Hotelbeds Boss Isn’t Worried About the Model of Nonrefundable Rates in a Post-Crisis World

Hotelbeds, a company that moves hotel inventory at wholesale rates to offline travel agencies, has had a tough couple of months like the rest of the travel industry. On Thursday, the bedbank, or hotel room reservation portal, said it had received a loan of about $435 million (€400 million) to boost its cash cushion.

“Our lenders have approved this financing because they believe we’re a solid business,” said Carlos Muñoz, managing director, in an interview. The further investment will guarantee the company’s solvency during the pandemic.

A significant portion of the interest won’t be due until the investors sell the company, Muñoz said. Hotelbeds’ controlling investors Cinven, Canada Pension Plan Investment Board, and EQT arranged for the loan via a dozen banks. The private equity firms and pension fund had in 2016 invested $1.3 billion (€1.2 billion) in the company.

But some experts questioned if the measures would be enough.

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Hotelbeds, the largest middleman for wholesale hotel inventory, helps more than 180,000 hotels find 60,000 travel buyers like tour operators, retail travel agents, airline websites, and loyalty programs.

Yet the great lockdown recession may pose more headwinds for Hotelbeds than it does other travel players.

Hoteliers use Hotelbeds to offer discounted rates, but the deals typically come with tighter terms and conditions. If consumers worry that governments might re-instate travel restrictions at any moment, they may seek out flexible offers elsewhere instead.

“The changes that Covid introduces to the heads of customers and the market are still to be seen,” Muñoz said. “It’s difficult to tell if non-refundable rates will not be appealing to customers in the future.”

But Muñoz saw potential strengths for Hotelbeds. If travelers avoid long-haul travel, they may shift to domestic destinations. Hotelbeds has the inventory, unlike many competitors, to enable suppliers to provide those domestic accommodations at attractive prices, he said.

“Durable Model”

Muñoz said the company has a proven model. “We’re a very cash-generative business,” he said.

The company’s financial statement for the year through September 2019 highlighted the point. Hotelbeds generated about $255 million (€234 million) in adjusted earnings before interest, taxes, depreciation, and amortization on gross bookings of $6.4 billion (€5.9 billion) .

Hotelbeds accounts for about 13 percent of the nearly $50 billion of hotel rooms go through bedbanks, one analyst said. The next-largest player, the WebBeds unit of Australian travel agency Webjet, covers about 4 percent of the market.

Since 2018 Booking Holdings has been testing a Booking Basic service attempting to get a slice of the wholesale business. In November, Expedia Group became the exclusive distributor of Marriott International wholesale room rates, availability, and content to bedbanks for the group’s 7,000 properties.

A lot of Hotelbeds inventory is for leisure and resort markets, such as in the company’s home country of Spain. Suppliers catering to families and honeymooners may not see a rebound for a long time. By contrast, hoteliers that cater to luxury business travelers, who may be more willing to brave risks to travel, might rebound sooner.

Even after governments lift travel restrictions, people’s worries about job security may undermine their vacation planning. Hospitality companies may seek to renegotiate commissions, pressuring Hotelbeds’ margins further. Other suppliers may go bankrupt, leaving the company stuck with unpaid invoices.

Muñoz acknowledged that the future is unpredictable. But he said the company’s financial strength and good relations with suppliers will allow it to gain market share.

“We can’t predict when business will come back, and obviously this summer will not be business as usual,” Muñoz said. But he suggested that Hotelbeds was better positioned than most companies to withstand the storm.

“When demand comes back, if a customer requires some financial support, etc., I think we’ll be able to be there and provide support,” Muñoz said.

Muñoz said Hotelbeds has acted as a responsible partner during the crisis, something that hoteliers and travel buyers will remember. Between March 17 and now, Hotelbeds has offered the possibility of canceling both refundable and non-refundable reservations without charge to those travelers who wished to do so. It has also been paying hoteliers money owed, something that some other businesses have been slow to do.

Leadership During a Crisis

Muñoz said crisis management required transparency and empathy. Every week, the company has team meetings by video conference, even though most employees now work remotely.

“I keep employees updated weekly on what’s happening in the company and the industry,” Muñoz said.

“We’re also trying to minimize impacts on our employees,” Muñoz said. While he didn’t disclose details, online reports said that Hotelbeds had reduced the salary of its staff of some 1,500 employees at its Palma de Mallorca headquarters by 30 percent over the next three months.

In November, the company laid off about 200 workers, or about 5 percent of its workforce, it said. Some of these layoffs were partly due to synergies from having acquired smaller rivals Tourico and GTA. Wholesalers often overlap in what they do. So a roll up of bedbanks can drive economies of scale, boosting profit margins.

In October, Hotelbeds’ investors tapped Richard Solomons, former CEO of IHG (InterContinental Hotels Group), to become a non-executive director and chairman of an advisory committee.

Hotel companies have complained about customer service responsiveness during the crisis at Hotelbeds and other online travel players. Yet Muñoz siad it minimized problems. Hotelbeds redeployed many workers into customer service call centers to handle the surge. Muñoz said the company had received praise from many of its partners about its customer service, and he expected his team to resolve outstanding issues by early next week, with customer service levels returning to a manageable level by then.