Transcript Channels in Change ~~~ - Web Hosting at UMass Amherst

Channels in Change
~~~
Distribution channel management:
lodging’s next inflection point?
“In a time of rapid change distributors and
distribution channels tend to change faster
than anything else.”
Peter Drucker,
Management Challenges
for the 21st Century
… a time of rapid change?
Consolidation
Brand proliferation
Globalization
Disintermediation
Traditional Distribution Channels
calls to
Travel Agency
@ 10% of rate
Global Distr. System
Switch Co.
@ $3 - $5
@ $2 - $3
Chain Res System
@ $6 to $10/call. ( in Mktng. Fee )
#800 to hotel
@ $4 to $8
Traditional Distribution Channels
1. Have grown expensive
The costs of acquiring a customer
have been the fastest rising line item
in US hotels over the last decade
cost of acquiring a customer:
Reservation expense +
Commissions +
Franchise and/or marketing fees
Overall costs of acquiring customers
have grown at 5% crg since ‘90
Of the costs of acquiring a customer,
reservations, fees, and commissions
have risen fastest
US$ 6.06/occ. rm, ’90
US$ 10.47, ’99
over 6% crg
= US$ 13.61 per stay (not incl. airline miles
expense)
(base: US full service hotels; derived from PKF
Trends reports, 1991 – 1999)
Traditional Distribution Channels
1. have grown expensive
and
2. are now undergoing chaotic
transformations
Let’s take a look …
calls to
Travel Agency
@ 10% of rate
Global Distr. System
Switch Co.
@ $3 - $5
@ $2 - $3
Chain Res System
@ $6 to $10/call. ( in Mktng. Fee )
#800 to hotel
@ $4 to $8
Travel agencies have already
reached their inflection point
Airline commission caps continue to squeeze revenues
In ’99, population of US travel agencies contracted
Business travel agencies have been consolidating,
rebating commissions, & charging clients transaction fees
Consumer agencies are shifting from business to leisure
travel
Hotels and resorts still commissioning @ 10%
Cruise lines @ 14% plus overrides
Internet agencies cutting into both leisure and commercial
business
All survivors are moving to fee-for-services
On-line agencies are reaching
their own inflection point …
Expedia and Travelocity have evolved from
advertising media to bookers for
commissions, to bookers for fees, and
now to …
Consolidators and packagers
e.g., Expedia, offering 55,000 hotels, now has an
inventory of over 5,000 trips, from none in early ‘00
Again, forced by the airlines …
Commission caps
Airline web site ticketing, w/ price incentives
Orbitz
On-line agencies (w/o brick &
mortar) fast growing and profitable
Expedia, Travelocity, and Priceline among
the five most visited sites ’01 ytd.
The three among only four profitable
publicly traded web operations, 6 mos.
ytd.
Agency ownership and integration
Carlson Travel (nee’ AMF & Wagon Lits) owned
by hospitality supplier Carlson Co.
Accor owns travel agencies and tour operators
Travelocity a subsidiary of GDS Sabre (AA)
AOL Avant a joint venture with Sol Melia
Expedia being purchased by cable programmer
USA Networks
Owns Ticketmaster, Hotelres, Citysearch
Creating an integrated e-commerce travel vendor
Global Distribution Systems:
also in transition: Sabre
Owns Travelocity – competing with Sabre users
Strategy is to polarize – service surviving agencies
while pioneering disintermediation
GetThere – on line B2B corporate travel site
VirtuallyThere – consumer personalized trip planning and
facilitating
Travelocity concierge services
Strategy to “own” the consumer
Foresees on-line services growing to 28% of
bookings in ’04 from 6% in ‘99
Global Distribution Systems:
also in transition
Galileo – now owned by Cendant
Being integrated into a comprehensive
franchise agency and travel supplier
company
WorldSpan – (Delta, Northwest) ?
Amadeus – (Lufthansa, Air France,
Iberia) ?
Global Distribution Systems:
also in transition
GDS’s are attractive …
Powerful
• the backbones of any intermediary and direct system for
inventory control, pricing, booking and confirming
Profitable
• Sabre fees per trip = US$ 11.55
• Operating profit = US$ 3.04 per trip
… so long as single supplier direct sites do
not capture the major share of traveler
commerce
Traditional Distribution Channels
calls to
Travel Agency
@ 10% of rate
Global Distr. System
Switch Co.
@ $3 - $5
@ $2 - $3
Chain Res System
@ $6 to $10/call. ( in Mktng. Fee )
#800 to hotel
@ $4 to $8
The Switch – key link between
hotels and GDS’s
Only two
WhizCom – car rental focus, then hotels
• Acquired by Cendant in ’99
• Now integrating with Galileo and with
Cendant’s nine hotel brands, RCI vacation
exchange, Avis rental car, and travel agencies
Thisco (The Hotel Independent Switch Co.)
• Once non-profit, then for-profit, now publicly
traded as Pegasus Solutions, Inc.
Pegasus – disintermediator
or re-intermediator – or what?
All
Travelweb – 4th largest consumer on-line travel site
Provides property res systems – voice and electronic
New ASP of PMS and RMS (HI)
Switch for Orbitz, Sabre, Apollo, WorldSpan,
and for on-lines like Expedia, Priceline…
Central commission processor for 1000’s of hotels
Divesting of representation services to focus on
information and systems support? Summit gone;
Utell?
They have a fist on the pulse of the industry!
And new distribution services
that focus only on hotels
E.g., WorldRes and Inntopia, booking
engines for those who need a res
function on their property web site
E.g., Meeting planning RFP forums
ASP’s that provide both res and pms
systems via the web
Hotel central reservation systems
Multi-brand consolidations of call centers
And central revenue mgmt.
Still carrying most reservation traffic
Account for 20% - 30% of res feed to typical
chain property
• Radissons usually enjoy 10% pts higher by virtue of
Carlson Travel referrals
Contract rate clients use heavily
Chains’ on-line sites still < 3% of bookings
• Look-to-book ratio is falling, i.e., more bookings
• Independents enjoy higher % feed
• B&B’s get as much as 30% through own web sites, in
form of inquiries and requests
Lastly, the property res office is
in rapid transition …
Skills and talents have been evolving
From reservation taking and confirming …
to inventory controlling and forecasting…
to selling …
to managing revenue.
Multiple channels must be synchronized
More inventory “buckets” increase complexity
Price consistency is confounded
Traditional tour & travel marketing obsolete
In sum, no other function in the hotel
business is undergoing such rapid
change and turmoil as is the
distribution and reservation activity
So, what are the implications …
For the industry?
For property management teams?
For H&RA education?
What might be implications for
the hotel industry?
“ New distribution channels always do
change what they distribute.”
Peter Drucker
Management Challenges for
the 21st Century
What might be implications for
the hotel industry?
Vertically integrated suppliers: emergence of travel
management companies and sellers of “trips”?
Radisson, Cendent, Disney, Sol Melia, Accor
Vertically integrated distributors: shift to push
marketing mix?
Leveled playing field for independents?
Centralized revenue management in name of cost
control?
Which hotel and cruise companies will be first to cap
commissions?
Tendency to commoditize hotels?
Who will own the consumer data?
What possible implications for
individual hotel management teams?
Might net discounted prices account for larger
share of transactions?
Will traditional tour & travel marketing have to be
replaced by alliance marketing with channels?
Might promotional money displace consumer
advertising in the marketing mix?
Might a “channel manager” join Exec Committee?
Might a new distribution paradigm emerge?
A new distribution paradigm?
Current wisdom:
Manage by ADR
Seek price consistency
Give all access to all
inventory buckets
Keep all channels open
as long as possible
Move from allocations
to single image
inventory
New paradigm?
Manage by contribution
margins
Price channels differentially
Starve some channels and
nourish others
Close channels according to
production and margins
Cap commissions
Use ASP’s to address
complexity w/o direct access
What possible implications for
H&RA educators?
Of top 12 US H&RA schools and programs, only
two offer courses in channels of distribution
What kind of education needs to be added to
H&RA?
What can be done to move metrics from ADR to
contribution margin?
What kind of career development pathways can
prepare managers, including GM’s, for dealing
with channels and margin management?
Channels in Change …
Channels in Change …
… a force now transforming travel and
hospitality even as we watch and
ponder its implications