Corporate travel managers should be taking a closer look at the systems powering their travel programmes. Because if hotels distribute rooms more efficiently, they could save up to 30% of their costs.
That's the message of a new whitepaper from HRS, the Germany-based giant of digital hotel distribution.
Many travel managers are unlikely to be aware of how much their preferred hotels spend on distribution.
This calculation is about more than the commission payment to travel management companies (TMCs). It's also about enhanced commissions to online travel agencies (OTAs), sales and marketing funds, and other hidden costs within the supply chain.
Even fewer travel managers know the true impact of those distribution costs on their preferred rates.
HRS's whitepaper argues that corporates can leverage incremental savings for themselves by helping hotels on their corporate programmes to select lower-cost channels.
Naturally, HRS touts itself as a more efficient tool, but you don't have to discount its argument just because it dovetails with its own sales pitch.
While HRS is inevitably biased in how it looks at the data, it still makes some thought-provoking points.
Corporates could specify that it wants lower cost channels through which their hotel programmes are distributed, even if they didn't choose HRS in particular. There are several alternative paths besides HRS, and some of these alternatives would cost next to nothing to impose -- as experiments to see if the savings do, in fact, materialize as claimed.
Here are some highlights from the HRS whitepaper, which was written by Mark Harris of Travel Intelligence Network:
Another side to the story
HRS contends that, because online travel agencies charge the highest commissions of any channels, hotels must pad the rates they charge corporates to recover the lost fees.
But hotels hotly deny this. In the whitepaper, HRS interviews the five-star Dukes Hotel in Mayfair, London.
Revenue manager Olga Boiko admits that the overall cost of distribution (commission, marketing, reservation and sales) equates to 10% of gross sales per annum, but the cost to the hotel varies by channel and the online travel agency channel is the one of the most expensive options (at between 15% and 20%) and TMC bookings at 30%.
Boiko insisted, though that her property's corporate account rates were based purely on volume.
While that may be true for Dukes Hotel, HRS says that it makes logical sense that the typical hotel would pass along savings to corporates if a cheaper sales channel was used to supply the booking.
Or to quote HRS's whitepaper:
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.
Let’s 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.
In detail: Why distribution costs matter to corporates
To understand the debate, one needs to see the bigger picture. Each link in the supply chain carries its own incremental cost. Insist on a different supply chain, and you can lower your bill.
Some points to consider:
If you assume it takes an employee a half-an-hour to book their own hotel stay via an online travel agency, and that the average employee's compensation is about 32,000 pounds in the UK, 40,000 euro in Europe, or $52,000 in the US, then the cost per booking in lost productivity is about 10 pounds, or 13 euro or $17.
Research from Microsoft suggests that booking directly with hotel websites can take twice as long, or an hour on average -- which means doubling the just-mentioned costs to an employer in lost productivity.
Outsourcing the travel booking procedure could bring cost savings. Booking through a TMC online could incur a transaction fee of 5 pounds, or for an offline TMC, 12 pounds, though HRS says there is "no consistent data available."
An online corporate portal could be even cheaper as it simplifies the procedure and makes choices relevant to the employee.
The full HRS whitepaper can be downloaded for free.