Why Is Hotel Room Procurement So Darn Different?

It's annoying, isn't it? You negotiate a price only to find that there is no room available at that rate, even though the hotel is not full. Even when there is a room available, you cannot book it in the most efficient way, the MI does not give the detail you need and almost nobody will allow the cost to be billed back. To cap it all, you find out that despite heavy negotiation there is frequently a cheaper rate available to someone walking in off the street. Grrrr….
The core problem is that unlike airlines--which mainly use common booking systems, standard codes and reporting technology and pricing--hotels are all over the place. There may be a few hundred airlines but there are literally millions of hotels, from small guest houses in obscure locations demanding cash in advance to the mega chains of 5-star properties. At some time, any corporate programme needs a mixture of both--plus a simple way of booking them. However, there is no common 'one-stop' buying platform and no commonality of process to enable one to be built.

A trap that many fall into is to assume a GDS-type solution is all that is needed, but that is entirely insufficient at this time--especially with regard to cost. Look how the airlines and big hotel chains are squeaking over current GDS pricing and imagine how impossible such fees would be to small, low-size, low-margin premises. It is a painful fact that the vast majority of hotel space will not find itself on a global booking platform until there is a radical change in the GDS financial model. Maybe the potential of this vast new market could sway the GDS in their overall business pricing model?

Ownership and clashes of interest within the hotel industry also play their part, as there are so many different players linked to this market. The name on the door can be misleading as, like TMCs, it is not a sign of actual ownership. Behind that name is the management company or franchisor, and behind that the centralised sales office that tries to negotiate on their behalf and keep them in check to stop them acting alone. Everyone wants a joined up brand but try telling that to a private hotelier who cannot understand why he is paying all that marketing money.

Such a disparate market leads to many pricing and rate challenges. I am prepared to bet that most travel buyers have been berated by travellers and their bosses about how they found a cheaper rate than the negotiated company contract. How annoying is that? The reason is that an empty hotel bed is as perishable as a vacant airline seat, except that hotels are more likely to find means of reducing the likelihood of it happening through fluid 'rates on the day.' The same goes for maximising prices when demand is high by closing out those keen rates negotiated by big companies and selling to others prepared to pay at rack price.

You can negotiate the best price in the world but it is worth diddly squat if you cannot get a room at that rate unless the hotel is half empty. Most hotel reservations systems and individual GMs make no-frills airlines look mere amateurs when it comes to yield management, which is why your travellers can often turn up and snatch a better rate. And don't they love telling you and their colleagues about it! They do not realise that a higher negotiated year-round price with last room availability and organised booking, MI and billing links is far preferable to the occasional bargain. Maybe it is because nobody has told them?

So that is the doom and gloom, but what is the best way of dealing with it? Here is a suggestion from me that may help in some parts of the world:

You need a hybrid booking system that enables both GDS and non-GDS hotels to be booked on the same platform, and some TMCs and HBAs (hotel booking agencies) have them--including my ex company HRG. The non-GDS hotels need to not only be on a database with instant confirmation but also capable of taking bookings at special company negotiated rates, and the only true way this can be done is if allocations of guaranteed space have been negotiated along with the price. These allocations of guaranteed rooms (usually with a booking deadline) are managed by the TMC or HBA and should be a mixture of yours and their own. The provider should also have negotiated 'free sale' facilities with hotels which allow them to confirm bookings without reference, unless told to stop by the property or chain. Such hybrid booking systems should be available both for use by the provider and online for self booking, and the same thing should appear on both users' screens in real time.

What about some of the other issues? It would be great if every traveller was prepared to pay by some kind of plastic, but many do not. In many parts of the world there is a huge demand for a bill-back facility--where the hotel sends the bill to the TMC/HBA to process--which has advantages, but is widely considered as costly and inefficient, and many refuse to do it. I have a slightly different view as I think that even this process can be streamlined, and it carries the potential to extract all those other hidden cost items like meals, papers, movies etc. I am also a bit old-fashioned in that I feel that the customer should get what they want, even if it is 'inconvenient' to the provider. I visited an organisation called Expotel (a British HBA) last week and saw myself that it can be managed well if the desire is there.

Another great bit of system progress I have been hearing about is one that follows up on existing bookings to see if a better room rate has become available and, if so, book it. I have to admit that I am a sceptic, as I cannot quite figure out how this could be achieved; but wouldn't it be great if it worked? Less chance of those amateur buyers (travellers) undermining the corporate programme. I have spoken to an HBA who says they have it, but I would want to see it working to be sure!

Finally I think that the hotels, through their associations, need to develop some kind of processing best practise and commonality in industry language. I am slightly wary of even suggesting this as I have seen what the IATA association has done on the airline side and would hate to see that replicated anywhere. The risk is worthwhile as the status quo which is akin to a bunch of people seeking a solution whilst not speaking each others language is totally counter productive.

Oops, I nearly forgot. No blog about any part of the supply chain can be complete without touching on commission income. Hotels are now pretty unique in this respect as practically everybody pays commission. Reason being that nobody dares break the mould as no one is big enough to lead and drive the market without losing competitive advantage. The upside of this is that corporates can use this antique income to help fund their travel programme. How long this will continue is anybody's guess.

The hotel industry is unique and I admit I am not an expert on the subject. If anybody thinks I am talking rubbish or have any comments or counter arguments, then please respond. I would love to hear from you as long as it is not manifested into some kind of advertorial!