THE COST

OF CHOICE.
WHY HOTEL DISTRIBUTION
COSTS MATTER TO CORPORATES.

www.hrscorporate.com

CONTENTS
Introduction 3
Executive Summary 4
Distribution channels 8
HRS & the distribution chain

Why distribution costs matter to corporates

10

Cost comparison by channel

14

The hoteliers perspective

16

HRS solution 18
Conclusions 20
Acknowledgements & sources

3
2

22

 INTRODUCTION.

This is the follow up to

Content is King the paper
that looked at the impact of
hotel content such as detailed
descriptions, images, reviews
and video on bookability and
compliance to travel policy.
In this paper, we look at the costs to
hoteliers of distributing their products
to business customers in particular,
and why corporates should be taking
a closer look at the systems powering
their travel programmes.
I believe that few travel managers will
be aware of how much their preferred
hotels spend on distribution; not just in
terms of commission payment to TMCs
but enhanced commissions to OTAs,
sales and marketing funds and other
hidden costs within the supply chain.

Even fewer will have considered

the true impact of those distribution
costs on their preferred rates and
whether by helping hotels on their
corporate programmes to select
lower cost channels they can use
those savings to leverage incremental
savings for themselves too.
In this paper we will be looking
at the wide range of channels
through which consumers book
hotels now and in the future; at the
benefits (and associated costs) of
those channels, and the benefits
corporates can realistically derive
by helping their hotel suppliers
to improve the efficiency of their
distribution.

Jon West
Managing Director
(London), HRS

 EXECUTIVE SUMMARY.

Both the number of ways of

booking a hotel and the costs
of delivering a hotel booking
through each of these channels
has changed dramatically in
recent years.
In the early 1990s hotels relied on phone
calls from their direct customers, business
travel agents (as they were then called)
and other intermediaries, with bookings
confirmed by fax, telex or snail mail.
Of course the internet changed everything,
fragmenting the number and range of
channels through which a hotel can
receive a booking, and the rates applied to
those channels.
As Figure 1 (right) demonstrates, the
number of parties potentially involved in
a single transaction between corporate
and hotel has increased too. TMC and
HBA commissions, GDS and switch fees
are nothing new, whilst the rise of
Online Travel Agents (OTAs) with higher
commission charges (compared to the
traditional 8 or 10%) plus VAT have all
eroded the hoteliers margin.

In fact, from a gross booking value of

100, the hotelier can lose as much as
30 in distribution and channel fees.
Distribution management means tracking
and assessing conversion ratios, revenueto-cost models and ancillary spend for
both direct channels (i.e. the phone and
hotels own website) as well as third
parties, all adding to the cost of managing
and monitoring these disparate revenue
streams.
But whilst the distribution landscape itself
may be evolving, the challenge for the
hotelier remains the same; to identify the
channels that produce the best yield in
terms of occupancy and rate.
The internet is now a mature booking
channel; 2014s business and leisure
traveller demands real-time pricing,
availability and a lowest rate guarantee.
Traditional pricing promotions can be
counter-productive in a channel where a
lower rate is only a couple of clicks away.
Meta-search technology has given rise to
price comparison sites who are all offering
the same value proposition the lowest
rates on the market.
And yet hotels have been slow to adapt
their distribution strategies to the
fragmented landscape. Some have opted
not to work with the OTAs during peak
periods, but still turn to them when
occupancy is down.

Major trends in hotel distribution

2013

2014

Arrival of TripAdvisor
hotel availability check

Hotels to take better control of

distribution channels

Rise of meta-search powering OTA growth

Greater competition for online customers

Social media and mobile making their

presence felt

Social media and mobile will take more

market share

FIG. 1 - BOOKING CHANNELS

Source: HRS

www.distributionpartner.com

PEGASUS
ODD

BRAND /
S&DP

CRS

ADS/IDS, OTAs BY PEGASUS

CA. 2,000 PARTNER : MERCHANT MODELS EXPEDIA

600,000 STATIONERY TA TERMINALS,

OTAs BY GDS

SWITCH
PEGASUS

GDS
TA IMPLANTS
(CORPORATE TAs AND TRAVEL DEPT.)

HOTEL
HOMEPAGE,
IBE

HOTEL DIRECT
SALES

RETAILER
(HRS, HOTEL.DE,
BOOKING.COM)

TO

HOTEL

TRAVELTAINMENT
(LEISURE)

BISTRO

ONLINE / OFFLINE TA

UNISTER

FLUEGE.DE,
AB-IN-DEM-URLAUB.DE

COMPANIES &
TRAVELLERS

 EXECUTIVE SUMMARY.

Although hotels want more direct business

to enhance their margins, direct bookings
present issues to the corporate travel
manager. To fulfil their legal Duty of
Care obligations to their employees,
traveller tracking systems are now an
essential element of any corporate
programme. Consistency and security of
data for Management Information and lost
productivity are just three reasons why
many organisations work with TMCs. The
rate may appear cheaper, but the real cost
is likely to be much higher.
As a result, hoteliers have gravitated
towards the cheaper or more costeffective distribution channels available
to them. In 2014 the onus is on hotel
managers to maximise business from their
own websites but also to manage their
third party relationships more effectively.
But whilst some hotels are missing
revenue and occupancy opportunities
by not understanding the digital travel
market, corporates are ignoring the
opportunity to drive greater value from
their preferred programmes.
It has long been accepted that there are
four principal ways for corporates to
drive down hotel costs. The first is to
consolidate hotel bookings into fewer
suppliers; the second by substituting
cheaper alternatives for existing partners,
thirdly through stronger negotiation and
finally by reducing process costs through
online adoption.

Many corporates have leveraged cost

reductions by moving from telephone
to online bookings. Adoption rates vary
from company to company depending on
the maturity of the programme and the
sophistication of the booking tool used.
Whatever the success rate, the scope for
the corporate to reduce processing costs is
gradually diminishing as online adoption
rates rise.
However the distribution landscape has
opened up a fifth avenue; to help partner
hotels to reduce their distribution costs by
channelling bookings into low-cost channels
and leveraging the hoteliers savings to
secure lower rates or incremental added
value benefits.

2014 the onus is

onInhotel
managers to
maximise business
from their own
websites but also to
manage their third
party relationships
more effectively

DISTRIBUTION CHANNELS.

Hotel profitability is driven by

fixed costs versus occupancy.
A hotel maximises its profits
when its bedrooms are full, so
distribution strategies are geared
to selecting channels that will
increase occupancy and revenue
at the lowest cost.
The hoteliers primary concerns when
selecting distribution channels are the size
and geography of audience, conversion of
traffic to bookings, and the cost charged
per booking.
Digital marketing charges are another
major component of distribution costs.
As well as pay-per-click advertising and
online travel agent listing fees and hotel
website management, digital marketing
now includes guest and media review
or earned content. TripAdvisor says that
92% of travellers now check online guest
reviews before they book.
In theory therefore, hoteliers have the
means to distribute their properties
globally to any type of B2B customer, but
that choice comes at a cost to the hotelier
and indirectly to the corporate.

92% of
travellers

now check
online guest
reviews
before they
book

TripAdvisor

The cost of filling a hotel can be

substantial. Connectivity, TMC and GDS
transaction fees are all borne by the
hotelier, squeezing margins already
under pressure from corporates seeking
discounted rates. The hotelier has to select
their distribution channels with care
and close out higher costing channels as
occupancy rises.

DIRECT CHANNELS
The most profitable sales channels for
hotels are the direct ones, where the
booking is made over the phone or via the
hotels own website. Google estimates that
just 20% of web traffic finds its way to
hotels branded sites (although the figure
is higher for budget brands), emphasising
the power of the online intermediaries.
The hotelier pays no commission for
direct bookings; there are cross-selling and
up-selling opportunities and the channel
is relatively easy to monitor. On the
other hand, the hotelier bears the cost
of the personnel, systems and website
development to convert and deliver the
booking not to mention the sales team
to source direct corporate contracts and
the marketing spend to generate website
traffic through pay-per-click and email
campaigns.
And with mobile set to become a major
distribution channel over the next two
years, hotels relying on direct bookings
will have to invest heavily to maintain
this decreasing revenue source and
competitive advantage.

TMCS/HBAS

GDS

Regardless of the level of human

involvement - or touch in the booking,
Travel Management Companies (TMCs) and
Hotel Booking Agencies (HBAs) rely on the
GDS for content and rate information.

It is often said of the Global Distribution

Systems that the best and worst thing
about them is that they were built before
the internet.

As well as the standard commission

payable to the TMC of around 8 15% of
the total booking value, hoteliers are again
faced with fees for CRS, Switch and GDS,
taking the average cost of the channel to
around 30% of booking value.
Corporates who receive rebates on
collected commission may even be better
off by negotiating a lower rate, especially
on overseas or independent hotel
bookings where TMCs have traditionally
struggled to collect due commissions.

The GDSs were originally created by the

airlines in the 1970s to provide a central
booking mechanism for travel agents.
Today the GDS is a collective online
system that delivers content, rates and
inventory to the many systems supported
by it, but has its work cut out to deal with
the breadth and depth of content that
2014s digital customer demands.
Hotels supply content to the GDS and
then manage their inventory either via a
management company (e.g. Best Western),
switch or direct CRS connect. Each link
in the supply chain dilutes the hoteliers
income stream, racking up an additional
20 25 in charges to the hotelier.

Of the three major GDS providers, HRS supplies content to two - Amadeus and
Sabre as well as directly to both TMCs and OBTs. Corporate profiles in the HRS
system make booking in policy easier and enable corporates to access content/
profiles through each of these channels.

DISTRIBUTION CHANNELS.

in five
ofOne
all mobile
bookings
are now
made using
an iPad

Pegasus

OTAS

MOBILE

Google estimates 80% of web traffic is

now channelled via OTAs. STR and the
HSMAI Foundation reckon that 76% of
online bookings into independent hotels
comes from OTAs compared to just 24%
from hotels own websites. Standard OTA
commission rates are around 18% of the
total booking value.

According to Google, in July 2013 17%

of all internet usage worldwide came
via mobile. Around 35% of all hotel and
travel website traffic comes from the same
source, with 15% of all hotel reservations
done on mobile or tablet, each taking
an average of 26 minutes and visiting
5.7 sites.

GTR Global estimates that luxury hotel

chains could be paying as much as
$500,000 a year in OTA commissions,
whilst the conversion rates of hotel
branded website traffic to bookings is
as low 2%.

HRS estimates that 75% of mobile bookings

are for same or next day arrival and
predicts that a third of all hotel bookings
will be made via mobile by 2016.

But whilst OTAs have built their reputation

upon offering the lowest rates and instant
availability, there are a number of pitfalls
facing the corporate who wishes to book
via an OTA. Apart from the issues of
traveller tracking, capturing the trip and
spend data, theres also the problem of not
booking in policy.
GTMC estimates that up to 50% of all
corporate hotel bookings were made
outside policy during 2012. This means
that 3.3 billion of corporate hotel spend
went unleveraged.
Leakage is the biggest frustration for 45%
of travel managers and a key objective
for 80% (source: HRS). Carlson Wagonlit
Travel estimates that although 95% of all
corporate travel bookings are made in
policy, compliance for hotel bookings is
as low as 50%.

10

Mobile is both an opportunity and

challenge to hoteliers, creating another
channel but also giving rise to another
layer of complexity and the cost of
enabling the booking to be made.

SOCIAL MEDIA
FIG. 2 TOP 5 HOTEL BRANDS BY SOCIAL MEDIA TRAFFIC (AS AT DECEMBER 2013)
Source: Skift/HVS

Brand

Twitter
followers

Facebook
likes

YouTube
views

Instagram
followers

Marriott International

280,380

176,653

410,005

5,332

Hilton

114,119

1,163,844

1,132,878

3,272

Four Seasons

96,157

206,089

1,656,537

25,991

Room Mate hotels

90,299

33,825

124,380

Fairmont

23,366

114,716

87,788

16,040

Social media is also becoming an

influential distribution channel. 2013
research by Pegasus shows that one
in five of all mobile bookings are now
coming via iPads, whilst Google says that
54% of all social media usage is
via mobile.
As Figure 2 shows, hotels are investing
heavily in digital marketing. A 2012
report by Bain & Company estimates that
consumers who interact with suppliers via
social media spend 20 40% more with
these companies than others.

Some hotels have even appointed in-house

or outsourced Online Reputation Managers
to provide ever more sophisticated
content marketing skills.
Social media is bringing new
intermediaries into the sector, thereby
increasing hoteliers costs. Social media
sites offering hotel content may also
directly encourage non-compliance to
travel policy.

In 20
13

17%

of all
intern
et
usage
world
w
came ide
vi
mobi a
le

Around

35%

otel
of all h el
v
and tra ffic
t
e ra
websit m the
ro
came f urce
o
e
sam s

11

 HRS & THE DISTRIBUTION CHAIN.

HRS
customers
can book
online, with
no booking
fees, at
marketbeating
rates

HRS is unique in the global

travel industry; a hotel solutions
provider operating a global hotel
portal connecting business and
leisure travellers with hotels
worldwide; a distributor of hotel
content to Travel Agents and
a developer of market-leading
software.
250,000 properties are available through
the HRS system, our GDS, OBT and TMC
partners, 90,000 retail travel agents
and through apps for smartphones and
tablet PCs.

HRS customers can book accommodation

online, with no booking fees, at marketbeating rates. Our corporate customers can
access exclusive HRS corporate discounts
(the HRS Business Tariff) of up to 30% off
the Best Available Rate (BAR).
HRS supplies content to TMCs and OBTs
but makes no charge to corporates using
the HRS portal, mobile app or call centre,
so theres no penalty for corporates who
insist on HRS powering hotel programmes
delivered through their nominated TMCs
or OBTs.
As such, HRS can provide a one-stop
distribution solution to hotels. At a
standard rate of 15% commission, with
0% charged for corporate negotiated rates,
HRS represents a low-cost, high value
channel in the market.

FIG. 3 - THE DISTRIBUTION CHAIN

Source: HRS
MORE THAN

MORE THAN

40,000
CORPORATES

OBT

TMC

CHAIN HOTELS

12

MORE THAN

80 million
VISITS A YEAR

CORPORATE
PORTALS

24/7 CALL
CENTRE

HRS.COM

MOBILE
APPS

300,000

AFFILIATE
PORTAL

GDSs

BUSINESS PARTNERS

SOCIAL
MEDIA

MORE THAN

8,000

INDEPENDENT HOTELS

TMC POSs

 WHY DISTRIBUTION COSTS

MATTER TO CORPORATES.

FIG. 4 THE COST OF DISTRIBUTION

Source: HRS
TRANSACTION FEE: 5 - 7.5%

ONLINE: 10 - 15 TRANSACTION FEE

OFFLINE: 10 - 40 TRANSACTION FEE

PMS /
CRS

BOOKING FEE:
> 10

SWITCH
COMPANY

GDS

TMC

7% TRANSACTION
FEE OR FIXED FEE
INCENTIVE

10% COMMISSION + 2 - 4% OVERRIDE + SOFT MARKETING FUNDS (+ LISTING FEE)

As Figure 4 shows, each of the

links in the supply chain carries
its own incremental cost.
Rising distribution costs have been
covertly passed onto corporates in the
form of higher rates or rather rates that
might have been lower had incremental
margin been available to the hotelier.
Corporate programmes also have to
be managed; 69% of corporates pursue
leakage reduction initiatives (source: HRS).
Aside from the diluted leverage of overall
company hotel spend, theres also the
element of lost productivity. Google
estimates that it takes 2 hours and 9
minutes to search and book a hotel online,
with an average of 10 websites visited per
search. This compares to three minutes
using HRS.

Microsoft estimates that it takes 1 hour to

search and book a hotel directly. Monster
estimates the average workers 2014
salary at 32,335 inclusive of PAYE and NI
contributions. As Figure 5 shows, assuming
a 37.5 hour working week and 44 weeks
worked per annum, this means that one
hour spent booking a hotel direct costs the
employer 19.60 in lost productivity.
For a corporate making 100,000 bookings
a year at an average rate of 100 per
person per night this equates to an annual
cost of 1.76m.
By comparison, according to the same
sources, every booking made via an OTA
takes 32 minutes. Based on the same
average salary calculation, this means a cost
to the employer of 9.37 in lost productivity.
Based on the same salary figures, the cost of
booking via HRS costs just 98p.
This invisible cost represents the potential
for corporates to make incremental savings.
The point is that by understanding the cost
of distribution, the scope for more effective
rate negotiation is enhanced significantly.

FIG. 5 LOST
PRODUCTIVITY ESTIMATES
Average annual salary
(inc. NI) for booker
32,335 inc. employee
& employer NI*
Cost to employer
per hour
19.60 (44 weeks at
37.5 hours per week
Cost to employer
per minute
0.33
Cost to employer
for booking via OTA
10.45
(32 minutes x 0.33)**
Cost to employer
for booking via HRS
0.98
(3 minutes x 0.33)***
(*) Monster 2013
(**) Source: Microsoft/ACTE
(***) Source: HRS

13

 COST COMPARISON
BY CHANNEL.

Figure 6 shows the estimated

cost to the hotel of each
distribution channel, expressed
as the percentage of booked
price lost.
But even though the hotelier
retains 100% of booked price
from direct bookings by voice
or website, labour, marketing
and systems adds another
10%+ to process costs.

As booking through HRS leaves the

hotelier with at least 83% of booked price,
compared to as little as 65% for TMC/
HBA bookings, HRS offers a lower cost of
distribution channel than direct bookings
by telephone or hotel website. Up to 35%
of the hoteliers booking revenue can be
freed-up by managing the booking through
a lower-cost distribution channel.
This is how the informed travel manager
can make a big impact on the 100
booked rate, either by negotiating addedvalue benefits such as free WiFi, or by
negotiating a lower rate.
Changing distribution channels lowers
costs and allows rates to be reduced
because of the savings being made by
the hotel, as Figure 6 demonstrates.

14

FIG. 6 HOTEL DISTRIBUTION CHANNELS ESTIMATED COST COMPARISON

Source: HRS/TIN

Channel

Cost items to hotel

(based on 100 booking)

Total cost to hotel

( & as % of ADR)

Cost to corporate
(In addition to
100 room rate)

(based on 100 booking)

Phone call
to hotel

10 labour / systems

10
(10%)

8.49 lost employee

productivity
(average 26 minutes
per booking)

Hotel
website
visit

2 labour / systems
8 - 10 digital
marketing (10:1 yield)
5 transaction fee to
website transaction
engine

15 - 17
(15% - 17%)

19.60 lost employee

productivity (average
one hour per booking)

Hotel
website
accessed
via mobile

2 labour / systems
3 digital marketing
5 transaction fee to
website transaction
engine

10
(10%)

8.49 lost employee

productivity
(average 26 minutes
per booking)

TMC/HBA

8% 10% commission
2 4 listing fees
5% 7.5% GDS fees
7% switch fees
2% - 4% override
2 labour / systems

26 - 34.50
(26% - 35%)

5 (online - OBT) 12 (offline - TMC)

transaction fee
+ lost productivity
(no consistent data
available)

OTA

18% - 25% commission

(average)
2 labour / systems

20 - 27
(20% - 27%)

10.45 lost employee

productivity
(average 32 minutes
per booking)

HRS
corporate
portal

15% commission
(0 for bookings on
corporate negotiated
rates) 2 labour /
systems

9.50*
(9.5%)

98p lost employee

productivity
(average 3 minutes
per booking)

offers
a HRS
lower

cost of
distribution
channel
than direct
bookings by
telephone
or hotel
website

(*) Assuming 50% of the bookings are corporate negotiated rates

15

 THE HOTELIERS PERSPECTIVE.

CASE STUDY #1
The five-star Dukes Hotel in
Mayfair was voted the AAs
London Hotel of the Year in
2013/14 and is one of the worlds
leading classic boutique hotels.
Revenue Manager Olga Boiko estimates
that the overall cost of distribution
(commission, marketing, reservations and
sales) equates to 10% of gross sales per
annum. As expected, the cost to the hotel
of processing a booking varies according
to the channel used.

The overall
cost
of
distribution
equates to
10% of gross
sales per
annum

Olga confirms that direct channels

generate the highest percentage of her
business in terms of occupancy, ADR and
RevPAR and puts processing costs at up
to 10% of the achieved rate for a phone
call to the hotel and 6.50 per booking
received via GDS, with 15% commission
on top.
At the opposite end of the spectrum, she
puts the processing cost of OTA bookings
at between 15 and 20% and TMC bookings
even higher at 30%.

In the last 5 years we have seen a

strong increase in Online Travel Agencies
production, which has a high cost for a
hotel attached to it says Olga. Due to a
change in customer behaviour and a heavy
reliance on online booking platforms
this channel is continuing to grow. The
associated costs grow as well as the
distribution takes over the market and
demands higher prices for the services
provided. A number of new luxury hotel
openings in London over the past 5 years
and a difficult international economic
situation has resulted in a drop of ADR.
Online Travel Agencies are focused
primarily on lowest possible rate rather
than a quality of a hotel and provided
services, pushing hotels to drop rates or
offer more promotions in order to get
their market share, which is resulting in
drop of ADR Olga continues.
However Boiko denies that the choice
of distribution channel affects the rate
offered and says that lower distribution
costs would not be passed onto the
corporate in the form of a lower rate.
Our corporate account rates are based
purely on volume she says.

16

CASE STUDY #2
The Best Western Plus Seraphine
Hammersmith is a 58 room four
star hotel serving both business
and leisure customers in and
around West London.
The booking channels that generate both
the highest numbers of reservations and
highest Average Daily Rate are OTAs,
according to Group Revenue Manager Ravi
Ivaturi, although the commission rates
charged vary from 10 17%.

Overall, the hotel spends 25% of its total

income on distribution, with the OTAs also
being the fastest growing channel
for bookings.
Although Ravis team does not see the
taking of a direct booking by phone or
website visit as carrying any cost, he
estimates that a booking from a TMC or
OTA carries an additional 50p charge over
and above the commission he pays to
the agent.
Most crucially, Ravi confirms the direct
link between distribution channel cost and
the rate offered. We would definitely pass
on the benefit of lower distribution costs
to the corporate in the form of a lower
rate he says.

We would
definitely

pass on
the benefit
of lower
distribution
costs to the
corporate

17

 HRS SOLUTION.

HRS
absorbs
commissions,
transaction,
digital
marketing
and other
fees that
account for
up to 40% of
the hoteliers
booking
revenue

90,000

FIG. 7 - REDUCING DISTRIBUTION COSTS FOR THE HOTEL

LEGACY
WORLD

90,000

PMS

CRS

SWITCH

TMC

GDS

TRAVELLER

CHAIN HOTELS

LEGACY
WORLD

PMS

CRS

SWITCH

TMC

GDS

TRAVELLER

CHAIN HOTELS

100,000

OBT

100,000

OBT

CHAIN HOTELS

NEW
WORLD
NEW
WORLD

150,000
CHAIN HOTELS

ONLINE

OFFLINE

MOBILE

TRAVELLER

150,000

ONLINE

OFFLINE

MOBILE

TRAVELLER

INDEPENDENT HOTELS

INDEPENDENT HOTELS

GDS

TMC

TMC
GDS
15% COMMISSION
ON HRS MARKET
RATES
(PAY FOR PERFORMANCE)

0% COMMISSION ON NEGOTIATED RATES

15% COMMISSION ON HRS MARKET RATES
(PAY FOR PERFORMANCE)

The HRS solution works on

several levels for hoteliers and
corporates alike.
The cost of generating and fulfilling direct
bookings those that allow the hotelier
to retain the highest proportion of booking
revenue can be substantial. As a result,
the level of occupancy generated needs
to be topped up with bookings from other
channels.
Unlike OTAs or the conventional TMC/GDS
model, HRS charges a flat 15% commission
to distribute hoteliers content globally
(see Figure 7, above) and 0% for bookings
made on corporate negotiated rates.

0% COMMISSION ON NEGOTIATED RATES

Hotel content can be delivered direct to

corporates as well as via TMCs, enabling
hoteliers costs to be reduced even
further and giving the Travel Manager
further scope for negotiation, but more
importantly the choice of how to receive
that content.
This includes hotel content and inventory
being loaded onto the GDS with a direct
connect into partner TMCs and OBTs to
access corporate rates.
HRS absorbs commissions, transaction,
digital marketing and other fees that
account for up to 30% of the hoteliers
booking revenue, and the cost of
translating content into 30+ languages.
As a result the hotelier enjoys a better
Return on Investment than any localised
marketing activity, OTAs or the GDS. Cash
flow is improved too, with hoteliers paying
commission only after the travellers bill
has been paid.

18

CONTENT QUALITY

BENEFITS FOR CORPORATES

As we saw in our paper Content is King,

website and GDS content are essential
components of bookability and therefore
corporate traveller compliance to travel
programme. Insufficient, poor or out of
date content will reduce the volume of
bookings received. Legacy systems such as
those used by the TMCs are often unable
to use the full depth of content available,
whilst different channels often display
hotel content differently, so the quality of
content is vital.

The HRS solution clearly benefits the

corporate. There are no management or
transaction fees, even if HRS undertakes
rate negotiations with hotels as part of its
Intelligent Sourcing solution.

Although HRS delivers a high level of

functionality and bookability, other
channels are not used to dealing with rich
content such as multiple HD photographs,
reducing them to a single thumbnail
instead. Some channels will not feature
user reviews or HRS geo-coding.
Consequently, every time a hotels content
is passed along the supply chain from GDS
to switch and from consortia/alliance to
channel manager, it becomes diluted whilst
the hotelier pays more for every link in
the chain.
HRS focus is on enhancing content to
make it more bookable, for example
changing the look and feel of its own
websites and portals annually and
content/functionality every two weeks.

Corporates can enjoy a wider choice of

hotels for their programmes as many
independent hotels cannot afford GDS
fees and are therefore excluded from TMC
bookings. HRS also maintains the critical
elements of any corporate programme
such as payment terms, MI (Management
Information) and traveller tracking.
Based on the calculation that a corporate
can save a hotelier between 25 30% on
distribution costs compared to traditional
channels, and assuming an annual corporate
hotel spend of 1m (10,000 room nights at
100 each), 250,000 is saved every year.
Any travel manager aware of this would
want to at least share the benefit with the
hotelier through lower rates.
Lets put in another way. What corporate
buyer would forego the equivalent of 250
complimentary room nights every year
for the sake of looking more closely at
the cost of their hotel programme to their
supplier?

The cost of generating and fulfilling

direct
bookings can be substantial

19

 CONCLUSIONS.

As we have seen, increased

competition between
distribution channels has
increased both choice and cost
for hotels. The hotelier pays for
every link in the supply chain.
The impact of these changes has gone
largely unnoticed by corporates, but it
is the buying community that holds the
key to reducing their hotel suppliers
distribution costs by controlling and
specifying the channels through which
their hotel programmes are distributed.
Changing distribution channels lowers
costs and allows hotel rates to be reduced
because of the savings made as a result.

On the flipside, any travel manager needs

to understand the cost of distribution
to be able to negotiate a hotel rate
effectively. In a future paper we will be
looking at how hotel rates are structured
and how to negotiate effectively.
As this paper has demonstrated, the HRS
solution offers the hotelier the lowest-cost
distribution channel, whether received
directly or via the TMC without affecting
the other elements of travel policy
delivered in the same way.
Whatever option provides the best fit, the
corporate retains the power to generate
additional savings for both parties a
truly preferred partnership.

FIG. 8 - DO YOU KNOW THE COST OF DISTRIBUTION?

DIRECT

DEAL WITH
HOTEL

ONLINE
SEARCH

OTA, AFFILIATE,
SEARCH ENGINE

Hotel
Solutions
Provider

CHAIN HOTELS

20

HBA

OBT

HOTEL
BOOKING
AGENCY

ONLINE
BOOKING
TOOL

GDS

INDEPENDENT HOTELS

TMC

TRAVEL
MANAGEMENT
COMPANY

Changing distribution
channels
lowers costs and
allows hotel rates to be
reduced because of the
savings made as a result

21

 ACKNOWLEDGEMENTS & SOURCES

ACKNOWLEDGEMENTS
& SOURCES
ACTE
Bain & Co.
Best Western Plus Seraphine
Hammersmith
Carlson Wagonlit Travel
Dukes Hotel
Google
GTMC
HRS
HVS
HSMAI Foundation
Microsoft
Monster
Pegasus
Skift.com
STR Global
TripAdvisor

22

ABOUT THE AUTHOR

The cost of choice was written by
Mark Harris of Travel Intelligence Network
on behalf of HRS.
Mark Harris joined the business travel
industry in 1990 and has been a Director of
TIN since 2005. A former Marketing Director
of Expotel and First Option, and Head of
Marketing at ITM, he was voted the Business
Travel Industrys Personality of the Year in
2006.
TINs output has included five editions of the
Meetings Industry Report and four Serviced
Apartments Industry Reports, many white
papers, client magazines and articles for
trade magazines as well as helping create and
launch Business Travel Market.
He is also one of the driving forces behind
The People Awards. For more information
visit www.the-tin.com

HRS - Hotel Reservation Service Ltd.

The Triangle, 5-17 Hammersmith Grove,
London W6 0LG UK
Telephone
+44 (0)208 846 0640
Fax
+44 (0)20 8846 0641
Email uksales@hrs.com

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