CHANGING TIDES IN RESERVATIONS AND ELECTRONIC DISTRIBUTION

1 March 2002
John Burns
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In my work as a reservations and electronic distribution consultant, my clients ask me to help them in two ways. One way I assist is through helping them to optimize their current performance. The second is to alert them to, and help them prepare for, important future developments that will impact the sale of hotel accommodation through electronic channels.

I wrestle with the responsibility and challenge of correctly identifying emerging trends and little-recognized developments that will influence – possibly even shape – the electronic distribution marketplace in one, two or three year’s time.

And why is this prognostication important? Those who prepare for, then take best advantage of, new distribution opportunities will be the market-share winners. Those who fail to prepare will jeopardize their revenue stream and their guest relationships.

So what do I see as I peer forward? This article affords me the opportunity to share my observations and it gives you the opportunity to compare your perceptions with mine. Are you ready?

THE INTERNET MARCHES ON

“The Internet is changing everything!” I risk ridicule by repeating this cliché, but it is a worthwhile risk because it is vital to recognize how extensively the Internet has affected the hotel industry. First, let’s look at Web sites which have become a vital form of sales collateral. Web site visitors – not so long ago thought to be nuisance “lookers” – are now recognized as shoppers. Even visitors who are not booking are now perceived as often being in the important “research” phase of the shopping process.

How many of your friends or relatives refer to the Net while planning a trip? How many are influenced by what they see on the Web? How many buy online? And how many of those who buy online now didn’t just a year ago? The evidence is irrefutable. The need to direct sufficient resources to achieve appropriate portrayal of our products in this evolving medium is essential.

THE INTERNET OPENS NEW DOORS

The temptation is to limit consideration of the Internet to how it impacts the sale of guest rooms. Taking this approach denies the array of other areas where the Internet is having a significant impact, such as:

  • Low- or no-cost communications – management memos, operational procedures, sales program descriptions and other information, between properties and corporate offices.
  • Online training programs for staff at every level
  • Intranets serving staff within a property or across a brand. Intranets facilitate the distribution of marketing collateral, copies of advertisements, access to telephone directories, F&B menus, e-mail accounts and much more.
  • Affordable links – via standard circuits or virtual private networks (VPN) – that permit continuous communication between central reservation systems and property management systems, achieving single-image inventory and enabling sharing of guest history, folios and more. Similar information sharing between sales and catering systems makes company-wide meeting and lodging facilities information readily available to a mobile sales staff.

CONTINUED VITALITY OF THE GDSS

Even as Internet reservation production continues to rise, I believe that the GDSs – Amadeus, Galileo, Sabre and Worldspan – will continue to be the dominant electronic distribution services for the hotel for the next three years. In time, GDS productivity may well fall behind that of the Web but in today’s environment the GDSs remain systems in which hotels must participate, and do so with attention and dexterity. The Internet has not replaced the GDSs.

CHANNEL MANAGEMENT TAKES HOLD

While our immediate goal is selling rooms, we recognize that the cost of generating that business varies from channel to channel. A reservation arriving direct to a hotel’s own Web site may be the least expensive while the one from a travel agent using a GDS may be the most. A host of intermediaries add costs to the booking process – intermediates such as travel agents, switches, hotel chain corporate offices and third party Web sites.

Coming years will see increased awareness of the “overhead” associated with each distribution channel. Once dismissed as the “cost of doing business”, these expenses will come under closer and closer scrutiny. As a result, hoteliers will increasingly strive to control the number of rooms that are offered and sold through each channel, aiming to fill their property while simultaneously achieving the lowest practical distribution-related costs.

SWITCHES DECLINE IN FAVOR OF DIRECT CONNECTIONS WHILE WEB-BASED SWITCHES EMERGE

Switch companies link central reservation systems to the GDSs. Through a single connection to a switch, hotel chains eliminate the need for complex communication links between their CRS and each of the four GDSs. The merits of this simplified CRS/GDS connectivity are, however, being increasingly questioned by hotel companies. In some cases those companies are now opting to bypass switches in favor of direct CRS-to-GDS connections.

While the core business of the switch companies – Pegasus Solutions and WizCom International – is being threatened, both organizations have successfully diversified their service lines, offsetting the declining role of their once-core product.

Interestingly, while the established switch companies have moved to reduce their reliance on switching-based revenues, new companies are offering Internet-based switch services – promising both GDS and Internet connectivity together with the channel management tools – in competition to Pegasus and WizCom. Two noteworthy vendors in this area are HubX and Newtrade Technologies.

A CHALLENGE TO REVENUE MANAGEMENT

By 2000, the hotel industry thought we had a handle on Revenue Management. We understood the substantial value of proposing the appropriate rate to a guest – a rate that would maximize our return. Then came the abrupt occupancy declines of 2001 and the value attached to the revenue management process was seriously questioned. The age-old “occupancy versus rate” debate resurfaced. And a new factor entered the picture – the presence of discount distributors who could sell significant numbers of rooms – but at sometimes painfully low rates.

HRN and Priceline, Expedia and Hotwire are the best know of this breed of discount distributors. Their promise of putting heads in beds challenges the discipline of the revenue management process. We are only beginning to understand how to use these sometimes very appealing outlets — to think of them as a distinct channel to which some daily-varying portion of inventory should be allocated—and to balance their appeal with their cost in diminished revenue per room and, possibly, diminished brand loyalty.

WEB-BASED ASPS

Application System Providers (ASPs) have become increasingly visible in the hotel systems marketplace. They offer an appealing proposition – use of software systems where the system itself operates remotely and is accessed via an Internet screen. Gone are the issues of on-property system operation, maintenance, upgrades and problem correction. ASPs are already offering central reservation, PMS, POS and S&C system access. The number of vendors offering this approach grows steadily; and variety of systems they make available will continue to increase in the coming years.

Concerns about this approach have surfaced. There are potential issues related to dependability of service, availability of interfaces, cost, data ownership and so on. ASP service providers, however, are dealing increasingly effectively with these concerns. There is no doubt in my mind that a growing number of hoteliers – at both the property and chain level – will embrace the ASP approach in coming months and years.

A NEW, EXPANDED WORLD OF REPORTING

Traditionally we have been forced to manage our individual hotels, or entire brands, through the rearview mirror, by using activity reports that show last month’s bookings, denials, business sources, etc. In many cases these reports were not even available until 10-15 days after month end.

The era of “canned” activity reports – few in number, inflexibly formatted and often late arriving – is drawing to a close. It is being replaced at both the property and corporate levels by a new generation of much-expanded reporting capabilities.

One area of improvement in timeliness of data delivery. A primary appeal of ASP-style PMSs and CRSs, for example, is their real-time activity reporting capability. Are you offering a special package for the upcoming holiday weekend? Would you like to see your sales figures for that package as of this second? No problem! In other cases reports that were once distributed by corporate staff via the mail are now available on the Web. Instant access, sometimes on a weekly rather than monthly basis, is becoming more widespread.

The breadth and depth of data availability for review has already improved, and will continue to do so. Implementation of the Crystal Decisions’ Crystal Reports report writer enabled both speedy development of new reports and previously impractical levels of activity analysis. We could finally research activity shifts in search of important trends. More recently, hotel companies have begun to implement the next generation of data analysis tools. Anyone, for example, who has seen the CogNos PowerCube and viewed its infinite ability to present statistics in countless variations with only a few keystrokes, has seen the future.

And access to real-time, highly customized reports gets steadily easier. The specially-adapted Palm Pilot PDAs developed by Scott Heintzemann and his staff at Carlson Hospitality and issued by Radisson Hotels to its staff – in GM, Regional and Corporate versions – to show key indicators in real time represents the next, revolutionary, generation of information availability in the hotel industry.

MATURATION OF NON-TRANSIENT BOOKING FUNCTIONS

Awareness of Internet booking functions has until now been confined to individual traveler reservations. The next 18-24 months will see increased prominence of Internet-based group booking Web sites. The hotel industry has heard the names: Passkey, Starcite, Eventsource, PlanSoft, b-there, Event 411 and SeeUThere, but generally we know little about them. Meeting planners are adopting these Web-based tools to search for meeting facilities and then administer registration – for attendance and accommodation – at a fast growing pace. Understanding the functions of these tools and the participation opportunities for hotels in them (and the danger of being slow to adapt to the evolving meetings marketplace as they become the norm) should be a high priority for every hotelier.

SINGLE COMBINED PMS/CRS

A little further into the future — but already evident as the cutting edge — is the new generation of combined systems. This approach is best exemplified by the merged property management systems and central reservation system that provides venue-specific user interfaces accessing a single master database.

With the emergence of the ASP mode of operation, hotel technology developers are now able to ask “Why must the CRS and PMS (and even POS and S&C systems) each have their own data base?” Why can’t there be one super system, eliminating duplication and delivering a host of benefits, not least of which are reduced data maintenance requirements and much expanded activity reporting. Pegasus Solutions’ new PegasusCentral unified PMS/CRS is a good example of this new generation technology. These innovations are poised to redefine the way we look at our on-property and central systems.

The systems we use in the hotel industry, like the marketplace in which we work, are constantly and quickly changing. As difficult as it is to periodically pause and consider the developments that are occurring, such reflection is key to planning and preparing for the turbulent future.