Mr Ragge, the international hotel industry is currently going through a unique phase of consolidation. How will that have an effect on work in the travel management area? For a start, the market structure is changing. A quarter of the overall market consists of chains, and that is precisely where the consolidation is in full swing. So that apparently means an increase in the market power of individual providers within this quarter. In light of the high sums of money that are being invested in these takeovers, we can expect that costs will be cut and synergies spurred on. On the one hand. On the other hand, chains will attempt to increase their turnover in certain markets.
However, in order to be able to increase the average daily rate, you need to have a certain degree of market power. Looking at the most recent example, Marriott-Starwood, however, we have calculated that their market power in major cities like Tokyo, Shanghai, Paris, London is only a little over 1 percent, so they are not the driving force there. Unlike in cities like New York City, where the Marriott-Starwood market share is around 10 percent and therefore of a size that can be used to move the market. In short: In cities with short supply and high demand, the effects will be perceptible. From a worldwide perspective, the buyer will remain in the stronger position.
The development in the hotel market presents dangers and opportunities. It also always depends on how flexible a company is with its hotel programme. If I rely strongly on the dynamic rates propagated by the chains, for example, that also means that I have to expect significantly higher rates in high season – like we are familiar with in the leisure segment as well.
Do you expect that the progressive consolidation will increase interest in the private hotel segment? Of course, outside the US market, independent hotels have long been part of the day-to-day reality of business. In Latin America, Europe and in Asia, independent hotels dominate the market, accounting for 80 or 90 percent. However, whether this large majority of the market is taken into consideration by companies in their hotel programme depends a lot on who is doing the sourcing. Frequently, TMCs or consultancy firms only speak with a few of the big players to achieve high coverage and reduce their own workload. In doing that, however, they limit their perspective from the outset, since an individual hotel of identical or better quality at a better rate would not be taken into account in this instance. There is a risk here that the employee will potentially search for accommodation outside the prescribed channels because what the company has to offer does not meet his requirements.
What strategy do you recommend to travel managers? Expand your hunting ground! Get the entire market in your sights, instead of concentrating on a quarter of it! Don't put your trust in promises, but rather base your decisions on comprehensive benchmark data! And remember that chains, unlike the individual hotel industry, fundamentally calculate in a fee of 10 to 15 percent on average to cover the cost of their brand distribution! Thus an individual hotel can provide identical or better quality at lower costs – a benefit for travel management and for the traveller.
Particularly the international chains are currently undertaking great efforts to increase their share of direct bookings. We are dealing with an industry here that operates using an asset-light model. Today, no one owns their own real estate any more. The owner and his employees in the hotel take care of business operations, thus all that is left is distribution. In order to be part of a chain, the owner has to hand over up to 50 percent of his turnover to this chain. But if the majority of his bookings come from an OTA whose transactions he has to pay for: What value has this sort of distribution through the chain any more then? Today's booking behaviour is putting a big question mark over the chains' business model, that is why they are now running their direct booking campaigns.
Looking at companies, yet another issue can be seen: Business travellers and companies are mindful of efficiency – savings of a few euro are of little use if an employee first has to invest a lot of work time in research, price comparisons and booking. Travel management cannot fulfil its obligations, for example duty of care, if the whereabouts of the employee are not known in the event of an emergency. And after the business trip too, travellers lose a lot of time on a direct booking, because manual travel expense reports are needed. So with a direct booking, the company loses control and transparency, additionally weakens its own negotiating position and forces its employees to grapple with inefficient processes. For these reasons it will be the innovative end-to-end solutions that prevail among travellers and in travel management.