Travel managers must get stuck in and learn about every aspect of hotel distribution if they are to strike the best deals, says HRS’s Jon West
Calling all travel managers - a plea from me. If you negotiate rates on hotel rooms, then I highly recommend you take some time to understand better the cost of distribution from a hotelier’s point of view. Because, when you do, you will not only be a step ahead of the competition but, I believe, you will be the ultimate victor in the war of the room rates.
We all know about travel budget freezes, squeezed margins and hardening hotel room prices. Equally, we all understand the logistical nightmares of moving people around the globe, of last-minute room bookings and of extended stays, and the hazards these can wreak on company/city caps and negotiated rates.
At HRS we encourage the travel buyer, as well as our hotel partners, to understand distribution better – only then will they understand how to negotiate the best rates.
As I'm sure you have heard from many a hotelier, the cost of distribution for a hotel can be as much as 30 per cent of room price if the room is distributed via a complex chain: channel manager or representation company, a "switch" (to access the global distribution system), the GDS, the travel management company (TMC) and an online booking tool (OBT).
Across this chain, the hotel will be handing out management fees, sourcing fees, transaction fees, commission, over-rides, marketing funds and listing fees. You needn’t be a genius to work out that when a hotel has to bear all these distribution costs, there is limited “wiggle room” when it comes to negotiating deals – no matter how many rooms you commit to or how much you haggle. So it makes sense to reduce distribution cost where possible by streamlining the chain as much as you can.
Travel managers can take control of this by taking a more active role in selecting their own distribution chain. This means selecting the OBT and online content provider of their choice, while working with their TMC.
By making these choices, the travel manager can not only ensure they get the breadth of hotel stock they desire, but also they can massively simplify the chain of sale for the hotel room.
This means less cuts are taken, the cost of distribution percentage is lowered and there is more room for negotiation. Suddenly travel managers can see that great rates – market beating rates – are within their grasp, and not at the expense of the hotel.
Many travel managers negotiate non-commissionable rates, which are commission-free for the hotel. However, this does not mean that hotels are distributing these rates free of charge. There are many costs the hotel must pay for when the distribution chain is complex. It follows that the simpler the chain, the less the distribution cost.
Travel managers who select an OBT for their online booking, and pay a transparent transaction fee for the service, should now select a hotel aggregator whose total cost of distribution is based on a commission charged to the hotel. By using this distribution channel, non-commissionable rates will have just one transparent fee added by the OBT, with no additional costs of distribution being added by the hotel aggregator. This levels the playing-field when it comes to a corporate negotiating room rates, and ensures the best deals available are secured.
Great rates are still only part (albeit a critical part) of the picture when it comes to understanding the cost of distribution. It’s always been the case that hotels want 100 per cent occupancy and that corporates want good availability for all their staff. A clever travel manager can make this tension work to their advantage.
Setting up deals based on last-room availability (LRA) is an industry norm. However, hotels are as aware of their margins as travel managers are and – in the common situation where there are multiple distribution options – a hotel will hold on to its LRA longest for the channel which offers it the lowest distribution cost.
Travel managers who keep abreast of this, and who work with suppliers who understand how hotels work and make money, will benefit not only from the best rates but also the best availability. A win-win situation all round for those who put in the extra research.
However, this requires a mindset change for many travel managers, who need to take a more active role in working alongside their TMCs and need to grasp fully the options out there if they are going to strike the best deals.
At HRS we say: what is stopping you? Get out there, make the best decisions for you and your business, and travel managers can still come out on top in the war on distribution.
Jon West joined HRS as managing director in 2009 from IS Solutions, where he had been for 12 years. Jon was marketing director at IS and was responsible for launching the internet and analytics divisions, as well as bringing onboard clients such as Thomas Cook, Toyota GB and Manpower. Before IS, Jon was managing director at below-the-line marketing agency Visual Assets and, before that, Happy Eater. Jon can regularly be seen speaking at industry events and is also a keen rugby player.