TIME FOR CHANGE: THE EVOLUTION OF ELECTRONIC DISTRIBUTION AND CENTRAL RESERVATIONS MANAGEMENT IS FOR REAL

15 January 2005
John Burns
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Pricing and allocation of hotel inventory were once the periodic focus of the Director of Sales and were generally delegated to the Reservation Manager for day-to-day administration. By 2004, these activities had become top-tier priorities for senior property staff and brand executives. Guestroom pricing and allocation are today key elements of electronic distribution and central reservations processing.

While 2004 did not produce revolutionary changes in these areas – such as the emergence of the merchant model – more evolutionary developments become apparent. Some of these changes had immediate impact on the hotel industry. Others will become more important and possibly a disruption in 2005. The time is right for a brief review of these events and a look forward at what may impact the hotel industry as the electronic distribution and central reservations landscape continues to evolve.

MANAGING THE ONLINE AGENCIES

As 2004 drew to a close, most hoteliers felt they were beginning to understand the third-party distribution sites and to effectively utilize them in their lodging offerings. This increased sense of ease resulted from another year’s experience with these vendors and an improved business climate that bred greater confidence in negotiating rates and deciding the proportion of rooms to offer for sale through the electronic channels.

For some hoteliers, this increased comfort level also came from the implementation of on-property or chain-supplied automation to ease the availability and rate maintenance process for these third party sites.

LIVE OR DIE BY ONLINE PRESENTATION

Recent studies not only confirm what we’ve suspected about online marketing technology, but indicate that we’ve significantly underestimated its impact.  First to be confirmed was that some 70 percent of trips are now planned by pre-travel research on the Internet – with a major effect on booking decisions. It is clearer than ever that the positioning of a hotel – on both its brand web site and on third party web sites – is critically important. Whether a property has an informative, persuasive presentation; a weak, unappealing portrayal has become a primary determinant in the number of reservations a property will receive from both business and leisure travelers.

A great web site is of little significance if potential guests do not see it.  In 2004, six out of 10 visits to hotel web sites begin with use of an online search engine.  As a result, search engine optimization (SEO) and pay-per-click (PPC) advertising have become key considerations in our Web participation and promotion activities.

MEASURING THE STRENGTH OF GDS

In 2004, the Global Distribution Systems or GDSs (Amadeus, Galileo, Sabre and Worldspan) continued to deliver millions of reservations to hotels, although this contribution was less often acknowledged than in previous years.

This past year saw an important step in a new direction for these systems. That step was activation by Sabre of its Spotlight program in which hotels can buy first- or second-screen positioning on Sabre travel agency displays. Departing from these systems’ longstanding neutrality through which hotel names and rates were displayed in a random order within the search parameters specified by a travel agent, Sabre became the most recent and most active convert of the GDSs to paid positioning. While little discussed, this change may result in the hotels who choose to pay for preferred positioning gaining significant GDS market share from those who don’t.

REVENUE MANAGEMENT TAKES THE LEAD

The role of the Revenue Manager evolved and expanded in most hotels and hotel companies in 2004. Revenue management techniques – highly detailed forecasting, demand assessment, channel production evaluation and overhead cost measurement, attentive inventory allocation, displacement analysis – have become key considerations in hotel operation.

Revenue management has not yet matured to the point where it fully considers intangibles such as a corporate client’s lengthy and hopefully on-going relationship with a property, meeting planners’ long term potential, and so on. Last year saw revenue management focused very much “on the moment”. This year will see the beginning of a return to balance between revenue optimization today and consideration of long term market and client potential.

NEW ERA FOR CONSORTIA RATES

As 2004 progressed, it became increasingly apparent that more hotel companies are moving away from annually determined preferred rates for corporate clients and toward use of corporate rate structures tied to each property’s “rate of the day”.

This further step in the redefinition of the fences that traditionally divided market segments and their rates; fences that were flattened by the arrival of the Internet and particularly by the advent of the merchant model. Adoption of flexible corporate pricing based on “rate of the day” is a new fence, protecting this market segment and its important revenue steam.

REDEFINING SERVICES

If 2003 was the year of consolidation for reservations representation companies, 2004 was the year when many of these organizations – providers worldwide GDS, voice and Internet connectivity  – fundamentally redefined the representation industry. Acknowledging the complexity for hotels of assessing their electronic distribution options, many representation companies added intensive counseling services to their standard or optional service offerings in 2004.

Combining the application of revenue management principals with an understanding of each property’s facilities and priorities, these coaching services have been enthusiastically received, and in some cases, exceed some brands’ distribution counseling tservices in extent and sophistication.

Driven by internal competition and client needs, the representation industry saw formation of partnerships with channel management software developers, revenue management technology companies, revenue management training companies, Internet rate shopper services, rich media developers/distributors and search engine optimization/pay-per-click advisory services and a variety of other vendors. These partnerships are being formed and expanded with the intent of broadening their service portfolios to become a one-stop source for electronic distribution services.

LOOKING FORWARD IN 2005

In many cases, distribution related developments serve as reliable predictors of activity that we can expect in 2005. The past year suggests that in 2005:

  • Travelers will continue to turn to the Web in steadily greater numbers for travel-related information. What they find on the Internet will increasingly influence their buying decisions.
  • Successful positioning in search engines –  through use of site optimization techniques and paid positioning – will become increasingly vital.
  • Participation in the GDSs will become a more complex and potentially costly proposition for hotels
  • Hotels will strive to better apply revenue management techniques aided by more satisfactory and more affordable revenue management technology.

ONLINE AGENCIES WILL ENTER NEW MARKETS – AGAIN TARGETING UNMANAGED TRAVELERS

Last year saw the continuing slow but steady move of several online agencies into the managed corporate travel sector. While admitting to a more difficult process than expected, Expedia, Orbitz and Travelocity are challenging the established travel management operators. In doing so, they are rewriting the rules and reshaping the relationships in the corporate market segment.

But this is not the end of the story. The mega-brands can be expected to offer these travelers extensive packaging options in 2005 in an effort to capture all their bookings. In the process, they will be directly challenging the brand web sites.

EASING THE CHALLENGE

One area of intriguing and potentially useful technology development for hoteliers is the development and delivery of the first generation of management “dashboards”. Promising to be more widely available from hotel chains and representation companies in 2005, these computer displays aim to simplify the process of understanding key activity indicators.  Often linking to single-point-of-control inventory management tools, these dashboards promise both to increase the amount and timeliness of data with which to make pricing and allocation decisions and to ease the process of implementing those decisions across the spectrum of distribution sites.

META-SEARCHES

A third development continues to keep us all in suspense: the emerging contest between the mega online agencies and the newly coined “meta-search” sites – exemplified by SideStep, Farechase and Kayak. Both camps will strive to be the primary shopping sites for travelers. While the outcome is far from clear, the stakes are immense and the results may well change once again through who and how hoteliers position and offer their lodging to the traveling public.

The hotel industry enters 2005 more confident and more competent in its electronic distribution and reservations activities. It also enters the year more aware of the vital importance of adept participation in this distribution medium, and fully aware that it will continue to challenge and surprise us all.