Hotel reservations – be vigilant when using an agent – there will be more transparency?
A small revolution is brewing in the area of hotel reservations for corporate business travel, the German giant HRS has already thrown the first pebble into the garden of the. It seems that more will add self-booking platforms like Hotailors or Stery. Later it will be the turn to make order with tenders for 1gr?
Hyper-margining – how the hotel reservations area keeps other segments going
It is an open secret in the corporate travel market that the hotel product is subject to maximum margins. Hotel departments are among the most profitable within TMC(agents), and are often paid on a high margin commission basis. All this makes the temptation to overmargin the customer large and real.
Corporations themselves usually don’t have the tools/awareness to check how the bids they receive from an agent sit against the market. The hotels themselves also do not come between the agent and the corporations, it is not their role to make the corporatist aware that they are overpaying? After all, they want to “make a good living” with agents.
Thus, we have a state of affairs in which above-normal profits from hotel bookings allow agents to subsidize other business segments. So often corporations/companies get a comprehensive price list of services that on paper looks very attractive.
It seems that the time is coming that will change the current state of the hotel booking market for companies.
HRS takes away the toys
The first bold step was taken by HRS. Decided to significantly limit its hotel content to agents serving companies so-called “special rates”. TMC. German giant goes the direct sales route. Will certainly get strong sales arguments at the outset. It will not be difficult for him to demonstrate to companies that up to now they have been dramatically overpaying for hotel services. Thus, in addition to saving money, it will also show transparency. Naturally, HRS’s super weapons are special rates as well as a tool for bidding competition/ handling groups and events.
Why agents are afraid of special rates
Anyone familiar with the realities of the business travel market knows that a large proportion of agents react allergically to hotel special rates. Because this tool gives corporations almost 100 percent. assurance that it is not further marred by agent. Naturally, there are desperate attempts by TMCs in the market to extract rates from hotels that are lower than what their corporate clients have in bilateral contracts. The goal is naturally to catch additional profit. However, it does not seem that these measures are doomed to success.
However, special rates are still not a popular tool especially in the area of small and medium-sized companies. And they often account for the bulk of the volume in business travel (domestic travel). The steps taken by HRS will certainly support the awareness of corporations of the advantages offered by the implementation of own rates.
Innovative hotel booking platforms like Hotailors/Stery will give another boost
The next few years will certainly be marked by a significant increase in the users of self-booking travel platforms. Innovative solutions such as Hotailors are likely to revolutionize the market. The company from Poznan is followed by others such as the start-up Stery or the expected new product from FCM Travel Express. Also before long, corporations will finally have a real choice in this regard.
Booking platforms are another weapon, after special rates, to introduce more transparency and a kind of guarantor of savings on the travel budget. Sewn-in travel policies along with rich content for both air and hotel guarantee the long-term success of these tools in the marketplace.
Tenders for 1 gr – it’s hotel bookings that keep things paradoxical?
An example of the most bizarre mechanism in the market of business travel are tenders for travel organized by public entities which in most cases end up with settlements with prices for service of 1 penny. Often there are discounts on the price of the airline or hotel product itself.
That is, “on common sense” the agent handling the tender is subsidizing the business?
Even a layman will realize that something is not right in this state of affairs. To a large extent, it is precisely the markup of hotel offerings. Public institutions do not control in any way how the prices offered to them relate to the real market offer , not to mention the widespread implementation of special rates.
Here, too, lies the lack of self-booking tools that could control and keep the serving agent in check.
Of course, it is not only “hidden” hyper-margins on hotels that have led to a market curiosity in the public tender market . There are a bit more reasons but certainly this hotel “contribution” is not without its proper weight.
Trends in the MICE market as an indication of what margins we are talking about
Only MICE departments can compare with the profitability of hotel departments in agencies handling business travel. They, too, in the past have worked on margins of tens( and higher )percent. Not coincidentally, large agents periodically lost key employees who set up small / efficient offices that can effectively compete with the molochs. The market success of agile agencies like High and Higher, Mindblowing and TravelStrories are good examples of this trend.
In the case of MICE, however, we also find important differences. Purchasing departments of companies organizing a tender for this type of service are often quite meticulous in their valuation, and they also have historical and comparative knowledge. It’s harder to marry here. However, tenders are not always the rule. They are also hitting their margins on group airline tickets.
The more important difference, however, is the knowledge and effort put into preparing an interesting/professional MICE offer. Here the difference vs. handling simple hotel bookings is significant. The agent selling the hotel does not give anything from himself that would justify hitting a 30-40 percent and often higher margin.
Best practices and education of those responsible for booking corporate travel
Actions along the lines of those taken by HRS will certainly help to enforce good practices in terms of special rates or bidding competition/tenders. To normalize the situation in the market, however, a broader educational campaign aimed at companies would also be useful. Especially small and medium-sized. This kind of educational academy under the auspices of major players/service providers who care about the normalization of the business travel market.
For in the long run, the market must normalize. Fees for hotel bookings and other services must be set on market and transparent terms. So that companies know exactly what they are paying for and how much. Certainly the increasing automation of business travel bookings will help in this regard.
It would also be useful to have a common practice of periodic auditing of agents. And this is done by both private and public sector companies(organizers of tenders). A code of good practice for the industry would also be welcome.
At the end of the day, the above changes should also be in the hotels’ favor, in the current situation they are pressed from both sides. And their corporate customer may have a false perception as to the real price of their services.
Final thought – not all agents are bad
It is worth noting that it is not the intention of the article to stigmatize agents and their role in the market. Few times have we written about the positive contribution of intermediaries. Also recommending to corporations/companies specific agents to work with. However, we can not run away from the real problem which is the situation described above. There are still many agents on the market who work ethically and transparently ( including international TMC organizations).
However, the steps taken by the major players/hotel content providers(HRS) make it clear that the situation described above is not an incidental practice. The more so that, as rumors in the market “hand in hand” with HRS to similar steps are also preparing domestic suppliers of hotel content.