000 that marked my 11th day on the job. I walked into a very hostile environment, a lot of suspicion about this airline nonentity called Orbitz. It was a pretty clear signal what the next year or so was going to be like.

I’m pleased to say I consider today that I think we have now shown in the marketplace that we are a serious player. We are not in any fashion biased in favor of the owners of our Web site. We now play a role as a head-to-head competitor with each of the other sites, not only on the airline side but on the hotel side as well. So I think a lot of the initial skepticism about what Orbitz was going to be about has passed with a little proof to the marketplace.

To address the study that Bill introduced to us today, a couple of thoughts about it. One is, there is an interesting concept that you run into in this business often, that each of the Web sites ought to have the same content.

That is probably a little more justified on the airline side, only because it’s easier. There are a much more finite, smaller group of airlines to go to to get the content. It’s been automated for literally decades. It’s easier for each of us to have the same content as the other.

What you saw in our launch, we introduced a new business model, lowered the cost of distribution to the airlines. That earned us access to their Web fares. And after a period of about a year, competitors like Travelocity and Expedia got busy, started cutting deals with the airlines to earn their way into access to much of the same inventory.

Today what you’d see if you do those comparisons over a long period of large-scale studies is, there’s a lot more commonality today in airfare distribution than there was right after we launched.

Hotel side, my suspicion is it will always be different. The hotel industry is much more fractured. There aren’t single sources of access to the rates of the hotel rooms. Indeed, whenever the chain hotels have tried to implement such things, it’s been largely ineffective when the individual hotel properties are structuring their own pricing.

What you see today is a great example of good old-fashioned competition, with each of the Web sites having to field a team of sales people to go out into the marketplace, contact hotels one at a time, and try and earn their ability to distribute the lowest rates from that particular hotel.

What this means is that you’re going to see, in the sort of studies that Bill and his organization have done, I think it’s my sense or my view, we’re going to be a little bit of sort of the same kind of thankless task as cutting your grass.

You’re going to cut it this week, and next week you’re going to have to come back and do it again. Because the whole environment is going to be dynamic, both on the technology side, and on the commercial arrangement side.

So, for instance, since Bill has done this study, Orbitz has implemented a whole new display. We now have a matrix type display, comparable to our airfare display, for hotels. If you were to do the study again today, I’m sure the results would be different. Hopefully, better. At least easier for the consumer to find the lowest rates in the hotels.

And the commercial arrangements are going to change, because each of us cut deals with individual hotels that are going to have a life to them. And when those expire, we’ll stop getting good rates from one hotel, or we may get them from another, and so forth.

The commonality in the hotel side is likely never going to be there. It’s always going to be a process that is subject to competition. I think, as Bill pointed out, that’s good for the consumer, because the competition is largely: Who can distribute the most rooms for a hotel at the lowest cost to the hotel? If you lower the cost of distribution, presumably the price of product can come down as well.

The competition’s going to be good, but it is going to mean that no Web site is going to step out as having a clear advantage over the long haul.

Turning just briefly to the notion of bias, I think bias has always been in the system. I’m a little uncomfortable with the references to the CRS rules, for two reasons. Yes, the CRS rules attempted to eliminate bias.

There’s been a long-standing controversy as to just how successful that attempt to regulate was, because the CRS, many would argue, found different, more subtle ways to nevertheless favor one airline over another. They couldn’t do it by specific airline name, but they would do it in ways such as — they were ostensibly consumer factors, like frequency on a route.

They might favor a particular airline’s display, if that airline had more flights on the route that was being served than another. That was a conscious effort for airlines like American Airlines, which had bought a lot of MD80 airplanes, relatively small airplanes, and favored high frequency on the route. It was a more subtle way of enhancing their display.

Secondly, while the CRS display is nominally unbiased, at least according to the regulations, the travel agent was under no such obligation. So the travel agent sitting in his or her office was looking at a screen which was nominally unbiased. But that travel agent may be compensated differently by each of the suppliers, whether it’s hotel or airline, that they might sell. So that travel agent may have a preference as to which hotel or car rental company or which airline to present to the consumer.

The same is true in the Web sites, for the most part. Orbitz has entered the market in an unbiased format, and we are obligated to stay unbiased in the air side by our very charter. Our ownership has held the right to force us into an unbiased air display forever.

We are not legally, contractually obligated to maintain that in hotel and car, although our site today is, by our best efforts, completely unbiased. The first ranking is by price.

But it is important to know that in the air side and others, most travel agents and Web sites do in fact enter into compensation arrangements that will pay them more for selling one product over another. And they do make an effort, obviously, then, to push the product that earns them more money. That’s been true in the brick and mortar world forever. It was imported into, for the most part, Web sites in addition.

I think it would be useful to talk about an appropriate disclosure of that aspect with the WebWatch folks for the travel Web sites. If you’re going to take money to favor one product over another, it seems to me you’ve got to tell the consumer that’s what you’re doing.

RM: Our last panelist is Al Comeaux. Like Gary, Al cut his teeth at American Airlines, not in the legal department but in public affairs, and that experience led to his joining Travelocity in the year 2000 as their vice president of public relations.

AC: We do work hard, to answer your question, we do work hard to reach private agreements with hoteliers, with suppliers in general. We believe that if we can bring to the table very good reasons for suppliers to work with us, they’ll work with us and that will benefit the consumer.

So, for example, if we can bring to them a better customer relationship management tool, which we think we have a very good one, or some very good tools there. If we can bring them lower distribution costs. If we can bring them better technology, as we have with our merchant hotel product, and now Expedia is following us with their technology that they copied from us that we launched in October.

In fact, hoteliers are willing to pay more for better technology, because it actually costs them less on the other side. They don’t have to do the phoning and the faxing that some of the merchant model hoteliers do.

But these private agreements, and the benefit to the consumer of these private agreements is, it keeps people up at night. It keeps the supplier up at night, and it keeps the distributor up at night, about how they can better serve the consumer.

Because people are watching their backs, rather than watching each other, and clearly understanding what each other are doing, they have to stay up at night and come up with more and better ways to serve the consumer.

For example, we’ve been criticized on the air side for having private agreements with airlines. We have them. We admit it. [INAUDIBLE] that we have them. But if we were to explain exactly what was in those private agreements, so that competitors could see it, it would have a crippling effect on competition, and that would hurt consumers.

So while I’m excited to hear from Gary that you guys understand the idea of entering into agreements and marketing and all that sort of stuff, we’ve been out there, having been criticized for having private agreements on the air side, when we really believe, and as the evidence shows, now that we’ve got more and more Web fares, because we’ve more aggressively worked with private agreements with these companies, we’re helping the consumer.

One of the things that Bill and Beau and I talked about when we spoke late last year was, if we were to disclose exactly what’s in those agreements, we may actually be hurting the consumer. Because if competitors are able to see what each other are doing in a very transparent supplier marketplace, then the prices would go up ultimately.

I think what we came out with was that, in principle, there’s no desire for us to do anything that would raise prices, but we’ve got to figure out how to work that. And I think that’s why this is a great forum to discuss these sorts of things.

The other thing that I wanted to talk about, aside from being 35 percent better than my next competitor in hotel pricing, one thing that we think we have an advantage on is that we have 30,000 hotel reviews. These are unfiltered. We call them “unbiased,” but I don’t know why we say that. Actually, they’re unfiltered.

“My mother-in-law stayed there in 1974. It’s a great hotel.” You’ve heard that before. And you don’t know what you’re getting into. You’re going to a city that you don’t know, you’re staying somewhere that you don’t know. Your friends have stayed at another hotel, but it’s $50 more. Here’s this other hotel. What do you do?

We have about 10,000 hotels that have been rated. I think the Park Central, God bless them, is going to get a three out of five. Everywhere I go, I always rate the hotel.

People love them. People use them, people contribute to them. It’s all travelers on our site who’ve been to a hotel and have actually reviewed them. We’re the only people who have embarked on this, and it’s a major effort, it’s several heads in our head-count that we have to invest, but we think it’s a consumer benefit that we think we have a heads-up on.

Q: Those are all consumer-written reviews?

AC: Yes, they are. The only thing we filter is, we make it a G-rated review. Some people are not G-rated.

Q: How do you know that hotel in Florida you’ve heard –?

AC: Good question. The first thing we look to see if it’s john@hilton.com. If john@hilton.com is writing, we know to be suspicious. We’ve had a few incidents where we’ve been able to identify the manager of the hotel down the street sending a bad review.

What we’re typically able to say is, “We know this person stayed in the hotel, and therefore we can be sure.” That’s the easiest way to fly. But there can be problems with that.

Q: So you would have had to have booked the hotel through Travelocity in order to be able to –?

AC: That’s our first filter on the BS question. The large majority of these reviews are people who have actually booked at the hotel and stayed at the hotel, and we have a record of it, so we can say “Oh, yeah, this person stayed at the hotel; we know it.”

Q: Can I ask a general question for the panel? How many of your sites are compliant with the five guidelines for Consumer Reports WebWatch? With all five guidelines? And one specific thing for Al is, it seems to me that disclosing the fact that there is a financial agreement with the company doesn’t necessitate that you disclose to the public exactly what the terms are.

AC: Right. To answer that, we put out press releases about these agreements. In some cases, I’m not sure, there may be cases where the supplier distinctly said: We prefer that you not disclose this agreement.

We can save the customers $100, or we can not comply with their agreement, and we have to be the judge of that. We can save the customer a few dollars or not, or decide not to because we refuse to say that we have an agreement with Carrier X or Hotel Y.

It’s a choice. How do you do that? I think we err on the side of saving the consumer the money directly.

Q: Do you say on your site that you have agreements with companies but don’t disclose them for the following reasons?

AC: We’re planning to do that. This is part of our compliance with this, yeah. Explaining to the customer in a consumer area that, yeah, we have agreements with suppliers, and the purpose of those agreements being private is to get better fares. So that better fares, better hotel, better content. So that hoteliers, they have to stay up at night. Without saying it exactly that way.

It’s to keep them on their feet, and to keep us on our feet, or keep our competitors on their feet. I would suppose that, being good business people, they would probably do about the same thing.

GD: It’s interesting, if I can just continue that dialogue. What I think you need to do, and everybody obviously has some sort of personal arrangement with the people whose product you sell, whether it’s imposed through the system once you become an accredited travel agent or a separately negotiated deal.

The thing that I think Orbitz is focused on that ought to be disclosed is, if Travelocity or Expedia or Orbitz actually receives more revenue for selling Brand X rather than Brand Y. The consumer ought to know that there is an inherent desire, presumably then, to sell Brand X.

BM: Based on market share, is what you’re saying.

GD: You have to be careful, because the traditional commission override structure in the industry was based on market share, yeah. The airline would have its statistics on a particular travel agent. They could go to that travel agent and say: “Historically 20 percent of your sales is on American Airlines. If you move that from 20 percent to 25 percent of your sales, we will pay you an extra half a percent on all of your sales.”

Which meant that it’s geometric. It’s a huge bonus, then, to that travel agent, because it’s paid backwards on all of the sales, not incrementally.

That’s one form, and I think that certainly exists in the Web site world. The other might be that they simply have a commission program where you get paid eight bucks a ticket for selling American Airlines, and five bucks a ticket for selling ATA.

Regardless of market share, either one of those, if the Web site is not indifferent to whether they sold the ATA ticket or the American Airlines ticket, it seems to me they ought to tell the consumer.

Q: Is Orbitz at that standard now?

GD: We are at that standard today.

Q: For both hotel and airline?

GD: The hotels, we’re not obligated to be on that standard with hotels and rent-a-car and, frankly, that model may change in the future, but we believe we are on it today. And airline will never change.

AC: So if you are given extra commission, you do tell people [TALKOVER]?

GD: It hasn’t happened yet. We haven’t been in that position.

Q: Are either of the sites compliant with Consumer Reports WebWatch?

GD: I looked at this [brochure of Consumer Reports WebWatch's basic guidelines], frankly, just before we got here this morning, and talked it over with our vice president for communications, who’s here. And the answer is, we think we are. There are some that I’m not quite sure what it would mean.

For instance, on the corrections, the airline and hotel and all that world is so dynamic, if we posted something that was wrong, there really wouldn’t be any point in putting up a page later to say it was wrong.

When it’s wrong, you figure it out, you contact the consumers directly who were affected by it, and you fix it. But posting it after the fact is really not a useful thing. We don’t do that. We fix it as fast as we realize it’s a problem, and then we deal with the consumers with whom we made the error.

I would have to say technically I’m not, because we don’t post a page that lists it. But I think we’re certainly within the spirit and intent of what’s in this. I think it’s a great idea.

Q: I have a question that can actually speak to that directly. That’s a really good answer, actually. I think the spirit of the guidelines on corrections which [INAUDIBLE] develops from the perspective of content on sites or sites that are like CVS Pharmacy or whatever, in which they do make mistakes and it sort of develops with equivalency when they make the mistake in print. They have to go to the drugstore and they have to make sure it’s posted on the wall that such-and-such ad [INAUDIBLE].

If you have somewhere on your site what you just said to us here, that would in essence be complying with the corrections part of the spirit of our basic guidelines.

AC: That’s the sort of thing it seems we would need to talk to you a little bit more about. I didn’t actually come onto these before we jump on board.

Q: I had a follow up question for the two of you. This does not involve either of your Web sites, but it was an incident that came up in the testing. If I want to go to Orlando, and I want to book a hotel in Orlando, and I don’t do it through an air package or anything like that.

I’m just worried about making a hotel reservation in Orlando, and I’m primarily interested in the cheapest rate, but what I get back in the first field of search results is a grouping of Disney resort properties, what’s going on there?

GD: Clearly a private deal with Disney resort properties. That Web site’s getting paid either for the placement, or getting more per booking, or there’s some arrangement there.

AC: I think it’s incumbent on the Web site, though, in that case, to go and demand of the people that they’re working with, better deals, better opportunities to save, so that there’s a consumer benefit.

Because you can make more money in the short run off of a deal like that. But if you don’t provide a consumer benefit, you’re going to be toast. We live in the consumer era, and if you’re not going to Disney and saying “Okay, yeah, we can do whatever we need to do on the Web site, in the instance of that particular Web site, whatever it was. But you’ve got to give us all of these things, because we need them for our consumers. And we can move a lot of hotel rooms for you, but we what we need to do is get things that will be appealing to consumers.

Otherwise, we’re not going to win in the end. We might make some money in the short run by getting a bonus from you, but it’s not going to help us in long-term consumer trust.”

BM: I think this ties to an important issue, and that is that the discussion that both Gary and Al brought up talked about private agreements, and they can take many different forms.

The incident that both cited is really in your face on that site, and it’s on neither of your sites. On that site, every time we went to Orlando, the very first return said “Walt Disney World Resort.” It did not have a rate, interestingly. It was listed first, and then all the rates came below that.

Now, the questions that we have, having to do with private agreements, it’s clear anyone who goes on any of these sites sees that there is some form of compensation going back and forth. There are pop-up ads that obviously are right in your face. There are banner ads. There are all kinds of things.

What we would say, I think, speaking on behalf of Consumer Reports WebWatch is, we recognize that. We don’t have a problem with that. It’s when you’re talking about integrated listings, to us those should be sacrosanct. That there is no room to make promises to say, “You will be listed higher than your competitors, because we have an agreement with you.”

Those are the areas where we’re still questioning, since this is an unregulated environment and, for better or for worse, the GDS rules are pretty clear about that, as far as air listings and GDSs. We view integrated listings, and we hold you to a higher standard.

When we did a lot of this testing in the past, some people said, “Why didn’t you include Southwest.com or American.com?” They’re branded sites. They’re dealerships. And I think Gary touched on this.

You spoke about the concept that no one will always have all the best deals. I guess what we’re asking is, are your sites dealerships? In that case, just like any store, offer some products and maybe have specific deals.

A retail store has a specific deal with three different clothing manufacturers, and that’s it. Or are they aspiring to a higher level? In which case, by using that term “integrated,” and I hope I’m using it correctly, we’re holding you to a higher standard, because we’re saying there’s a universe of airfares out there, and to the extent that we’re able, clearly there are certain airlines and travel companies that choose not to work with you. But to the extent we’re able, we’re giving you that universe, and we’re doing it in a fair way.

As I say, the ads, the deals, the pop-ups, all of that is one thing. But when we get to the listings, that’s where we have real concerns.

AC: I think your first comment about “in your face,” that’s a little bit about what I was talking about. The consumer will see that and say, “These guys are jokers. I’m going somewhere else.” Hopefully that’s what they would say. Unless of course they got a room for four dollars a night. We’ve had cases like that.

Absolutely. And that’s where the consumer — and that’s why I think Consumer Reports WebWatch can do a lot to help educate people, so that they know where the bad neighborhood is. You don’t really know on the Internet where the bad neighborhood is. That’s what I would say about that.

Q: I had a question for Gary. There’s this notion that, in the airline industry, all these fares are instantaneously known by all other competitors.

One argument goes: Well, that allows these attempts at across-the-board fare increases, because everybody can watch the leader, decide whether — it makes it easier to go ahead and maybe put it in across the board. That would argue that transparency ends up costing the consumer.

The other argument is, because they are so instantaneously knowable, that it makes the industry hyper-competitive on price. That helps the consumer. Which way do you see it?

GD: I studied economics a long time ago, and in my textbook it said, “Perfect price information increases competition.” All you can do is look at the state of the airline industry, even before the crazy things that have happened. It’s an industry that has never returned a sustained profit.

Even leading up to year 2000, and taking into account its best years from 1999, prior to 2000, the airline industry was essentially a wash if you looked at its entire history.

Whatever is happening here, I think the fact that it’s a commodity, and the fact that you can see prices almost immediately across the board, the consumer can shop, has driven it to price at its marginal cost, its most competitive.

Q: So you would disagree with Al, who said transparency would drive prices up for consumers?

GD: Actually, not in precisely the way he said it. I think it would be true that, if we all had to disclose that the Park Central Hotel is paying Al a 7 percent commission, and I knew that, that kind of price information is the kind of price information that should be kept private, because as an economist —

AC: That’s what I was saying. Transparency of price information from a supplier standpoint.

GD: With that I mean, when I come to the Park Central Hotel, I know I don’t have to accept anything less than 7 percent, because that’s what he’s got. If I don’t know that, the Park Central Hotel can say “For you, Orbitz, it’s only 6 percent.” And that’s the best I can do; I will never know.

AC: Except that, on the air side, that’s exactly what sort of happened, was bringing all the fares into one place. We, for example, our sales guys would bust their humps trying to get a deal. We got a deal.

I’ll give an example. One of our partners, a big portal, had a one-day fare sale with Carrier X. And it was a great opportunity. But Carrier X was required to inform the other distributor that this was getting ready to happen. So that’s transparency of pricing information from the standpoint of the supplier, which first of all, we worked our hearts out to try and get this deal, and the other guys got it automatically, which was frustrating to us from a — it was heartbreaking to us.

But secondly, it also created the opportunity for that other distributor to go out the next day with another carrier — it had taken us weeks to plan this — the next day with another carrier, to have a two-day fare sale.

So that advance information, that transparency of pricing, I can’t tell you how I went home that night. We’re angry about it and upset about it, but also upset about what it does for the consumer. Because, over time, that information and that ability for everyone to see what’s going on in the marketplace, is not going to help the consumer in the long term.

Q: I’d like to know how you guys define “special deal.” Because you can have an override commission, but you can also have a different Net rate discount that is also going to affect your profit and the actual rate that you put out there.

Does the consumer, in the end, care whether you’re getting commission or you got a better Net rate discount? I would argue, no. All I want is a low rate. So what are the fences you’re putting around these special deals?

GD: I think that talks to, if the consumer is convinced that they’re getting a good deal, and you’re working your heart out to get the best deals that you can, that’s what the consumer seems to care about the most. That’s the research that we’ve done.

On the other hand, if I have a Web site that says I rank by low price, top of the list, and I have a deal that earns me a better commission with one hotel, and I put that hotel’s rating above lower priced that you won’t see on the first screen or it’s down further on the list, that’s a problem.

That I think, even if you think that rate that’s at the top of the list is a reasonably good deal, the notion that you’ve been persuaded that that’s the best available to you because of its position in the Web site — and the position is driven because I’m going to make more money, not because you’re going to save money — that’s still strikes me as a problem.

AC: With hotels, you’re also dealing with a non-commodity. So if you were able to get the lowest price at that hotel on that night. And, for example, a lot of our people, they don’t want one hotel chain, but they certainly don’t want the budget hotel.

So how do you then meet their needs as well as the needs of the consumer who does want that budget hotel and wants to stay at the Holiday Inn Express for $15, versus the guy who wants to stay at the Cat’s Meow for a lot more money?

END OF PANEL