So the green light has been given – Australia’s competition watchdog cleared the way for Expedia to complete its $703 million takeover of Wotif.com, setting aside concerns by hoteliers that the merged entity will charge hotels higher commissions.
According to the Sydney Morning Herald, Australian Competition and Consumer Commission chairman Rod Sims said the regulator had noted concerns from hotels and other accommodation operators that the takeover may result in them paying higher commission rates to online travel agents.
“However, the ACCC found that there has been considerable change in the competitive dynamics of the online accommodation distribution market in recent years. This has included new entry by a number of competitors and business models, including Booking.com, which has grown quickly to become the largest [online travel agent] in Australia.”
The hotel industry renewed its warning that it might trigger major increases in commissions that would inevitably flow on to consumers. “The end effect of acquisitions and concentrations of market power into two or three companies will be that the consumer may end up bearing the cost of less competition,” industry spokesman Bradley Woods was quoted by the SMH.
Responding to hoteliers’ concerns, Chetan Kapoor, research analyst at PhoCusWright, said, “Hotel associations’ reaction to the Expedia-Wotif acquisition is slightly misguided. While there’s no denying that the deal would boost position of the combined entity online, it is worth noting that three-fourths of ANZ’s accommodation bookings are still fulfilled offline.
Chetan Kapoor: Large chunk of hotel market is still offline.
“The offline market, too, is largely consolidated. Hybrid presence of leading retailers through expansive franchisee networks and their active marketing promotions cannot be dismissed or overlooked. ANZ has among the lowest hotel commission rates globally. Acquisition or not, Wotif has steadily increased commissions to offset rising cost of customer acquisition and maintain revenues. Aligning with Expedia would certainly allow both parties to play to their strengths.
“But let’s not forget that despite being present for a decade, Expedia’s made little dent in the domestic market. Even Wotif’s growth is now more than ever tied to overseas expansion and outbound bookings than domestic. Nevertheless, achieving sales targets would be a key requirement in Expedia-Wotif’s pitch to domestic hotels for higher commissions.
“This will not be a cakewalk considering evolving competitive dynamics. The rise of Booking.com and other online intermediaries – local and international – coupled with historically strong foothold of traditional retailers could contain Expedia-Wotif’s future growth in the domestic lodging market, in turn limiting their position to increase commissions excessively.”
Expedia’s takeover remains subject to approval from Wotif shareholders at a scheme meeting on October 9, as well as from the New Zealand Commerce Commission. If all goes according to plan, the handover of the business to Expedia will happen October 27.
According to the SMH, “Wotif co-founder Graeme Wood has a 19.8 per cent stake in the company. Based on the total offer of $3.30 per share, which includes $3.06 in cash and a 24¢ special dividend, Mr Wood will receive close to $140 million, while co-founder Andrew Brice will get about $100 million.”
Photo credit: The view of Sydney harbour from Shangri-La Hotel, Sydney
