So many hotel operators have voiced that quote in the past year it has become an industry cliché.  Reservation channels, their options and pricing plans are multiplying and changing so fast that a new species of reservation marketing company has evolved to handle the shifting environment.   Often called �representation companies� or �reservation service providers,� these new firms offer more than a means of access to the thousands of channels; they are providing marketing services to educate hoteliers about the new selling environment and working hard to help them sell more rooms. 

Many hoteliers are uncertain about exactly what a �net-rate� sales agreement is, or the �merchant model� of inventory control, or the difference between �production� and �consumption� fees.  To make the reservation channel industry and its fees, service options and technology more understandable we have interviewed leaders from eight representation companies, both large and small, for a fast class in how to sell rooms in the Digital Age. 

Inventory control, the �Merchant Model� and Fees

Today technology has given us so many ways to sell a room that it is nearly impossible for a hotel operator to understand, let alone intelligently manage, the available channels for room sales. There is the central reservation call center, now called a �voice center;� the property itself, the �big four� global distribution companies (GDS), Amadeus, Sabre, Worldspan, and Galileo; additionally there are thousands of private label Web sites like Expedia and Orbitz, as well as hundreds of tour operators, corporate booking portals, and regional convention coordinators.  If you are the average hotel, many of these channels have an allotment of your rooms, and it is likely most are showing out of date rates and incorrect availability. 

Communicating with all of these channels to keep them current on inventory and rate requires, in some cases, daily manual intervention with multiple faxes and phone calls.  More importantly, verifying the accuracy of each channel�s current allotment and rate by the property is critical but rarely automated.  Most times hotel operators do not know where or how their rooms are being sold or at what rate. 

In the United States Internet-booked rooms is the fastest-growing segment of hotel reservations.  Voice centers (formerly known as �central reservation offices�) have seen their domestic production shrinking steadily in the past three years, but internationally and especially in Asia, voice centers continue to be strong reservation providers.  �Our voice center is not our biggest reservation producer, but our voice services have grown in the past two years because we have picked up Asian chain business,� explained Rita Emmer, vice president of VIP International (www.vipintcorp.com).

�Regal Hotels, one of our chain clients, has us manage phone reservations for their Japanese hotels during Japanese business hours.  Some chains, like Candlewood, have turned over 100 percent of their new business voice reservations to VIP; others use our voice center for early or late reservation calls.  We provide a single point of contact for reservation marketing to hundreds of channels for our clients.  We work with all the GDSes, and we pass reservations to Travelweb (formerly known as HDS).�  VIP International�s client hotels manage their inventories and rates from a customized Web screen to control the rooms they have on the shelf in one or all of their channels.  This is the �merchant model� of inventory control.  �We know the marketplace is complex so VIP has client representatives who actively work with our hotels to help them understand new offerings and changes in existing channels. �  VIP International offers client hotels two payment options; a fixed dollar amount on reservations sold, plus a monthly service charge; or a small percent fee on each reservation and a lower monthly service charge.  The monthly charge goes toward paying the GDS and other fees related to reservation handling between companies, and related 3rd party commissions. 

Tiger�s Golf Clubs

Mark Ozawa, vice president of Sceptre (www.esceptre.com), a reservation services company, said, �There is a huge amount of reservation technology available to hotels.  The problem is, you can have the best technology tools, but if you don�t know how to use them you will not benefit.  If you had Tiger Woods� golf clubs could you play as well as he does?  Service is the key to using the tools right.�   Sceptre is one of a group of reservation companies that differentiates itself by offering hands-on service in addition to channel connectivity.  Sceptre uses �Hotel Factory� technology for central reservations and travel site connectivity.  �More and more reservations companies are using Internet-based ASP (application service provider) utilities to allow client hotels to change availability on open room blocks and keep rates current.  Sceptre, like many reservations providers, uses its Web site to let hotels open and close blocks and update rates, and then puts their changes out real-time to all the channels, including the GDSes,� continued Ozawa.  Fees for services vary by reservation company, and often on a case-by-case basis depending on the number of reservations a property is expected to receive.  Sceptre provides marketing and connectivity services for a monthly service charge and a per-transaction fee based on consumption, not production.  The difference is that client properties pay Sceptre for reservations booked when the guest checks out.  With a production-fee structure properties pay reservation companies when a reservation is booked.  One advantage of the consumption method is that cancellations do not require a fee refund or credit, as often happens with the production method.

Net Rate Deals: How do they work?

At a recent HFTP chapter meeting the guest speaker, a well-known Atlanta travel industry figure told the gathering, �The hospitality industry hates having to do net rate deals.�  The comment deserves clarification.  In recent months �net rate,� also called �direct rate,� reservation channels have seen a steep increase in sales due largely to the travel industry�s continued downturn.   When a hotel sells a block of distressed (or not so distressed) room nights to a channel marketer like Hotels.com or Expedia for resale by them, the price paid by the marketer to the hotel is �net,� that is, there are no commissions, GDS, or other marketing fees applied; the fees, and further marketing costs, are paid by the channel reseller.  The hotel makes a smaller amount of gross revenue on the room, but has no fees to pay, and is usually grateful to sell off the block and get the business in the lobby.

Eleven year-old Hotels.com with 7,000 participating hotels is the most successful net-rate channel marketer.  It is publicly traded (Nasdaq: ROOM) with a market cap of over $900M.  Once Hotels.com has a block of rooms from a client hotel it is motivated to sell those rooms at the highest possible rate because Hotels.com makes its margin on the spread between the rate at which they sell, and the net rate it paid for the rooms.  Hotels.com keeps the difference and there are no commissions or other fees charged to client properties. 

Bob Diener, Hotels.com�s president, said, �Most hotels could not afford the several hundred million dollars we invest annually in direct marketing to sell their hotel rooms.  We build entire Web sites for our hotel partners, including photos and complete property descriptions to promote their rooms to over 29,000 of our affiliates.  We also send out over three million emails every week to our clients, and operate four call centers in the US and Europe.�  The result is over eight million room-nights sold in 250 cities this year.  Hotels.com sells rooms steadily year round and assists hotels in moving inventory, especially during slow periods   �Hotels.com sells primarily to the leisure market, and guests prepay Hotels.com for their room.  When Hotels.com sells a room we immediately provide the hotel with notification and the reservation information.  For many properties Hotels.com is the difference between making a profit and showing a loss,� said Diener.  Hotels.com is part of USA Interactive, which also owns Expedia and Ticketron.

Automation Explanation

Many reservation companies have taken advantage of new remote processing technology to convert their services to client-controlled ASP functionality.  This is still the �merchant model� of inventory and rate control that allows hotels to access their own available room blocks via the Internet to close or open individual channels, or even to update their hotel�s description when amenities are added or removed.  Unirez Inc. (www.unirez.com) developed the Hotel Factory central reservation technology that allows its 2,700 hotels to offer rooms to the GDSes and to many other channels through their ASP system.  Hotels can use Unirez Web services to develop entirely new packages or room types, and have their modifications immediately uploaded to all the appropriate channels.  Clients can even offer different rates to different channels, so Sabre may be showing different rates than Apollo.  Unirez also maintains its own large voice center that handles over three million calls a year and powers two other centers with its Hotel Factory technology.  �Our goal is to have a paperless operation,� said Rodney Wise, Unirez COO.  �Our hotels control their own inventory and rates.  Property managers make the changes they want to implement their company�s sales strategies; we provide the distribution technology for their action.�    Unirez assesses fees on production so, depending on the property, charges can be a flat fee per room booked, or a percentage of revenue. 

Charges for voice center services are on both a per-call basis, and for reservations booked.  The per-call voice center fee is customary because many of the calls handled are for reservation changes, cancellations, or are informational without the possibility of converting the call to a reservation.   When voice centers publish their �conversion rate� they are stating the percentage of incoming calls their agents convert to booked reservations.

Synxis (www.synxis.com) is another company with its own technology to allow hoteliers to control their channel placement and inventory.  �There are so many points of distribution the average hotelier needs a distribution manager to make most systems work,� said Carol Levitt, Synxis� director of marketing and communications.  �On their own, hotel managers often fall back on what they know, selling rooms through call centers and only dolling out small blocks to familiar channels.  This leaves the tremendous potential of Internet sales underutilized.�  Synxis gives their new client hotels a �Welcome Kit� that explains channels and options to shorten the learning curve for first-time Internet channel users.  They also train clients on how to use the distribution system and maintain their own accounts on line.  Hotels pay Synxis when reservations are booked through the Synxis system.  If a reservation is cancelled, hotels receive a credit for the fees. Synxis pays the GDS-related charges. Synxis is in the enviable position of controlling about 80 percent of the rooms inventory of Las Vegas, a market whose guests like to use the Internet. 

Nothing Happens Until Someone Sells Something

While many representation companies stress the service they provide, others underline the fact that rooms sold and revenue generated are the final measures of a successful reservations and representation company.  Utell (www.utell.com) is a subsidiary of Pegasus Solutions (www.pegs.com), but operates as a customer of Pegasus using Pegasus products.  Pegasus (NASDAQ: PEGS) is in the business of providing travel Web sites and GDSes with hotel inventory to sell.  It is important to note before we go further that only Pegasus and Wizcom can connect hotels to the GDSes (Amadeus, Sabre, Worldspan, and Galileo), all other firms are �representation companies� that connect through Pegasus or Wizcom.

Utell, the largest international hotel reservations and representation company, has more than 50 sales people that promote its more than 5,000 member hotels to travel agents and corporate travel managers.   Utell maintains its own 'Great Rates' room-pricing program to make room rates simpler for its hotel members.  Hotels give Utell the rates they want to promote, and Utell works across all rate categories with nine voice reservation centers, GDS connectivity, toll-free numbers, and Utell.com connects to over a thousand sites that sell travel arrangements.  Utell also provides clients with an Internet utility called NetRez that allows hotels to update inventories and rates on-line 24 hours a day.  Utell is so large that several major chains use its voice centers, which also provide services to 41 countries.  Travel agents in South Korea, for example, dial Utell voice agents directly to book hotel reservations throughout the US or in 160 other countries.  Service and representation levels determine Utell�s fee structure, but a monthly fee and percentage of room transactions are customary, motivating Utell agents motivated to up-sell.  Up selling is good for properties, even if the margin goes into the selling company�s pockets.  The higher the rate charged the better; not only for the selling company, but also for the hotel�s stature and future marketing efforts.

InnLink (www.innlink.com), with over 700 client hotels and its own 100-agent voice center, uses Wizcom�s seamless GDS connection for outbound distribution of its rooms inventory.  �A seamless GDS connection means that a property�s rates and availability are always current and reliable,� said Mike Otten, Innlink�s sales and marketing director.  �Travel agents target hotels and reservation companies that employ seamless connectivity because they are confident in the hotel availability data and in the rate presentation.�  All travel agents and Internet subscribers who access Pegasus rooms content may see InnLink�s hotels.  InnLink offers hotels custom reporting and operates its own call center with sales agents trained to process group reservations, an uncommon advantage in the reservation services business.  InnLink�s sales agents work with properties to process group master information including dates and rates, and processed over eight million dollars in group reservations year to date.

Lexington Services (www.lexlink.com), the largest domestic reservation provider, uses the Spirit central reservation system, and Pegasus GDS connectivity.  The company recently added its LexLink Internet management tool for its client hotels allowing them to control their inventory 24/7 for all channels.  Lexington specializes in prominent mid-scale independent hotels, resorts and chains.  The company prides itself on providing a �one-stop-shop� for Expedia, Travelweb, and all independent sites at once, and operates a large voice and support center in Dallas where its headquarters are located. 

On The Horizon

The economic downturn is forcing many hotels to enter into �net-rate� programs with companies like Hotels.com, Expedia, Travelocity and others, where properties sell large room blocks at low rates to maintain cash flow.  This is a good thing for many hotels today, but times will change.  A stronger market will motivate hotels to refrain from using discounted channels and opt for sales strategies that yield a higher rate, causing net-rate companies to lose market share. 

A second attack on some net-rate and other reservation providers is being made by Travelweb LLC (formerly Hotel Distribution System, LLC) formed by Hilton Hotels Corporation, Hyatt, Marriott International, Six Continents Hotels Corporation, Starwood Hotels and Resorts, and Pegasus Solutions.  The six companies created Travelweb to preserve chain rate integrity and brand identity in the face of uncontrolled, discount-driven price erosion.  �Travelweb is in business to help hotels maintain their brand identity in the face of on-line distributors that would turn hotel rooms into a lowest-price commodity,� explained Joe Humphry, CEO of Travelweb.  �We do that through our Pegasus reservation interface which allows Travelweb to access our client hotels� reservation systems in real time so all their inventory is accurate when we sell rooms.  Additionally, we enable hotels to yield manage the rooms we sell, and provide guests with hotel-generated confirmation numbers to ensure their booking information is accurate and the brand is represented.  Many of the other reservation service providers only offer their own confirmation numbers, which often results in confusion at check-in.  Another advantage Travelweb offers is the ability to pay our clients every 30 days on average for rooms sold.�

Learn to Use the Tools

For hotel operators who want to broaden their rooms distribution intelligently there are a number of channel service providers ready to help.  Fees, service options, and technology vary by company, and many offer on-line tools that let hotels control their own rates and room blocks.  The hands-on merchant model of channel room control goes a long way toward lifting the fear many operators have about losing control of how and where their rooms are being sold.  To save clients time, several channel marketing companies offer detailed reporting that eliminates the need for on-property paper trails. 

The reservation industry is heavily fragmented and in many cases hotels are forced to monitor rates, inventories and channel relationships manually.  The greater problem is that this fragmentation and extra work does nothing to increase travel or improve business.  The same number of people travel to San Francisco each week regardless of how many channels there are.  The fact that Priceline, Orbitz, Site 59, and Expedia each offer a new rate program every week does not help the industry.  What this marketing and rate proliferation does is add more complexity to the already impossible maze of channel options. 

The tangle of reservation channels is not likely to be simplified soon.  But on one level -- the easy accessibility of hotel reservations on the Internet -- the system is working.  Hotel operators only need to learn how to use distribution options profitably.