FEATURE: Industry Adjusts to Hotel Direct Connects

With the notable exception of Web sites, direct distribution options between vendors and corporate accounts remain scarce. Although they often complain about the cost, vendors for the most part still need to participate in global distribution systems to offer business travel agencies and corporate clients efficient booking processes. In the hotel industry, though, a tradition of direct relationships between travelers and properties seems to have helped along the quiet proliferation of GDS and/or agency bypass.

In addition to Web-based supplier-direct booking efforts at Best Western and others, covered in The Beat this week, another example of agency/GDS bypass is the Concur Connect program, in which travelers booking with Concur's Cliqbook tool can access suppliers including Choice Hotels International, Hilton Hotels Corporation and InterContinental Hotels Group.

But the more substantial technology trend of cutting out a middleman in the hotel booking chain involves agencies connecting directly to hoteliers without a GDS. Any travel agent can call a hotel, but American Express, Carlson Wagonlit Travel and Expedia top the list of those that said they have built direct electronic booking connections. Introduced in October 2007, American Express Hotel Hub offers about 150,000 properties and allows bookings to occur either directly or through a GDS. Since its introduction, about 40 percent of Hotel Hub bookings have circumvented the GDSs and 60 percent used one, a spokeswoman said last month.

At CWT, 89 percent of bookings are completed through the GDSs and about 11 percent skip it, according to an official.

In perhaps the largest-scale implementation, Expedia has added 1,000 hotel properties in 35 countries to its QuickConnect system since it launched last year. QuickConnect allows independent hotels and small and medium-size chains to connect their central reservation systems to Expedia's Web sites without using the global distribution system.

"On a global scale, hotels that implement Expedia QuickConnect are able to sell more room and rate types, and achieve greater efficiency in their revenue management strategies," according to a prepared statement from Expedia senior director of lodging connectivity Dean Gregory. "Ultimately, it delivers our hotel partners better access to the global Expedia marketplace."

QuickConnect links to more than 50 central reservation systems to enable hotel properties in "real time" to "exchange rates, availability and booking information with Expedia sites," including corporate travel brand Egencia.

According to Expedia's 2007 annual report, 45 percent of merchant hotel properties (those for which Expedia acts as the merchant rather than the agent and therefore deducts from its revenue an amount paid to the hotels, rather than receiving a commission or ticketing fee) available through Expedia are directly connected. This is through QuickConnect or Expedia Connect, a similar program created three years ago for larger hotel chains. Expedia, which also owns, directly connects to more than 18,000 hotel properties globally using Expedia Connect and expects an additional 5,000 properties to sign on this year, according to the company.

In bypassing the GDSs, hotel chains save on distribution expenses, which "we assume would trickle down to the customer," an Expedia spokesman said.

Still Controversial

While some say such direct bookings are a growing strength in the lodging business, others disagree.

"The GDSs are obviously important to the travel agencies, they are important to us, but a huge chunk and the biggest increase in our business goes through direct connections to the online travel agency," said Richard Weigmann, president and CEO of Trust International, a hotel central reservation system provider. Weigmann said about 53 percent of bookings are completed via GDSs, 38 percent are made directly and 9 percent go through call centers. In some months, GDS bookings are only 5 percent greater than direct bookings, he added.

But Travelport GDS director of strategic content Keith Harrison suggested that direct connections could be more costly than expected because of the expense of creating and maintaining them. He also said that connecting directly can "slow down" the sharing of content, rate and inventory information, resulting in "direct connect fatigue" for hotel companies.

Harrison said the "push" process, in which hotel companies send rates and availability to online travel agencies, is "very difficult to maintain and to keep synchronized, requiring as many as 1 million messages a day to be pushed. In most cases, the online travel agency's database does not synch with the hotel central reservation system. This issue has caused 'best rate guarantee' violation claims with a number of hoteliers."

As a result, Harrison claimed that Hilton told Travelport it would not complete another push connection.

In an attempt to negate the further spread of direct connections by reducing incentives for hotels to directly connect, Travelport in 2004 introduced JumpStart. JumpStart connects hotels to select online travel agencies and tour operators as a third party intermediary for a 50 percent to 60 percent lower fee than traditional GDS transaction fees, which could cost hotels about 1.2 percent of the room revenue that they receive, according to Harrison.

Also a middleman that faces disintermediation in a direct connection environment, "switch" company Pegasus Solutions has adjusted its thinking about what is apparently a growing trend--at least in terms of connecting to its CRS. Nevertheless, Pegasus CEO Mike Kistner argued that direct connections have limited global reach.

"We're better at it than we were five years ago and we also have a different perspective on it than we had five years ago," said Kistner. "There was a time when Pegasus basically said, 'We are willing to facilitate certain finite interfaces, even though we are a switch company, and if you want to do something outside of that, we are probably not the right people to talk to.' The Pegasus of today says, 'We are a switch company and to the extent that you want us to facilitate a business transaction to a partner downstream, we are happy to do what it takes to facilitate that connectivity.' We need to be malleable and amenable to the requirements of the market, so if our customers say this is what they want us to do, we will be responsive to that."