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A new breed of travel websites offers exclusive discounts on high- end hotels. But can these ambitious companies survive an improving economy?

AS A RESULT, premium properties that were once averse to discounting inventory were forced to reconsider their marketing options. The solution? Sites like Jetsetter. Now hotels can book excess rooms at lower prices without losing their luxury image because they only offer the reduced rates to a limited database of affluent consumers, rather than the general public.

“We were drawn to the ability to reach a gated community of luxury travelers,” says Blake Danner, executive vice president of the Hotels Division at Amsterdam Hospitality, which oversees eight boutique hotels in New York, New Jersey and North Carolina and was one of the first hotel groups to partner with Jetsetter when it launched last September. “It’s been a nice way for us to drive business and attract new customers.”

The sites make a profit by marking up the net rates they receive from the accommodations (or in Vacationist’s case, negotiating special rates with the proper- ties and earning a percentage on the room nights that the site sells on the properties’ behalf). It seems like a win-win situation, but Mandelbaum says one disadvantage is that hotels lose some control over their product by using a middleman.

“And if properties book rooms too far in advance, they’re stuck with the rate even if new business appears that could have been booked at a higher one,” adds Randy McCaslin, vice president/practice leader of Colliers PKF Consulting USA. “There is also no brand loyalty from these website users. They are just about price and tend to be the pickier guests. There is limited repeat business from them.”

There’s also the big question of what will happen when the economy rebounds and properties can fill more rooms at full price, leaving travel sites with the challenge of obtaining enough inventory at desirable rates. There will certainly be fewer deals and smaller savings to be had, but most travel industry insiders agree that there should be a place for the sites regardless of the economic situation.

“Every market has ups and downs on a regular basis and hotels will always have need periods,” McCaslin says. “For example, corporate markets like Houston or Dallas have much higher occupancies from Monday through Thursday and struggle on weekends, which opens oppor- tunities for the websites. The rates may be higher than in down times, but they will still be less than the hotels’ normal rates.”

“If Jetsetter was solely a distribution channel for distressed inventory like Priceline, we would have problems,” Patterson asserts. “But it is a marketing vehicle, and travel suppliers will always need to market their brand. Plus, the site is a place to reach generations X and Y, a segment of the industry that luxury travel marketers are not reaching today. Even when occupancy levels increase, hotels will need to be introduced to new, young clients who will become brand champions over their long lifetimes.”

But this doesn’t mean the websites can relax. “As the market recovers, hotels will want to regain control and avoid the middleman by doing things like giving best-rate guarantees on their own websites,” Mandelbaum says. “The members-only websites will have to pro- vide a better value proposition to maintain their hotel partnerships.”

One obvious way to do that is to expand. “They’ll have to become more than just simple hotel booking sites to succeed in a healthy economy,” says Donna Quadri- Felitti, a professor at New York University’s Tisch Center for Hospitality, Tourism, and Sports Management. “They’ll have to up the ante by diversifying into other businesses and adding benefits and offering attractive packages that include airfare, boat trips, museum tours and such.”

Indeed, some of the sites are already exploring loyalty programs similar to the ones hotels tout and aren’t holding back when it comes to adding products designed to encourage their members to travel. Vacationist regularly increases the amount of hotel offerings and Travel + Leisure editorial to further enrich the site, while Jetsetter recently launched a notifica- tion tool that enables members to register destinations they wish to visit; when sales for those destinations are posted, members receive email notices.

Whether Jetsetter, Tablet Hotels and the like will remain content with the mem- bership numbers they already have, grow while maintaining an image of exclusivity or dive right into the mass market—if and when the demand for luxury travel increases—remains to be seen. But one thing is certain: If there was a ever a time to score an invite and cross the virtual velvet rope, that time is now.