These are challenging times for the world of business travel, says Mark Frary, but with a mix of innovation and specialisation, the hotel booking agencies that get it right are holding their own.
Last year saw the separation, for the first time, of the leading hotel booking agencies (HBAs) from the list of leading travel management companies (TMCs). It is something we intend to continue this year because there are fundamental differences between the ways they operate.
It is a similar distinction that separates the supermarkets from the high-street newsagents. Tesco has now become one of the biggest sellers of magazines in the UK but you wouldn't rank it against, say, the specialist newsagent Martin's because their business models are so far apart. Tesco knows that it can sell a large volume of a limited range of magazines alongside other, more profitable, items in the basket. Martin's, on the other hand, knows that it can stock a much wider range of titles, despite selling fewer of them.
For most of the companies that appear in the list, they make much of their money from hotel commission. Many also generate revenue from handling related air and surface transport bookings for their clients, but the bulk of their work is in the hotels business.
This year we are using the number of transactions as our benchmark. Any company with more than 50 per cent of its transactions in the hotel booking, and meetings, incentives, conferences and exhibitions (MICE) sectors appears in this list, while the others appear in the main TMC list. This distinction may not please everyone - particularly those companies which seem intent on reinventing themselves as more general TMCs - but a line has to be drawn somewhere.
Consolidation touched the HBA sector as well as the TMCs in 2008. The biggest deal was the £38 million acquisition of NIS Europe (last year's number five) by Expotel, which has cemented its position at the top of the HBA ranking. The company also showed its intentions with the retirement of Maurice Segal and appointment of Richard Lovell, formerly of Carlson Wagonlit, as chairman as part of a venture-capital funded management buyout led by chief executive Ian Burnley. As if that were not enough for the company, in November it also acquired the First Option conference and incentive business of online travel agency Travelocity Business.
The HBAs are continuing to develop their technology offerings, particularly in extending their hotel booking tools to include other travel options, such as rail. A number are also developing customised web portals for their clients, incorporating all these elements.
One of the biggest challenges for the HBAs is the increasing focus by TMCs on hotels. Many TMCs have realised that with airline commissions falling, hotels are offering an increasingly attractive revenue stream. At the same time, the global distribution systems (GDSs) are adding better access to a wider range of hotels, making it easier for the global TMCs to meet corporate needs when it comes to booking smaller, independent hotels.
The very existence of this list shows which companies who specialise in one niche area can, and do, do well. Corporate travel buyers with large companies in the private sector, such as BT, and organisations in the public sector, such as the Environment Agency, have shown that appointing a specialist hotel booker alongside a more general TMC that handles the overall management of a travel programme can work really well.
Yet hotel booking agencies face a challenging year ahead. Hotel occupancies have gone into freefall, dragged down by the slump in business traveller demand, and rates have tumbled, too. There is already some evidence in the 2008 revenue figures presented here of the first part of a slowdown, but 2009 will be more challenging still. As yet, there hasn't been the deep and widespread rate slashing that followed 9/11, but hoteliers are undoubtedly feeling very nervous and many have reined in or stopped their expansion plans.
It is, therefore, unsurprising that many HBAs are considering other areas of business to bolster their revenues. Some have moved into consulting and other value-added services just as TMCs have done, while others have turned to the largely unmanaged world of the meetings and incentive business. Given that hotel commissions may one day disappear, just as airline commissions have, that may not be a bad idea.
The typical HBA
Average revenue £66.3m
Average number of transactions 372,115
Breakdown of transactions:
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