The price is right

Hotel booking agencies are focusing on price and value in the recession, reports David Churchill

Recession, what recession?

That could almost (but not quite) be the mantra for Expotel CEO Ian Burnley who recently revealed that business so far this year "was well ahead of expectations" with a record £30m-plus secured in new contract wins since the management buy-out (MBO) of the group in the summer of 2008.

But Burnley's optimism in the face of the worst economic downturn for at least a generation is not simply 'whistling in the wind' as demand for hotel accommodation, meetings and business travel in general comes under severe pressure. Instead, the Expotel CEO clearly understands that every downturn also provides opportunities for those prepared to grasp them.

Burnley told BBT that his target has been "to grow market share during the downturn, focusing on investing in our sales resources" in a belief that there will be more sector consolidation over the next year before the anticipated recovery.

"A number of the smaller, specialist MICE, TMC or HBA businesses will most likely disappear as the recession continues into 2010, leading to a more consolidated market," he says.

Expotel was early into the consolidation game, merging with NIS Europe last year at the same time as the £38m MBO backed by private equity firm Phoenix Equity Partners. This confirmed Expotel's position as the UK's leading hotel booking agency (HBA) specialist - it was in pole position in BBT's 2009 rankings revealed in May/June.

Burnley also continued on the acquisition trail last autumn by snapping up First Option from Travelocity Business.

But Expotel is not alone in boosting market share during the downturn, with most of the top performers such as BSI, Hotelscene and HRS claiming to have gained ground at the expense of smaller HBAs lacking the scale and resources of the bigger players. The Hotel Booking Agents Association (HBAA), the main industry trade body, has some 77 members, albeit most are small operators.

Todd Kramer, vice president for global corporate sales at HRS, says that "although it is obviously a tough trading environment for everybody, we have managed to increase our market share, especially from the traditional HBAs who incur higher costs from their mainly call-centre operations." HRS, he points out, has lower operating costs as it is primarily an electronic booking service, which although long-established in Germany has only relatively recently set up online operations in the UK.

Yet for all the optimism - and hotel booking agencies have historically been among the most bullish in the business travel world - there is no doubt that operating conditions have been the worst ever experienced by most in the sector.

This, not surprisingly, has led to a clear focus on controlling costs among travel buyers. "There are three words which are dominating the market at present - price, price and price," says Kramer. Although he may be exaggerating slightly, there seems little doubt that buyers are concentrating not only on securing better value from their hotels and meeting spend but also seeking to bring it down in absolute terms as well.

Nick Scott, managing director of BookOTel, says that "price is not the only factor but it is by far the overriding one with all decision making". He points out that other factors, which had been gaining ground among buyers in recent years, such as increased environmental awareness, have now been downgraded.

"This year the environmental consideration has definitely been trumped by rate and value and has fallen down the list of priorities even among buyers in organisations which previously were very keen on environmental ratings," he adds. BSI group managing director Trevor Elswood agrees.

"Procurement and travel managers are holding on to the same values as ever, but their priorities are changing due to the additional constraints and heightened pressures to make further savings."

But Douglas O'Neill, managing director of Inntel argues that "price is not the only factor, as new clients have been secured on quality of service and added value as much as price. Focus is certainly on costs but not just on rate, as clients are looking at the overall budget and how they can utilise it."

Moreover, it is not just traditional HBAs that have seen increased price sensitivity among buyers. HRG's (Hogg Robinson Group) Margaret Bowler, director of global hotel relations, reports that "hotels are now working on the 'best available rate of the day' pricing as this is often proving to be lower than a clients' negotiated rate." She adds: "Clients are now viewing their negotiated rate as the benchmark and the highest they should pay."

Intriguingly, the current emphasis on price is also leading to greater awareness - which perhaps got lost during the boom years - on the 'true' cost of staying in a hotel. Hotelscene sales and marketing director Nick Hurrell thinks "this is becoming a hot topic as buyers are increasingly aware that there is more to cost than just a room rate - that is, meals, VAT, wificharges and so on. We are developing 'total cost of stay' models for our key clients which allow them to choose the additional services they actually need and add them to the basic room rate, then comparing this cost with a range of hotels in a given city to see which offers the best overall deal."

But Hurrell believes it is still very important for booking agents to be "on the ball" and catch any last minute hotel offers. "A good HBA will be able to check room rates right up until the date of stay and tell a client if a cheaper room becomes available after the original booking has been made," he says.

The recession is also having a major impact on distribution patterns, although the industry is undecided over how this will pan out. There are several factors involved in how hotels are responding in the current environment, although underpinning them all is the memory of the post-9/11 response to the fall in demand, when hoteliers lost control of their inventory. So desperate were the leading hotel chains in the early years of this decade to shift bed-stock that they virtually handed over responsibility for selling rooms to third-parties under the so-called 'merchant model', effectively selling to them at wholesale rates.

While it took some years for hoteliers to regain full control - with InterContinental Hotels, for example, in a high-profile fight with Expedia - the result of 'letting the genie (of online bookings) out of the bottle' meant there was no going back for both HBAs and travel management companies (TMCs). Business travellers and buyers, moreover, fully embraced the greater transparency of online booking, either themselves with a self-booking tool (SBT) or via an agent.

But it has also led to a structural change among HBAs, with traditional call-centre operations under pressure to go down the SBT route in the face of online-only operators. Warini Munshi, managing director of Hotel.Info in the UK, says that "we are a classic self-booking tool and for several years we have been seeing a clear trend towards such tools."

Yet Expotel's Ian Burnley is not convinced that SBTs are the only way forward. "SBTs do not threaten the traditional HBA model as many bookers still prefer the call-centre option," he says. "HBAs should have their own SBT giving the customer better options and we will continue to offer and develop both options to bookers."

Burnley also points out that there are drawbacks to being solely online. "Sometimes the hotel of choice can be selected online but cannot be booked this way because of uncertain availability, which is when the call centre team come into play," he adds.

Nick Scott of BookOTel is also "not a believer that SBTs are the perfect solution for all, as no matter what system is available it is still the client having to do the actual booking themselves."

He argues that the growing trend by some HBAs to adopt a mainly online solution and push their clients down the SBT route may pose problems ahead. "This strategy would concern me as then the question arises of what that agent brings in added value, as the SBT market develops further."

Hotelzon international CEO Jani Kaskinen also thinks that "traditional phone-booking will stay in the market for at least the current generation, but the percentage of online bookings will continue to increase and will inevitably change the industry." Hotelzon, he adds, will carry on offering both models to its clients.

Kaskinen also believes the "commission-based model will survive a lot longer in the hotel industry, especially in Europe, than it did within the airline world".

Hotelscene's Hurrell agrees that "commission will stay, in the short-term at least". But he thinks the key issue "is to ensure transparency in choice of hotel offered, and the industry must avoid any conflict of interest between the level of commission paid and the hotel booked". He says that Hotelscene "works on a transaction fee basis with commission declared and returned to clients".

But the HBA sector faces perhaps a more fundamental issue from the trend for TMCs to become more involved in booking hotel accommodation, with some HBAs (especially Expotel) fighting back by encroaching on traditional TMC territory by extending the range of travel services and management on offer.

Carlson Wagonlit Travel's Nigel Turner, director of public sector and industry affairs UK, argues that the appeal of TMCs is that they can offer a 'one-stop shop' for clients. "We have seen a number of clients switching from HBAs for that very reason and while there may have been a need for a special hotel booking model in the past, the market is continuing evolve," he says.

Turner, who points out that CWT booked more hotel business last year than any of the leading HBAs, also claims that "companies often move to TMCs because the traditional model is based on commission retention, which doesn't necessarily deliver value for travellers who want best value property and not the one that pays the highest commission."

Other TMCs, especially HRG, have also embraced hotel bookings for years. "HRG invested in a front end system 22 years ago that allowed us to carry out both GDS and non-GDS bookings," points out Margaret Bowler.

But Burnley believes that "an HBA like Expotel has better knowledge and access to rates and rooms than other sources, including both TMCs and SBTs." He points out that "TMCs universally book off a GDS, which leaves them at a competitive disadvantage to an HBA, where the scale of inventory and allocation available is a clear differentiator."

While Burnley says that "we don't work with TMCs as partners as we are independent of them", others are more willing to get along. BSI's Elswood says that "we work alongside a TMC for every customer in some shape or form, although the levels of integration are very much defined by each TMC's technical capabilities." He adds that "by far the most integrated solutions with TMCs exist with both Gray Dawes and BCD Travel."

The relationship between HBAs and TMCs will clearly 'bump along' for some time to come, although the more immediate concern is whether there are any signs the worst of the recession is coming to an end. The evidence from HBAs is patchy at best, with hotel accommodation looking stronger than venue finding and events, while much MICE activity is still in the doldrums. Whenever the 'green shoots' finally start to sprout, there is little doubt that the HBA sector will emerge the other side of recession still functioning, but much changed.