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We recently launched our weekly Corporate Travel Innovation Report, a newsletter focused on the future of corporate travel, the big fault lines of disruption for the travel managers and buyers, the innovators emerging from the sector, and the changing business traveler habits that are upending how corporate travel is packaged, bought and sold.
As part of our increased attention to corporate travel, we’re sitting down with a handful of industry leaders for our new Corporate Travel CEO Listening Series to discover what the people at the top are concerned with now and where they are looking for inspiration.
Hotels are often a major problem area for travel managers. According to a recent survey from hotel service provider HRS and the Association of Corporate Travel Executives, those who purchase travel for their companies say rising hotel prices, the time required to negotiate rates, slow response time from hotels, and a lack of standard bidding processes are major barriers to locking in target room rates.
HRS CEO Tobias Ragge sees opportunity there. The family-owned business that he runs has been expanding globally, opening an Americas office in New York a year ago. Headquartered in Germany, HRS grew its workforce by 15 percent last year and now has 26 offices around the world.
As a “hotel solutions provider,” the company’s services include working with corporate travel clients to access inventory at both chains and independent properties; process payments through a virtual credit card system and analyze spending data.
“We’re selling in an accommodation space which is quite complex, especially when you go outside the US. because of the fragmentation of the market, the complex value proposition,” he said. “We sell a lot of service around it, from sourcing through the transaction through the payment, expense processes.”
Skift spoke to Ragge about consolidation in the hotel world, the push for direct bookings, Airbnb as an option for business travelers, and the changing expectations of millennials.
Skift: Starwood and Marriott, obviously that’s been huge news. What do you see as the impact of that consolidation on travel managers and how they’re doing their job?
Ragge: Well number one, market structure. One-fourth is chains and you see in that one quarter more consolidation, Marriott-Starwood, Accor-Fairmont, Plateno-Jin Jiang in China. You will see more of it. So the one quarter will [even] more consolidate.
Which means obviously more buying power or market power on the supplier side in that quarter.
Second, you see a highest price premium being paid; there needs to be a return on investment. So you will see cost and synergies being taken out of the companies for sure. And you will see in markets where they have the opportunity in [average daily rate] and top-line growth, ADR will go up.
The average daily rate, in order to go up, you need nonetheless to have a certain market power and when we look at this we found out that for example Marriott-Starwood in all the major cities — Tokyo, Shanghai, Paris, London and so on — they have one point something percent percent of all the rooms. They are not the market mover. When you go to New York City, you talk about 10 percent. So this is when they move the market.
I think you will see a big impact for the U.S. market in the gateway cities where you already have a shortage of supply and overdemand. On the global level, I think the impact will be not as big. The travel manager, now the question is how to react. Well, source wider. So don’t talk just to the 25% of the market, talk to the entire market.
And think about the one thing, chains have to take an overhead fee to manage that, to manage the brand distribution vs. sometimes independent or smaller chains. And this premium usually takes 10-15 percent. So also if you are able to source with the same quality in certain markets maybe not a global chain could be an opportunity also to save, and I think we will see more of that the moment that corporate community is presented with price increases. Because as the economy is going to slip further, people will get pressure in the organization to save cost.
Skift: As more companies are consolidating, how much do you see independent hotels becoming a more popular option and how is that working into what you do?
Ragge: I think, in general, independent hotels today are already by far the reality of business travel. Because one is the reality of the procurement people who source and the other is of the traveler who travels.
So if you look at the traveler data, they already today even in this market use independent supply, boutique hotels, and all of this. Especially when you go outside of the U.S. Look at Latin America, look at Europe, look at the [Asia-Pacific region]. The market is 80, 90 percent is independent hotels.
It’s already a reality, the difference is who is sourcing today and who is the incumbent for the sourcing. So usually it’s procurement travel managers or the TMCs on behalf of that or some consulting companies and they most likely tend to rely upon a more consolidated approach, talking to a few players, which is maybe chains for bigger coverage to reduce the workload. But it is not necessarily the best strategy, it just depends on how many resources do you have and how much market intelligence also you have. I think that’s why the reality will be in a market where the chains are becoming more consolidated, the product experience is more getting maybe also streamlined, people will definitely look more for individual alternative spaces.
And why do peer-to-peer rentals like the sharing economy boom? Because they’re a more individual product experience. I mean, this is individual properties if you want.
Skift: What about Airbnb, do you expect to see more corporate travel programs allow it or embrace it?
Ragge: Today, for me, Airbnb is unmanaged travel. Even if they say it’s managed, for me, it has nothing to do with managed because the nature of things of managed travel being part of a process chain.
So in the process chain is not that you build a walled garden model. Airbnb is, for me, a walled garden. So basically you register on Facebook and book on our site. I think it’s totally not taking into consideration that corporations have booking tools, expense systems, and so on where you need to be fully embedded with the content you have and not just to say, ‘Please traveler, go outside and do whatever.’
I think as long as that’s not solved, I think you will not see in the major programs a huge pickup. There will be people obviously who use it, booking outside of the programs, but it will not be part of the managed program. And second, I think it’s also a question of the type of the traveler. So I’m the typical in-and-out guy. For me, it wouldn’t be an option personally because I’m usually two nights somewhere, I have no time, I don’t want to deal with somebody handing me a key and working on the WiFi if it’s not working. But if you are maybe staying a few weeks on a project, then it’s a different story. And [if] you’re staying on the weekend, maybe it’s a viable option. That’s just my traveler perspective.
The question where corporations then come into the equation is: what about taxation, what about security? I think duty of care is nowadays a huge topic and I think it will stay a huge topic and you know what, if somebody gets on a business trip stabbed by somebody….who will take the risk? I think managed corporations will try to stay away from it because they don’t want to have the CEO step down because somebody, just to save $5, stayed in maybe not a 100% professional environment. So nobody would take the risk. Yes, there’s a market. But I think this whole thing is too evolutionized and they need to take a different approach if they really want to make a big inroad into managed travel.
Skift: Can you foresee what that approach would be?
Ragge: I know what I would do if I were them, but since i’m not on their payroll, I’m not interested to consult people. They have to figure it out themselves. I would know what to do, but I’ll let them figure out their own problem.
Skift: Every day, it seems like some new hotel chain is making a new effort [to encourage direct bookings]. What impact are you seeing from those direct booking pushes and what’s the way around it for companies that want their travelers to stay within the program?
Ragge: Why is it happening? You have an industry which runs on an asset-light model. Today nobody owns their properties any more.
So what are you, in essence, as a company — as a hotel chain? You’re a brand, you’re sales, you’re distribution, you’re marketing, and you may be some operational standards. The operations are done by the owner and the people who usually run it and then it’s all about marketing distribution. Now the hotels who are part of the chain have to pay up to 50% of all of their revenues to the chains to be part of it and now the question is if 70 or more percent of your bookings come from the OTAs where you pay them for transactions, why do you want to be part of a chain? What’s the value if somebody else does the job? I think that’s the big problem chains face today, that their business model is being questioned by the way consumers book nowadays.
If they’re not able to provide to their members paying the fees that they can get bookings themselves, people will bail. And this is now, I think, this reaction to this to say, OK we need to wake up and do something so the only way to drive bookings directly is because the website experience is worse than with OTAs. Also the sales, look at the corporate space, corporates are not really wanting to talk to chains anymore directly because they’re a very fragmented market and they want to probably outsource this more and more, so there’s a lot of traction being lost now and I think that’s the ultimate way of trying to get customers back is work on getting a price advantage.
The second is also I think sometimes the hotel industry is trying to copy the airline industry and thinks what works in the airline works in hotel. Problem is it’s a totally different structure in terms of the market….At the end, it works by totally different dynamics, but I think people like to copy it and say OK, well let’s embrace it and then people will follow through.
Now that’s the reason why hotels do this with the chains now. When you look at the corporate segment, I think they do this without considering who their customer is and what they want. And I think personally it’s also naive to think that corporations are looking at seamless end-to-end processes and saying to the travelers ‘Oh yes, right, go and book at Hilton direct because you get loyalty points there and I lose total control of what’s happening, I have no more means of working on duty of care. And yes, you’re heavily biased by loyalty points which work on your personal benefit and not on the benefit of the company, I’m a very big advocate of this.’
I mean, sorry, this will never happen. So at the end, the only question is who’s stronger, the buyer or the seller? In a global market, definitely the corporate buyer is much stronger….Maybe in the markets like illustrated before in New York, in the U.S. where they have a certain muscle and power, yes they can use it. But if I were a corporate buyer, I probably wouldn’t like it because I think it’s just against what the corporations want. But time will tell who is going to be stronger in that, corporate vs hotel chains.
Skift: What are some innovations in your company that you’re especially excited about?
Ragge: What do we do that’s very exciting is number one, I think we’ve built probably the most holistic end-to-end process when it comes to accommodation for corporate travel.
So the holistic way of looking at this from the beginning of the process, from firm sourcing to really paying on-site and being able to integrate this into the entire ecosystem — not only on proprietary technology, but all the online booking tools globally — there’s nobody, no market we don’t work with, all the [global distribution systems]. This is a solution right now nobody can match. And that’s number one.
Number two, I think, is our global expansion and being able to work in so many markets.
And number three is part of the value chain, I think we’ve built the most innovative payment solution with complete level-three data where we collect all the bills, break it down, give you all the data for tax redemption and so on. I think that’s the only solution like this. I think we have built totally new approaches when it comes to sourcing and how to build really cost-saving potentials for corporates. Our business model is very disruptive. We’ll do now the same for the meeting space.
Skift: What trends outside your own company do you see really shaping the future in corporate travel specifically?
Ragge: Look at the two target groups: one is corporate decision-maker, the other is the traveler.
Cost-saving potential will remain top of the agenda. So that will always have an impact because the more the economy is in maybe a slump, the more people will care about costs and the moment this will happen — and I’m sure, unfortunately that we will also see again at some point economical issues in all the markets, credit crunch and so on — the more cost will be an issue and people will care less about traveler centricity and all these things, you know?
So cost always will be a driver. This is why I think an end-to-end process that’s seamlessly integrated will be a key driver for what corporations are looking for, because they want to reduce their costs and they have a very good understanding of what are the processes and the cost involved.
When you look at payment expense, we did a survey. On average, it costs a company more than $20 to do an expense claim. So it’s silly that you talk about saving $2 or $3 on the room rate and then you have a back-end process which costs six, seven fold this amount. Corporates are aware of this, so to solve this, I think it will be a major topic.
Second is customers want best-of-rate outsourcing solutions because they understood the complexities becoming so overwhelming, globalization, digitalization, new segments emerging, that they cannot with reduced head counts work on all of that.
So how can you solve it by becoming more strategic and partnering with people who are very transparent and maybe also have more transparent business models than the ones who are out there today?
Now when you come to the other dimension, which is the traveler, I think yes, traveler centricity. And also with the new generation, millennials…they probably don’t follow the defined path if it doesn’t make sense like maybe generations before just said OK, that’s the rule we’ll just follow and end of the story.
So I think that will shape the expectation from the traveler to find and build the solutions which are number one, mobile-centric, which are personalized, and which are very convenient. I think we’ll be shaping the necessity for our solutions as an industry because it’s not enough to say, ‘This is our preferred portfolio, you have to take it.’ And then there’s a property which is not preferred, but it’s cheaper, it’s better and it’s nearer.
Ten, 15 years ago you didn’t have that information. Now it’s on the internet, it’s all there and you say that doesn’t make sense. Us forcing people to make stupid decisions I think is not the way forward, so we need to have a more open-minded approach and defined frameworks in managed travel where we’re still in control and know what’s going on, but obviously we serve the purpose of that business trip and I think that’s probably going to shape the evolution. More traveler centric, but not in an unmanaged fashion.