BTN's annual answer book for business travel managers.
CEO Tobias Ragge talks:
HRS signed more than three times as much business in the
first seven months of 2018 as it did in the entirety of 2017. The hotel
solutions provider—which sits at the crossroads between hotels, distribution,
travel management companies and corporate buyers—may have seemed like an extra
piece of the travel management puzzle five years ago but has found its niche in
driving transparency through data. The company expanded to Dallas this year and
will establish its third North American office by October in San Francisco. CEO
Tobias Ragge sat down with BTN editor-in-chief Elizabeth West to talk about how
transparency has built HRS's business even as it has created industry tension.
BTN: As little as
four years ago, I was unclear on HRS's position in the market. A lot has
changed in that time. What's driving the momentum?
been working with global customers for a while, but they were usually not from
the U.S. You only get to really hit the market when you work with local movers
and shakers. To be honest, we had a clear vision of where we wanted to go, but
there were a lot of things we still needed to work on. It's not like everything's
working Day One. We work in quite a complex industry with a lot of different
tools, different stakeholders and organizations, and it took us a while to
maneuver through that jungle. We're at this point where
we have proven we can do certain things and we have a different business
philosophy. People are saying, "That's what I need." There's a desire
BTN: Do you
have a sense of what's behind that desire for change?
live in a data-driven economy. Hospitality industry DNA hasn't really been in data
and tech, but it needs to move in that direction. At HRS, we're trying to build
a model around data. We're building process and services around the data we
create, or the data we're getting access to. When we have the proof point that
we are working with global technology goliaths—that are experts in data models—then
it's a real big proof point for us. People begin to think, "If it's good
enough to work with Google … maybe it's also good enough for us," and they
start to get more interested in what we bring to the table.
We're at this point where we have proven we can do certain things and we have a different business philosophy. People are saying, 'That's what I need.' There's a desire for change."
Transparency is a central part of your value proposition.
Ragge: When I
think about my conversations with corporations, they are saying, "Listen,
if I have a partner who's reliable, who gives me a guaranteed price-value
ratio, with quality, I'm willing to commit to that partner." They want to
shift share or maybe move small meetings business to those transient partners.
This is how business is done, right? But this is where the industry has been a
little bit shortsighted. [Hotels worry about] yield management or losing
opportunity. I'm saying, "No, the customers have a problem with the lack
of transparency." There was a big debate at ACTE Europe where the buyers
said they would pay two bucks more on the rate if hotels could guarantee the
negotiated deal 100 percent of the time. So why not invest in giving them that?
At that same conference, hoteliers were saying, "We've been doing it this
other way for 20 years, and if my competitors are not investing, why should
we?" As an entrepreneur, I was like, "Listen, that is the moment I
double down my investment."
BTN: HRS's recent
announcements on Rate Protector and Rate Filter speak to that investment.
Filter started with auditing [corporate rate delivery] on a frequent basis. That
was the Rate Protector piece. We ourselves were amazed how big the problem was.
When we were using this with the first customers—and I think Google was one of
them where we beta-[tested] the tool—we went back [to the hotel partners] and
there was complete denial of the data. After we ran all the data, not just one
customer, we found, in like 22 percent of the cases, the search return in the
[online booking engine] was not the face value that was negotiated, and the
average deviation of price was 14 percent.
BTN: I can
see how your hotel partners might feel a little exposed.
are just the facts we see, and we may be policing but only because we believe
in negotiated hotel programs and we want to police what's being negotiated. Ultimately,
our goal is to connect the two sides of the [corporate hotel program] market to
say, "If you're a part of that corporate market club, we want to do
anything in our power to create a better experience for the traveler so they
don't go maverick at the end and the hotel gets the room nights."
hotel sourcing and RFP process is a huge focus for HRS, as well. Is Lanyon the
competition? Cvent is looking to invest considerably now that they have control
of that transient RFP tool.
obvious for me that [Cvent's] core strength is in larger meetings. When that's
your DNA and you globalize that business, as they're trying to do now, top
management will have less focus on something which is a completely new topic, like
transient RFP management. But ultimately, it's not about the tool anyway.
[Anybody] can build out [a tool] in India with 10 people for cheap money. Also,
it's not difficult to do RFP management in the U.S. You go to Brazil, you go to
India, you go to China … that's difficult. Do you have fulfillment in these
markets? You need to speak the languages. You need to have people on the ground.
The tool itself—it's just the transmission engine. We're working on a fully
automated data suite where basically the RFPs or auctions are just the
messaging component. We are looking at realized pricing. We bring in meta data,
reviews and other marketplace data to give full transparency on quality. We can
calculate morning and evening traffic conditions. In cities like Bangkok,
that's important. When you get all of that coming into the platform in real
time, it shows you the best decision to make against a certain quality target
and a savings target. That's why I'm not too concerned about Lanyon investing
or not investing. The question was not, for me, whether the industry needed a
better tool. The question was, "Doesn't the industry need a new approach?"
transparency issues come up when I talk to HRS customers: distribution fees and
commissions. These touch travel management company commercial models, where HRS
clearly has stirred the pot.
you move from GDS-protected inventory to direct connect on the hotel side, distribution
savings is somewhere between $5 for the biggest chains and probably $10 for a
smaller non-well-negotiated [distribution] deal. What we did with some of our
pilot customers in their RFPs—we said [to the hotels], "OK, give us two
rate points. Give us a GDS and a direct connect rate point." The average
was 6 percent cheaper rates being offered [for direct connect] because, for the
hotel profit and loss sheet, it's all the same. Top chain executives have told
me for years that they've tried to talk to TMCs to do direct connect because
it's much better P&L for the hotels. The TMCs never wanted it. Why? Because
the TMC ecosystem lives off the GDS incentives. They're hooked onto this
because when you think about it, the TMCs are getting a 50 percent pass back on
the segment fees from the GDS. TMCs are always talking about, "Efficiency
of the GDS, blah, blah, blah," but it's really this monetary investment.
the distribution systems don't care if anyone is getting the commission or not
because the incentive model is around the transaction itself. That's why the
GDS never built their own commission-collection [functions]. They outsourced it
to third parties: WPS, Onyx, what have you. A third party has one big
challenge: They have no way of forcing the hotel to pay the bill. HRS, on the
other hand, can say, "If you don't pay us the bills, we'll cut off the
distribution channel." It's like a utility bill; we shut off the lights. Second,
the [third-party] commission collection process has not been very professional.
Somehow, [the third parties] were not able to say, "OK, this confirmation
invoice X, is tied to that payment check Y." A lot of times the TMCs just
receive checks. They don't know which of the bookings was paid for, which was a
no-show, cancel, etc. [As a result], TMCs may only be getting 50 or 60 percent
of the commission [volume] back. That obviously impacts the percentage they
pass back to clients. The U.S. market is different … but it's hard globally
with 10,000 independent properties. We created a transparent approach because
we needed to follow it for our own stuff. We need to know who arrived, who was
a no-show, who canceled. We provide that transparency and because we control a
continuous revenue stream for the hotels, we collect [more than] 99 percent of
about momentum on the hotel side? Does the hospitality market understand what
your role is?
really the next big thing that we are working on—to get the hospitality market
to understand the benefit [of] this end-to-end [solution]. We're using all the
data we have to work on all of this process change, to define the benefits,
then to realize the promise of negotiated room nights. It would be easier to
put us in a bucket like, "Oh, you're an online travel agency." But
we're not an OTA, so they don't really know where to put us because we don't
fit into how they've already organized their buckets. We have not invested as
much time on this [because] first it was about creating demand. Otherwise, you
may have a great story, but if there's no customer, nobody wants to listen to
you. People are listening to us now.
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