Expedia halts the roll-out of One Key – but it is too late for UK members

Expedia Group, which primarily comprises Expedia, Hotels.com and rental site Vrbo, has halted the roll out of its new One Key loyalty programme.

The impact on bookings at Hotels.com has been so big that the company felt it had no choice but to stop.

Unfortunately, it is too late for members in the UK. The transfer of Hotels.com Rewards to One Key was already underway when the decision was taken. The US and the UK will be the only markets with One Key for the forseeable future.

This step back should not be a surprise for HfP readers. We had been predicting a weakness in Hotels.com bookings since the change was announced.

Under Hotels.com Rewards, you received 10% of the ex-tax value of your booking back in free night credits. The only snag is that you had to book 10 nights before you could cash out your reward.

Hotels.com Rewards worked well for a lot of people:

• people who didn’t book enough hotel nights to earn status, or a worthwhile number of points, in any hotel loyalty scheme

• people who were not prepared to compromise on location or hotel quality and always booked the most appropriate hotel for their trip, irrespective of brand

• people who booked rooms for other people, or booked multiple rooms per trip, because Hotels.com Rewards paid you irrespective of the name on the booking

• people who liked redeeming their rewards for larger rooms or suites, since the credit could be used against any room category – most hotel loyalty programmes restrict redemptions to standard rooms

Compared to this, One Key is an exceptionally poor programme. You only earn 2% back in OneKeyCash on the ex-tax value of your booking unless you have Hotels.com elite status. Your return has been cut by 80% compared to Hotels.com Rewards.

The only upside is that the 2% is immediately available to use – you don’t need to wait until you have done 10 nights to cash out.

Effectively, Expedia Group gambled. I suspect that:

• it knew that it would lose the business of heavy bookers, for whom the 10% return was a big incentive and who had no problem booking the 10 nights required to trigger a reward

• it thought that the loss of volume would be compensated with higher margins on the remaining bookings, since their spend on rewards dropped from 10% to 2% for no-status members

• it thought it would attract some new casual customers who were attracted by the instantly available 2% return – light bookers are better off in the new structure, since the old scheme gave you nothing until you booked 10 nights

For various reasons, Expedia Group has now decided that it made a mistake.

Part of the issue is that, outside the US and UK, there are few countries where BOTH Expedia and Hotels.com are big players. If you’re not a user of both brands, and thus benefitting from earning and redeeming across both platforms, One Key is pure downside for most bookers.

Travel site Skift listened in to the quarterly earnings call last week and reported the following:

“Most international markets have only either Brand Expedia or Hotels.com operating at scale with limited Vrbo presence,” said Expedia Group CEO Ariane Gorin in her first earnings call running the show. “So we’re going to take the time to tailor our value proposition for these markets. In addition, this should minimize further near-term disruption to Hotels.com, which was the brand most impacted by One Key’s U.S. rollout.”

[…] Hotels.com was adversely impacted by the introduction of One Key in the U.S. and UK, officials said.

Chief Financial Officer Julie Whalen said Expedia.com was the least disrupted by the introduction of One Key, and it saw a robust 20% room nights growth in the second quarter.

“[….] with Hotels.com, when we moved to One Key, we sort of downplayed an advantage that Hotels.com had. It had a really big differentiator and its loyalty program (10 nights booked meant a free night),” Gorin said. “So the good news is that both of those brands have great brand awareness, have people who love to come back to them. But I’ve just realized it’s going to take work to get them back to where we want.”

Expedia Group has not broken out how poorly Hotels.com has been performing. What we do know is that Expedia.com saw a 20% increase in hotel room night bookings in the second quarter, but the TOTAL group number of hotel bookings was only up 10%. This means that Hotels.com must be flat at best.

What analysts didn’t seem to pick up on is that the Hotels.com figures are probably worse than they look. When accounts are transferred from Hotels.com Rewards to OneKeyCash, members see their outstanding partial rewards turned into a cash credit which encourages them to book.

For example, I was five nights towards my next Hotels.com Rewards free night. When my account was turned into OneKeyCash, this turned into $98 of credit. I am heavily incentivised to make my next hotel booking on Hotels.com to spend this credit which will boost their short term numbers – but once I’ve done that, I don’t see any reason to book with Hotels.com again.

The burning question is ‘What happens now?’.

Expedia Group cannot easily run two different loyalty schemes, depending on which country you live in. At the same time, going back to separate schemes would be very difficult now that Hotels.com Rewards credits have been turned into OneKeyCash.

I suspect that we will eventually see an overhaul of the earn rate at Hotels.com, moving it closer to the 10% return it was in the past – albeit with a discount to reflect the fact that you no longer need to do 10 nights to cash out.

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