Way back in the mists of time—before the age of Expedia (EXPE) and Priceline (PCLN) —people called to make hotel reservations. Now the act of booking a room may be moving back to the phone. In the past year, reservations via mobile apps have jumped from 3 percent to 10 percent of all bookings made through online travel agencies, websites such as Expedia and Priceline report. About half of those happen on the same day as the hotel stay. The evidence suggests there’s a new breed of traveler who waits until the last minute to book a bed.
The San Francisco startup Hotel Tonight has encouraged this trend. Its free iPhone app, which has been downloaded more than a million times since it was introduced in January, features only-that-night listings for hotel rooms in 28 American cities. “Our customers are high-quality smartphone users who have usually never stayed at the hotels they book in,” says Sam Shank, Hotel Tonight’s co-founder and chief executive officer. “This is not the beer cooler crowd.” The company recently got some new funding—venture firm Battery Ventures led a $9 million investment—and also acquired some new competitors. Over the past few months, both Priceline and Expedia have added tonight-only booking features to their mobile apps.
Although the hotel industry now averages a low 57.6 percent occupancy rate, according to Smith Travel Research, proprietors have been reluctant to discount unsold inventory for fear of undercutting their regular prices. Hotel Tonight does a number of things to reassure them. The app publishes that night’s listings each day at noon and highlights only three hotels in each city at any time. It rotates the featured hotels constantly so that no single one gets a reputation for cheapness. The deals are available only through the app, so hotels can simultaneously offer rooms at full price online. The discounts are substantial: On a recent day, the Time Hotel in Midtown Manhattan made a room available for $165 on Hotel Tonight, vs. a regular price of $209 and up on its website. The next day, the Time Hotel was not featured on the app, so someone who really wanted to stay there would have better luck searching through another online travel site and probably paying more.
Boutique chains such as Joie de Vivre and Thompson Hotels now list open rooms with Hotel Tonight, while major chains such as InterContinental Hotels Group (IHG) are producing their own mobile apps with same-night booking capability. They say such reservations constitute a majority of mobile bookings. JoAnn Henriques, revenue manager at New York City boutique hotel Room Mate Grace, says the industry “created monsters” such as Expedia and Priceline by rampantly discounting rooms when the travel industry swooned after Sept. 11. She uses Hotel Tonight as a flexible inventory system, putting open rooms on the service and quickly pulling them off if they’re booked at more expensive rates through the Web. Henriques has made $37,000 with the app this year, she says. Hotel Tonight charges only a 20 percent commission, vs. the 25 percent or more that Expedia and Priceline demand.
Hotel Tonight’s biggest challenge will be juggling the needs of both hotels and users. Ivy Gaysornmas, a 26-year-old graduate student in San Francisco, says that as the service has grown, the best deals and hotels disappear more quickly. “I like the deals it offers, and I’ve tried to become more spontaneous,” she says. It has become her main booking service, though “it can be a little scary to think about going to a city without a hotel room.”