NB: This is a guest post by Gautam Lulla, chief operating officer at Travel Tripper.
Back in 2003-2004, the hotel industry implemented "next generation seamless" (NGS) connectivity, primarily to solve a rate accuracy problem.
NGS means that every hotel availability request is sent directly to the supplier system for a response and the hotel systems do not have to update the GDS database with their rates and availability anymore.
At the time, I had lobbied, within Amadeus (where I was working), to solve this problem in a different way. My fear was that the GDS and Amadeus in particular, were losing an invaluable database with rates and avail for about 60K+ (now many more) hotels.
I wanted Amadeus to solve the rate accuracy problem by implementing a push model (from hotel supplier system to GDS) instead of a pull one (by GDS from hotel supplier system). Ideally it should have done both, when it had the opportunity to do so.
Anyhow, Amadeus didn’t do anything different from everyone else in the hotel business and relied only on the seamless (pull) mechanism, even while it was implementing a very robust push (and pull) model on the airline side.
Had Amadeus (or any of the GDS) done this, it would have had the only database in the world with consolidated rates and availability for the hotel industry. This would have allowed them to enter and dominate the leisure market as a B2C or B2B player.
Today, Amadeus is arguably at best a bit player in the leisure segment of the hotel distribution industry.
But why is all this relevant now? Well, because of what is about to happen in a different vertical in our industry, with Google’s pending purchase of ITA Software.
The implications on all parts of the airline industry are pretty significant, and from my perspective the airlines are the ones that stand to gain the most.
But first, how did all this come about?
Airlines used systems that were their direct sales platform as well as an intermediary’s (travel agency) primary sales platform.
These systems were, of course, the GDS. Over the years, as airlines spun off the GDS into independent companies, they also began to adopt the use of products from service providers for their core sales and distribution platforms.
These products represented best of breed solutions for each component that forms an overall airline CRS, such as faring, availability, reservations, etc.
They were almost always created to serve the need of both suppliers (airlines) and distributors (GDSs, OTAs). OTAs, as a result, also adopted those systems instead of building their own isolated systems and databases.
And so you have companies like ITA which entered the market and became successful by specializing in “faring” applications that have offered suppliers and OTAs richer business functionality.
Faring is essentially a search problem, so it’s exactly why Google is so keen to get in.
Interestingly, Google could just as easily have been keen to buy a GDS. And, to be sure, it would be a GDS, of sorts - if you recalibrate the traditional meaning of GDS to include search as an end in itself within “distribution”.
Google’s tendency is to build efficiencies while it capitalizes on those efficiencies. And so it will end up directing consumer traffic directly to the supplier websites, cutting out costly, less efficient middlemen like the OTAs, while still providing consumers the benefit of pan-supplier flight searches.
Google only has to ensure that it is less expensive (ie. more efficient) for both suppliers and consumers than the status quo – not a terribly difficult thing to achieve with the volumes it will be able to broker.
So maybe, just maybe, American Airlines decided to pick a fight with Orbitz pending the benefits of Google’s almost certain acquisition of ITA. This quote from Derek DeCross, sales director at AA, is not incompatible with that notion:
"We do not envision a future in which we only sell to our customers through our own branded website… Our goal is to have broad distribution channels and choices for our customers, with our products and services delivered efficiently and without unnecessary costs flowing through the process."
Maybe Delta is testing the waters, seeing how consumers will react, by taking it’s flights off BookIt and OneTravel.
Maybe Expedia - playing a bit of a game of chess… and chicken - has suspended American to teach travel suppliers a lesson.
And so maybe the Orbitz/Travelport-American-Expedia-Delta-OTA-Google-ITA clusterf**k may just not be unrelated, but may be signs of a real shift in the relationship between suppliers and distributors. After all, earning an extra $5 to $10 per seat sold is not trivial.
Coming back to hotels, however, the story is quite different.
Hotel companies did not create their CRSs for use by travel agencies (traditional or online), and hence their reservation systems have not been built native to a distributor’s needs.
Additionally, there have been no product companies that have successfully offered the industry niche or specific modules to handle just rates or just availability or just reservations.
Pegasus (the subject of a recent unrelated article) is an exception. In the late 1980s, John Davis III was successful in launching and gaining adoption of THISCO, the hotel industry switch company (long since named Pegasus).
It is a connectivity product: connecting hotel CRS to distribution channels, primarily the GDSs but also to some “alternative distribution systems” (online third party channels of different types).
However, it is still true that no product company has successfully designed and gained adoption of any other individual core component of a hotel CRS. I can’t think of any pricing-only product, or reservation-only product, or availability-only product, within the hotel space and certainly none that have been used by both the supply and distribution side.
As a result, there is no single database of comprehensive (intermediated and non-intermediated) hotel rates for the industry and there is no “hotel ITA” for Google to buy. And it will not be easy to re-intermediate the hotel industry and create real efficiencies.
And this is a big problem because everyone knows the average commission Expedia earns from a $500 hotel booking is between $100 and $125.
NB: This is a guest post by Gautam Lulla, chief operating officer at Travel Tripper.