Goodbye Columbus: Accommodation Taxes and OTAs

Abstract

In 2006, the community of Columbus, Georgia, filed a lawsuit over uncollected accommodation taxes aimed at online travel agencies [OTAs]. Defendants included companies such as Expedia and Orbitz. In retaliation for the lawsuit, the OTAs delisted the city’s hotels from their sites. Several years later, the lawsuits were settled and normalcy returned. The delisting period provided an interesting set of circumstances that allowed exploration of the power balance between OTAs and municipalities. It also provided, using nonexperimental “real-life” data, some insight into an issue that has received significant trade and academic attention—the influence of OTAs upon hotel occupancies and rates. The results provided should be of interest to communities and their tourism officials in disputes similar to that experienced by Columbus. Hoteliers, the third party caught in the crossfire of these disputes, will also find the research results of value.

Living Without OTAs—Goodbye Columbus: Putting the Jenie Back in the Bottle

“…We illustrate an alternative view of the impacts of delisting, one which controls demand and supply changes through use of indices versus use of absolute demand numbers. We further highlight that McLeod et al (2017) assume all demand lost from Columbus spilled over to Phenix City which seems very aggressive as Columbus hotels displayed for OTA searches performed for numerous nearby markets not just Phenix City.…”

“…McLeod et al (2017) indicate that only 18,000 of the estimated 150,341 (14.9% of 1,009k) annual rooms sold on OTAs prior to delisting were lost to other markets based on room demand changes in Phenix City. It should be noted that while Phenix City is the next closet market, it only has one seventh of the room supply as Columbus (246k vs. 1,720k rooms as of 2014), and perhaps this supply imbalance might mean room nights are lost to other markets as well.…”

“…One last minor comment on accommodation tax impacts. In McLeod et al (2017), they assume that during delisting, incremental taxes would be recovered on all OTA bookings (assuming they moved to other channels); this assumption fails to incorporate the fact that the entire tax issue focused on Merchant OTA bookings (transactions where the OTA was the merchant of record with taxes recovered on net rates to OTAs—rate minus commission). All OTA bookings made at Booking.com and some at Priceline.com (after 2011) and Expedia.com (during 2012) are executed in the so-called Retail model where the hotel is the merchant of record, and as a result, accommodation taxes are paid on the full retail selling price (not net price as in the Merchant model).…”

“…While the delisting of hotels in Columbus, with Phenix City a stone's throw across the river, is being a natural experiment in OTA impacts, it is still very difficult to unravel the true impacts of OTA delisting owing to a lot of other factors not within control of the experiment. As discussed by McLeod et al (2017), changes in market supply coupled with changes in demand make it difficult to ascertain impacts. One of the simplest methods to control for demand and supply changes is to evaluate impacts using indices Cornell Hospitality Quarterly 59(1) versus absolute values-so instead of focusing on ADRs in Columbus, focus on ADRs in Columbus relative to those in Phenix City.…”

“… 1. Data used are same as used in McLeod et al (2017) as supplied by Smith Travel Research (STR) under an educational agreement known as the STR SHARE Center. …”