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"A procurement partner must constantly push forward"

Tobias Ragge on the digital transformation of corporate travel

There's nothing new about the fact that HRS develops services for corporate customers and has expanded its traditional business to include acting as a "hotel solutions provider". Since then the international markets have been in constant flux, and even the leading players have changed. The Hotel Expert therefore wanted to know where HRS is currently positioned in the era of consolidation, digitalisation and customer centricity?

Mr Ragge, when you started to position HRS as a full-service provider in the accommodation business, it reminded us of the development of the large business travel agencies and their successive conversion from ticket sellers into travel management consultancies (TMC). That was four years ago. Today, HRS claims that, „we are no longer an OTA.“ So what are you?

That's not entirely correct: we come from the portal business segment. There, we served both private and business travellers, and SMEs, and acted as an agent for hotel accommodation. This business still exists, but over the years we have increasingly focussed on the area of business travel, which has resulted in the development of the "Enterprise Solutions" division where we move away from simple transactions and have built up a holistic solution portfolio for everything associated with overnight stays in the area of managed corporate travel. The third area is "Destination Solutions", for the digital marketing of holiday accommodation. In short, today HRS is much more than just an OTA. This is also reflected in our figures: in 2018, we will generate two thirds of our overnight stays in the Enterprise division, therefore as a solution provider for technology and services such as rate audits.

TMCs have had to fight hard for some time now. What makes HRS better?

There are several factors that come into play here. For 45 years, we have been vertical experts in the heavily fragmented hotel market and, as such, have been able to respond to the strategic changes in this sector in a much more targeted manner. With independently managed offices around the globe, as well as hotel experts in more than fifty countries, we also have the global presence to support companies with local expertise, no matter where they operate. We want to be a strategic partner, and therefore our core message to companies is "we'll deal with all of the operative stuff for you!" More and more companies are now taking up this offer. Recently, in the USA alone we have succeeded in winning the custom of corporations such as Apple, Google, Tesla and Uber – companies which understand technology and the benefits that we can give them. We now also have a very strong presence in Japan and China. Our customers there include China Mobile, Alibaba and Hitachi, for example. In short, the sector is currently in the middle of a period of transformation. 

In the past everyone only made bookings offline, but in the future this will be driven by technology. And, incidentally, this is also the message that we are sending to the hotel industry: we will only be able to bring big companies to you if you do not shut out technological innovations.

Tobias Ragge, HRS CEO:  "Travel management can change  the corporate culture."
Tobias Ragge, HRS CEO: "Travel management can change the corporate culture."
Cornelis Gollhardt

It is indeed true that, according to a study from the Institut für Wirtschaft (Economy Institute), the accommodation industry is already one of „the most heavily digitalised sectors“. However, we do not have the impression that this also applies to the areas of booking or billing. 

That impression is not always incorrect, because if you look at the market in detail – including at customers – then there are many areas in which a lot is still done offline or manually. A slightly different picture appears when looking at our bookings, almost 99 per cent of which are made digitally. With the range of solutions, such as the virtual payment solutions, we are working to increase the proportion of digital bookings for our customers.

From a hotel perspective, it is evident that during the consolidation in the segment by the larger chains, an ever decreasing number of large players are investing more and more money in expanding their digital infrastructure. Others, in particular medium-sized businesses, are increasingly excluded in this area. Let's take another look at distribution in the leisure sector: the costs for distribution are increasing, because this is increasingly being carried out via metasearch engines such as Google and the like. It is a misconception in the hotel sector that sales via this channel are free-of-charge. I can completely understand that a hotelier would want to be independent. But imagine what would happen if all OTAs disappeared – only Google would be left. In short, sales cost money, and the sector will never get this cheaper than at present during the process of digitalisation. Things are different in the corporate sector. Here, distribution functions traditionally via hotel procurement, in-house or via a TMC, which in turn accesses GDS content. In other words, medium-sized businesses have not entered into this area, to say nothing of local players. There is a reason why the share of corporate bookings with chains is still around 75 percent, even though chains only make up 25 per cent of the total market.

Based on this logic, will corporates and medium-sized businesses only have the opportunity to work together if they use HRS as an appropriately innovative intermediary?

Of course, HRS is not the only option. But let's have a look at the customer's needs: he no longer wants to pay operating expenses. Four out of ten companies now already use outsourcing because they do not think there is any strategic added value in the conventional RFP process. This process takes months, and in the end you find yourself in the same position as you were in a year ago. If hotel procurement remains in-house, then this also means that the company focuses on a few global chains, so as to keep the workload down. Once again, the individual hotel, or even a small chain, is faced with a big challenge. It does not have sufficient coverage, and it is not economically possible to finance the establishment of an in-house sales organisation in order to approach corporate customers. In contrast, it is a win-win-win situation if a customer commissions us to carry out his sourcing, because apart from the global content, including the regional and local offices, we have experts on location who are in constant contact with the market, and a clear advantage in terms of knowledge along the entire value-added chain. The hotel also gets access to global customers with large booking volumes, whom they would not otherwise be able to reach.

In the airline sector, there has been quite a stir about a trend in which some large corporations have used "Direct Connect", with Lufthansa for example, and not only have they bypassed all intermediaries, travellers have also enjoyed certain advantages. Is there anything similar in store for the hotel sector?

The airline industry is indeed structurally different from the hotel sector, but one thing is always true: the profitability of the supplier obviously also determines the other framework conditions. To me, it is clear that in the future, chains which market their rates via Direct Connect – which is cheaper than via GDS – will pass on advantages to the customers, whether this is in the form of benefits or preferential prices. However, nowadays price alone is not decisive, and attention is also given to the process chain and the adaptation in the company, i.e. the question "how do we ensure that the hotel range not only looks good on paper, but will also actually be used?". The keyword is duty of care.

For that reason, we have to make life easier for the traveller. Travel management is also increasingly seen as a way to change the culture of a company in order to give employees the feeling that they have more freedom. This is quite simply because in the "war for talents", nobody wants hierarchies any more, and employees like the feeling of status, including the very simple shaping of processes. A growing number of corporations now want to allow their employees to enjoy this feeling. And at this point we say: "We'll build you this process chain for your travellers." Automated billing, mobile check-in, cash-free payments etc. – employees like these things because they no longer have to stand in queues or fill in forms. We not only have the technology, we also have people who get individual hotels on our side, and therefore to become part of this process chain.

Cornelis Gollhardt

You also work with learning systems. What do you expect from them, for yourselves and for your customers?

The combination of technologies and processes results in a new service quality. We are already able to predict prices for twelve months in advance. And we do not just promise savings; we guarantee them. We even pay a supplementary premium if our calculations turn out to be incorrect. Conversely, we then also expect a bonus if our forecasts are exceeded. Our entire focus is on the customer. The old, non-transparent model, where service providers shook the hand of both the supplier and the customer, is not an approach that has a future as far as I am concerned. Today, the customer has the greatest possible transparency and choice. Focussing your own business model purely on maximising your own profits will no longer work. On the one hand, the customer wants to outsource complex tasks, and on the other hand he wants a transparent business model in which the partner has an incentive to get the best results for him. I believe that this is how travel management will work in the future: strategically, cooperatively, transparently.

You probably would not advertise something like that if you thought that you might actually have to pay a supplementary premium.

HRS has always been performance-oriented, and we are continually driven by the aim of getting better. You see, integrated value creation stages and data points allow us to optimise and readjust much more quickly than in the past. Instead of just once per year, we are slowly making sourcing more dynamic; even now, we sometimes carry this out on a quarterly basis. This means that we are able to optimise rates that were initially too high increasingly quickly and adjust them to the actual travel practice in the company which, after all, never stays still. And I think that this is our duty - a procurement partner needs to be constantly optimising.

In your case, this requires cooperation from the hotel sector.

After all, it is in the interests of the hotel sector that the volumes that we promise are actually achieved. Obviously, it is helpful if we can also handle the booking for the customer. The competition between the global players and the regional and local hotels will continue to intensify. Last year, the chains started to change the rules of the game, for example by strengthening their direct business. This is entirely legitimate. However, the biggest and most important customers are sometimes forgotten during this process. Corporate customers have a duty of care and must keep their employees in the specified channels. There is a similar power struggle over the cancellation policy - the majority of our customers do not accept a cancellation policy because they provide large business volumes, and this clause is usually dropped in dialogue with the chains.

Mr Ragge, thank you for talking to us.