Old School Distribution Tool Can Help Hotels Boost Bookings
Most major manufacturing industries are cyclical, taking top trends from past decades and updating them to sell to a brand-new generation of consumers; the retail, interior design and music industries are stuck on repeat and consumers are happy to keep riding the loop, over and over again. Look at any interior design magazine right now and tell me that it doesn’t look like your parents’ living room.
NB: This is an article by Mark Lewis-Brown, CEO and President of Vertical Booking USA
Not surprisingly though, the technology industry is one that doesn’t follow that pattern: tech companies are stuck in overdrive, advancing both business-to-business and business-to-consumer technologies at (almost) the speed of light. Forever gone are the days of the Betamax, the tape cassette, the Walkman, the VCR, CDs, dial-up modems, pagers, personal digital assistants. . . the list of extinct technologies continues, ad infinitum, with new ones added monthly.
The hospitality technology industry is still in its infancy compared to many other technology industries, but we’ve already gone through our fair share of system evolutions as new channels were introduced and consumers’ booking preferences changed.
So, speaking of technology shifts and swings, let’s play a little game—which original gangster booking technology is now back and better than ever?
And the answer is: the global distribution system.
Unlike the other hotel-industry tech systems, the GDS is regaining momentum as a highly profitable sales channel as consumers and corporate travel bookers are, once again, use travel agents (and the GDS) to book travel.
Before I go into more detail about why hoteliers should be reintegrating the GDS into their distribution strategy, let’s go over the what of the GDS in more detail.
What is the GDS?
The GDS is a technology that was widely used back in the day, before the online travel agencies took over the industry’s distribution ecosystem. The GDS enables a connection between travel agents/corporate travel bookers and a hotel’s central-reservation system, where the property’s room rates and inventory are stored. If the travel agent decides to move forward with the booking for their client, the GDS completes the transaction and sends the booking information to the hotel (again, via the CRS company).
It may sound like a lot of back-and-forth but the whole process is completely seamless to hoteliers, making it easy to integrate the GDS into your current channel-management strategy.
Dollars and Cents
Similar to the OTAs, the GDS revenue model is commission-based; however, unlike the OTAs, each commission payout may be distributed to two separate entities: the GDS provider and the travel agent (whether the travel agent receives a commission payout depends on the contract that exists between the hotel and the travel agent, but in recent years, travel agent commissions are less common).
While all GDS transactions are commission-based, there are many payment models used (depending on the contract between the CRS provider and the hotel), including:
- A percentage-based fee, plus the pass-through fee (which is owed to the CRS company for delivering the booking information from the GDS to the hotel);
- A flat-rate fee, which may or may not include a pass-through fee;
- A monthly membership fee, plus a pass-through fee.
Good news though: No matter which payment model you choose, your property makes only one payment, directly to your CRS provider, for each booking generated through the GDS channel; the subsequent division of and payment of fees to all of the other entities are done behind the scenes, making it easy for hoteliers to use the GDS without additional accounting woes.
Are you guys fans of Michael J. Fox? If so, you’ll love this part because I’m going to take you Back to the Future.
The Decline of the Good, Old GDS
For many years, the GDS was one of the most commonly-used distribution channels for hoteliers because travel agents were one of the most popular booking channels for travelers.
In the early 2000s, when the OTAs were gaining popularity with consumers, most hoteliers decided to jump headfirst into the online channel, putting all (or most) of their inventory on the OTAs—and that strategy helped many hotels make it through the recession, when the entire tourism industry was on a decline.
Consumers loved the OTA model because it made it easy for them to find the rates and availability of multiple properties in a destination in one place, eliminating the need to make 20 (or 100) phone calls to enquire about rates and availability at each property individually. Of course, the more consumers used the OTAs, the less business that travel agents received (from their core market at that time), leading to a decrease in the use of the GDS channel (until travel agents pivoted their business model to focus on more specialized markets, but that’s another story for another time).
Fast Forward, 15 Years
Today, many hoteliers spend a great deal of energy to direct bookings and decrease their cost of acquisition. Don’t get me wrong: Driving direct business is a fantastic strategy but it shouldn’t be the only channel that is prioritized.
No matter what type of property or your location, the GDS is still a very viable booking channel today and one that you should reintegrate into your property’s distribution strategy today to boost occupancy and decrease the cost of acquisition.
Here’s why the GDS is such an important channel for hoteliers:
It’s not old-school; it’s a classic. Today, the use of travel agents is actually on the rise as travelers recognize their expertise and value, especially when planning/booking complex, multistop travel itineraries. Travel agents also appeal to the luxury segment of travelers, who want to get the best possible experience and are happy to pay a little more to be 100 percent sure that they will get it.
Are you shaking your head in disbelief? It’s true: in 2016, hotels’ direct bookings increased 0.8 percent while the GDS channel increased 1.3 percent during the same period, a rate that is 60 percent greater.
Even the millennials are getting on board the travel agent train: According to Travelport, “Millennials are the most likely to use traditional offline travel agencies (23 percent), compared to Gen X and baby boomers (7 percent and 6 percent respectively)” for hotel bookings.
And with the uptick in travel-agent bookings, the GDS is integral, as it is the technology that connects travel agents with hotels, making bookings happen seamlessly with zero involvement of the reservations team.
The GDS has a lower cost of acquisition than the top OTAs. Today, it seems that many hoteliers are completely against the idea of paying any commission for bookings; after years of paying high commissions to the OTAs, I can understand why some are automatically disinterested in travel agents and the GDS, simply because there is a fee associated with obtaining bookings through the channel.
That being said, that isn’t the right way to think about it: eliminating effective distribution channels simply because they have a commission attached to securing bookings is like “cutting off your nose to spite your face.” In one word: ineffective.
Yes, there is a commission to be paid on each booking, but there is good news. Hotels pay a fee of about 20 percent on a booking when they sell a room on a global distribution platform, decreasing the cost of acquisition significantly (when compared to the cost of securing a booking from the top OTAs).
Mo’ GDS, Mo’ Money
Through the GDS, your property can obtain bookings through both travel agents AND in bulk, via corporate travel bookers, giving your property more visibility to potential guests and securing those bookings at a lower price (than bookings obtained through the top OTAs).
It’s not only the decreased cost of acquisition that makes hotels more money through the GDS; unlike leisure travelers (many of whom book based primarily on price), corporate travelers are less concerned about the room rate. They are more likely to choose a hotel based on its location, business amenities, etc. Also, business travelers typically spend more money on-site (on food and beverage, etc.) per stay, than leisure travelers do (hurray for expense accounts), increasing the ancillary revenue that your property will earn from their stay.
That means that, unlike with the OTAs, where you pay up to 30 percent of your revenue on each booking, you are more likely to break even with GDS bookings, even with the commission rate factored in.
As you can see, there are lots of reasons that the GDS is, once again, a viable distribution channel for your property—no matter your property type, your location or your star rating—so your property should be racing to add the GDS back into your property’s distribution strategy now.
Reservations Manager To-Do-List
Obviously, I know that you’re 150 percent convinced of the viability of the GDS as a distribution channel but you are probably still wondering how to get your property set up on the GDS.
I have good news: The first and only thing that you need to do to get connected to the GDS is to contact your CRS provider. Its helpful support team will offer project-management services for the entire onboarding process, from information building to hotel training and hotel profile audits.