Online hotel venture raises anticompetitiveness fears

The formation of Hotel Distribution System LLC (HDS) by five of the world's largest hotel chains has raised fears of anticompetitiveness among some travel agents. However, one industry analyst said those fears are largely unfounded.

Hilton Hotels Corp., Hyatt Corp., Marriott International, Six Continents Hotels Inc. (the parent company of Holiday Inn hotels), Starwood Hotels & Resorts Worldwide Inc. and Pegasus Solutions Inc. announced the creation of HDS last week. The venture will create a real-time connection from all of the member hotel reservation systems to Web sites, which will serve as the "merchant of record" for booking rooms.

"Anytime major players get together, it raises the specter of antitrust issues," said Richard M. Copland, president and CEO of the American Society of Travel Agents (ASTA) in Alexandria, Va. "This joint venture has the potential to harness the vast power of the Internet for anticompetitive purposes."

Pegasus already manages the connection between many hotel reservation systems and the global distribution systems that publish fares and availability to travel agencies both online and off-line. Pegasus will use its technology, with a few software modifications, to make a real-time connection between the hotels and the merchant-of-record sites.

That means a site such as would purchase the right to sell rooms and guarantee the hotel a minimum price and would then mark up the price to make a profit. With the real-time connection, hotels could change the minimum price and room availability at any time.

HDS will also allow a traveler or travel agent to search for the best deals by location -- not necessarily by brand -- through the merchant-of-record model. Linking the room pricing and availability According to Pegasus CEO John Davis, Orbitz is the first partner to sign an agreement with HDS. The ultimate goal is to create a consumer site specifically for HDS, Davis said.

Chicago-based Orbitz LLC has agreed to rely on HDS exclusively for merchant-of record-deals. But HDS is actively shopping for other partners, including travel agencies, which makes the ASTA's fears seem overblown, said Henry Harteveldt, an analyst at Forrester Research Inc. in Cambridge, Mass.

"The ASTA response is expected, and they really did jump the gun," he said. There are also two well-established competitors, the Hotel Reservation Network and Expedia Inc., which also operate on the merchant-of-record model, he said, and it's unlikely that HDS will put those two out of business.