Issues facing both the hotel industry and the providers of online hotel reservation services

Issues facing both the hotel industry and the providers of online hotel reservation services

OWEN EASTEAL

Tourism Department

Visiting Lecturer University of Economics, Poznan

Visiting Lecturer University College of Business, Poznan

Based in the UK

owenconsult@enetworkers.co.uk


Abstract: Historical context / GDS / Business Travel Agents / Creation of online hotel reservation services / What do such services offer? / Special provisions for corporations and business travellers / Positive and negative issues for both parties / International aspects / The future.

Key words: History / GDS / BTA’s / Beginnings / Offer / Business travellers / Issues / International development / Future

 

This paper is intended as an overview of the past, present and future issues facing these two important elements of the tourism industry.  It is based on the practical experience of the author who spent more than ten years in the hotel industry at a time when developments in IT and the concomitant electronic reservation systems were having their first effects on the hotel industry. This coincided with the entry into the hotel market  of entrepreneurs who recognised the enormous business potential of newly created electronic reservation programs. They saw the benefits that would accrue to their customers by having an opportunity to better compare hotel offers in their chosen destination as well as facilitating a complete transparency of hotel rates and services.  The author has spent the last eight years working in very close association with the two major, leading online hotel reservation services in Europe and has assisted their entry into global markets and specifically that in the UK.  The comments and issues raised are purely based on experience of the author, both past and present, and represent an interesting historical aspect of the growth of the two branches of the tourism industry.

1.GDS (Global Distribution Systems) and their role in the development of online hotel booking services

These systems were created by the airlines in an attempt to benefit from the increasing sophistication of computers to enable them to handle the ever-increasing number of flights and passengers with which they were having to deal on a daily basis.  Not surprisingly the first systems were developed in the USA since it was here that the greatest flight volumes were to be found.  The systems were cumbersome and would-be travellers still had to phone in to make a booking but now the confirmations could be issued at once without having to sort through card index systems to find the correct flight on the correct day with the additional work of having to enter the passenger name on this.   As computers increased in speed and power and their introduction in general commerce became more widespread the airlines saw an opportunity to increase both their revenue and to improve their customer service by allowing selected travel agencies to have one of their reservation terminals in the office to enable them to book flights directly for their customers.  These were the days of the stranglehold of IATA on ticket sales and travel agencies often had to pay to have the terminal despite the fact that they were selling the products of third parties.

It is really surprising that as the power and reach of computing and online systems increased the airlines took some time to appreciate that they had spare capacity on the computers and servers in which they had invested vast sums of money.  Even more typical for electronic developments was the fact that each of their systems operated differently and were not able to “speak” to one another using interfaces which are quite normal today.  However they then realised that travellers do not  just need the means of transport but  also need somewhere to stay in their destination.  Thus the first tentative connections were made to hotel CRS (Central Reservation Systems).  The hotels now not only had to pay the originating travel agent the normal level of commission but were now also obliged to pay a transaction fee to the owner of the applicable airline reservation system.

This occurred at the end of the 1980’s when it was only hotel chains with a very extensive geographical reach and distribution that had such system anyway.

The advent of the 1990’s saw a very rapid increase in the use of electronic systems and soon the GDS were offering car hire and other ancillary services enabling the local travel agent to become a true “one stop” shopping experience which benefitted the traveller enormously.  This did result in a very considerable upswing of hotel bookings made directly from such systems.  Interestingly it did not result in a drop of bookings from travellers or travel agents made directly in the hotel.  Therefore these electronic bookings were  in most cases true incremental business.  The hotels may have recognised this but nevertheless they employed many tactics to try and maintain full control over their rates and inventory by pushing their own corporate and leisure rates (through direct sales on which they generally did not have to pay any commission).

2.The rise of Business Travel Agents

Concurrently with the rise in the use of GDS for hotel bookings, business travel agents were created catering only for the needs of business travellers, especially from large companies.  These agencies all had GDS terminals but added to the worries of the hotels by demanding special rates, often much lower than the corporate rates already on offer and even less than the Business Travel Agent rates hastily introduced by hotels.  There were many heated discussion within hotel companies as to the policy to be adopted.  This was understandable as the actual rates in hotels were being diluted through the traditional commission paid (perhaps as much as 12% depending on the country in question), the transaction fees of the GDS (in excess of $ 3 per booking – subject to negotiation), an additional premium of 5% commission paid to Business Travel Agents and now a demand from the latter for even better rates, often still to be commissionable.   This resulted in most hotel companies considerably developing and refining their own reservation systems to try and compensate for these demands from the market and to safeguard their own destiny, as they saw it.  Indeed many smaller chains and marketing cooperations decided to create their own CRS (useful also as a sales’ tool when selling the product to new franchisees).

There was, and still is, a major disadvantage for hotels in using GDS.  The amount of information about the hotel, the number of room types and rates is limited, especially when comparing this with their own systems or those developed by the specialist online hotel reservation systems.  (This also applies to the major switching systems such as Trust and Pegasus).

3.The creation of online hotel reservation services

So where did the idea of stand-alone online hotel reservation systems originated?  The invention of the internet really gave great impetus to the development of such systems as previously any reservation system had to have its own dedicated communication system or use the public telephone network.   Holiday Inn even had its own satellite for the transmission of reservations and messages through its Holidex system.   Now, with the advent and enormous speed of use and growth of the internet the system became available to all for the transmission of data.   Undoubtedly many people all over the world were working to develop systems using the internet but it is likely that the very first system in Europe was developed by Hotel Reservation Service (HRS) based in Cologne, Germany.   The author was working in the hotel industry at the time of its introduction and it spread fear and dread amongst the hotels.  As is the case even today, many of the systems could not interface with the hotel’s own system and therefore meant extra work for the reservation department in the administration of same.  Naturally, the more systems used the greater the chance of human error in the manual entering of data from one system to another. Perhaps the greatest issue that arises when using several non-connected services within a single hotel is the management of room availability in each of them – how many rooms are made available each day in each system? Since the creation and development of HRS many others have seen the opportunity presented for such reservation services and there are now a multitude of different systems some merely domestic in their scope and others (the majority) being truly global in their reach.

4. What do Online Hotel Reservation Systems Offer?

The offer made is very wide depending on the business philosophy and strategy of the provider of the system but the most successful in the area of hotel bookings would seem to be those that only provide hotel bookings and do not diversify into car hire and so on.  There is also a differentiation in that some providers offer mostly hotels for the corporate traveller whilst others place more emphasis on leisure travel.  This latter segment is being increasingly offered by the business travel sites as everyone also travels during their leisure time.  It is also important to note that the corporate hotel week has decreased from Monday to Thursday night to Tuesday to Thursday over the last 20 years, indeed many business travellers are now checking in on Sunday to benefit from the cheaper rates usually available on that day.

4.1 Free registration and inclusion on the website – at first companies tried to levy an annual fee but this had to be low (and therefore attractive to the hotels) and the administration and collection of such fees usually cost more than the monetary value to the company levying the fee.  Therefore most companies will now enter a hotel into their system free of charge, as long as it meets basic criteria.  What does this free registration include?  Inclusion on the website and therefore making the hotel visible and available to book to customers  / uploading of a certain number of hotel photographs (long proven to be a decisive factor in the hotel selection process) / a detailed hotel description written by the hotel / technical advice and assistance / a 24/7 reservation office for the benefit of affiliated hotels.

4.2 Marketing measures – free or for a charge.  Banners, inclusion in regular, electronic mailings to registered customers, opportunity to promote the hotel through customer competitions, presence at many trade shows and exhibitions throughout the world, indirect promotion through Google Ads, SEO (Search Engine Optimisation) through linkage with many other websites, links to affiliated partners who also accept hotel bookings from their customers.  The opportunity to offer packages through the website has proved to be popular amongst hotels.

4.3 Flexibility of Hotel Offer - the hotel has complete control over its inventory and may open and close dates, change rates and booking conditions and alter room allotments at will.

4.4 Various Search Modes – the first hotel search is based on the dates of stay and the chosen destination.  Should this not prove to be successful it is possible to make a vicinity search to find a suitable hotel.  Search for a hotel near company premises or a customer to be visited, the airport, railway station or famous tourist sight.   All results are presented on an interactive map and even driving instructions can be called up and printed out.  Google Earth is sometimes provided so that guests can also view the surroundings of their selected hotel.

4.5 Bookings from customers globally – to hotels throughout the world based on a simple destination search.  A commission is charged by the provider on the check-out value of the booking. It requires absolutely no pre-knowledge of the hotel chain or destination on the part of the traveller.

4.6 Links – to many thousands of booking agencies who in turn work for a split commission but who increase the reach of the system very considerably.

4.7  Transmission of customer credit card details – used to guarantee a booking especially at very busy times.

4.8 Sales Executives and Overseas Offices – these are maintained by the provider and ensure further domestic and global reach for the online reservation service.

4.9 Meeting Bookings – many providers now have an interactive booking application for meetings.  These are becoming increasingly sophisticated and detailed to enable organisers to save time when researching venues, booking meetings and planning both room requirements and meal arrangements as well as their requirements for meeting space.

4.10 Loyalty schemes The linkage to and incorporation of  loyalty scheme bonus points offered by many hotel chains is mostly possible.

4.10 Instant confirmation of bookings 24/7

5. Special Provisions for Corporations and Company Travellers

5.1 Integration of the provider’s system into the company intranet.

5.2 Adaptation of the system to the “look and feel” of the Company’s own website.

5.3 Special icon for hotels offering corporate discounted rates identified in the search result list.

5.4 Special icon for hotels having specially negotiated (nett) rates with the company concerned.  These special nett rates are booked by the provider free of commission as long as their total does not exceed a certain percentage of the company’s bookings made.

5.5  Employee locator for use in times of crisis and as part of the duty of care legislation.

5.6 Management statistics are provided online and can also serve to police any travel policy decided by the company.

6. Issues which can be viewed as both positive and negative by the hotels

6.1 Commission level Most hotels now accept that their position in the search result listing for their destination is of paramount importance, especially in large cities with a multitude of hotels.  Many providers now have the facility to accept “bids” of higher commission on realised bookings to achieve a higher placing in such a listing.   It must never be forgotten that most online hotel reservation services have a single income stream – COMMISSION.  For survival this pre-supposes a monthly realised booking volume of at least 2 million bookings in order to be able to sustain an SME (small to medium sized enterprise) with their daily company costs, those for research and development and the purchase of new and ever more powerful servers.

6.2 Price Parity Quite understandably hotel chains wish to maintain their pricing integrity.   At the start of online hotel bookings many providers insisted on the “best price” in the marketplace, exclusive to themselves.  Nowadays all have realised that this is not realistic – it is also very difficult for hotels to otherwise remember to whom they have granted the most favourable rates!  However all providers do have staff who check pricing structures regularly to identify hotels which have not adhered to the condition of price parity.

6.3 Room availability It is almost a pre-condition of acceptance for inclusion in the online reservation system that a hotel will maintain a reasonable level of room availability throughout the year and this is checked frequently by the provider.

6.4. Hotel classification International variations do give rise to misunderstandings and therefore most online providers do not utilise the star or other system common in the country in question.  They prefer that the rate, hotel description and photos will be the determining criteria in making a booking.

6.5 Hotel inspection Due to the fact that most providers have several hundred thousand hotels in their system actual inspections of hotels are rare.  However it has been found that guest evaluations are often a very important determinant. (See section 6.6).

6.6 Guest Evaluations These are increasingly important features of all online booking services.  However, in order to avoid unjustified or vicious comments they have to be “policed” regularly.  Hoteliers also have the opportunity to respond to comments – either positive or negative and most providers have a clause allowing them to exclude such comments.

6.7 Contracts When working globally this is often a difficult point of negotiation.  The provider will usually name their own country law as that applicable – for a hotel in another, far-off country this can often be seen as difficult to accept due to language, costs in the event of litigation.

6.8 Hotel / Client Suspension The right to suspend either a hotel or a client is an essential condition of most business contracts.  For hotels this could arise as a result of non-payment of fees or commission, a high level of guest complaints or the non notification of troublesome renovation work.  For the client this could be as the result of frequent no-shows, non-payment, non-observance of visa requirements and fraud.

6.9 Value for Money Surveys These are increasingly used in Press Releases and serve to show travellers which cities offer the best value for money.  This can be an important tool when deciding annual tactics when a company is working to a specific budget for a city/country.

7. International Aspects

7.1 The provision of the services in a number of languages and, increasingly, enabling the use of other script forms (Chinese, Cyrillic, Arab, Hebrew, etc.) has assumed greater importance.

7.2 Overseas Offices with native speakers enhancing  cultural understanding and a good knowledge of the local markets

7.3 International trust Nowadays many systems are truly global and have managed to obtain a .com web address.  Many people are reluctant to trust their bookings to a “foreign” company and the anonymity of .com helps companies to maintain a more international image.  e.g hotel.de AG uses hotel.info for their international offices and business. Suitable domain names in the this area have significantly increased in rarity and therefore value.

7.4 Electronic booking systems have furthered the understanding of yield management in hotels, thus making the online booking systems an ideal way of trying to sell distressed inventory (unsold rooms on the day of arrival) at the last minute.  As a result staff competence in managing inventory and practising yield management has increased enormously and a large hotel will often employ a specialist in this function.

7.5 Provision of statistics This can be a double-edged sword for both the hotel and the customer.  It makes the negotiation of special rates for subsequent years much easier as both parties have the same statistics and no unrealistic claims can be made.

8. The Future

What is the future of such online hotel reservation systems and the companies that provide them?

Ever-increasing competition will necessitate companies being more flexible and innovative at ever greater speed to be able to remain in business.

The investment in hardware will be constant and increase in relation to the success of the online provider.

On-going program development is time consuming, costly BUT essential..

Will the internet and the use of email decline due to the development of  instant messaging as is forecast by some experts?

The increase in “Last minute” bookings in both the business and leisure segments makes the need for fully interactive systems in real time an essential of the modern booking world.

What will be the future function of social networking sites and iPhone Apps as a medium for the transmission of hotel bookings?

At present the market is in control through almost complete transparency of pricing and offers.  What will new developments in the future bring?

Bibliography: this paper is based on the author’s more than 20 years experience in global hotel sales and the subsequent 10 years spent working for and assisting in the development of online hotel reservation systems as well as having responsibility for the start-up, management and growth of overseas sales’ offices for same.

 

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