Hilton Head Lauds Unified Platform
Hilton Hotels Corp. recently transitioned to a single technology platform across all brands. Dieter Huckestein, president of hotel operations for the company's owned and managed properties, last month briefed BTN hotel editor Bruce Serlen on how travel managers benefit from this and other technology improvements.
BTN: Why is a common technology platform so critical?
Dieter Huckestein: Technology really has become a driver in creating more customer value. We're at a juncture right now where all 2,500 of our hotels from Hampton to Hilton are on the same platform. This includes the property management system, but also connects to customer relationship marketing. For example, we know the value to travel managers of our being able to track where their travelers are booking and then share that data. Buyers today just aren't looking for room rates, they're looking for business solutions on how they can consolidate, track, get greater value for their business. Our sales people now have more detailed knowledge as to how many hotels a key account is using, which hotels, room night volume month by month, which improves reporting possibilities.
BTN: At a time when travelers have more booking options, the issue of tracking has become more urgent. Are your key accounts pressing you on this point?
Huckestein: You're right, it's more difficult to track business because of the different ways business can be conducted, whether it be directly, through an agency of record or through online channels. But one of the advantages of a single technology platform is that we now basically have an end-to-end solution, all the way from reservation activity through reconciliation.
BTN: Regarding CRM, that's an aspect that affects the traveler. Smaller hotel companies have been able to make headway there, but it's harder for companies with much larger distribution.
Huckestein: Guest histories across our entire system let us know when a traveler is a returning customer. These include traveler preferences—room type, floor location, pillow type. They now can be integrated in our system in a way that's cost-effective to us, but it goes beyond customized service in the hotel. If we know a guest likes to run outdoors, for example, we'll let you know there's a running track nearby.
BTN: How would you assess the impact online booking channels have had and Hilton's response to it?
Huckestein: The Internet has given us great opportunities to communicate in new ways. It's both transparent and instant, but we have to learn to use it better. InterActiveCorp has become the Wal-Mart of the Internet and has done a great job accumulating different components, so they have a good story to tell. As we move forward, there will be equilibrium as demand comes back. Roughly 80 percent of our Internet business comes through our own Web sites and reservations system. The Internet portion is growing faster than expectations. The key issue today is to have pricing integrity, so wherever you look and wherever you book, the price is the same.
BTN: Was it the lack of price integrity that allowed the discount sites to flourish at least initially?
Huckestein: The whole strategy behind the merchant model was, "Give me the lowest rate." Hotels' business wasn't good at the time, so they agreed to give lower rates, and if a hotel didn't cooperate, its listing didn't appear on the first page of the site. This, in turn, meant the hotel didn't get booked because people don't go to page 20. It's just the nature of merchant model sites—if you're not on page one, you're not there. Given the economy, the lower demand and occupancy rates fell, the more motivated hotels were to be on that first page. If that equation changes, and we think it will, everything changes. We paid travel agents 10 percent commission, so why can't we pay a commission to a third-party online operator?
BTN: The success of the third-party sites in quickly building brand names seems to have caught the industry off guard. Were you—as the newly installed chairman of the American Hotel & Lodging Association, as well as in your role at Hilton—surprised?
Huckestein: There's no question brand is extremely important, especially as we talk about the Internet. People still prefer to purchase a brand name, but a brand such as our own Embassy Suites, for example, is clear-cut in the sense of communicating to customers precisely what they get. The same is true for Starbucks or Tiffany.
BTN: Or Hotels.com?
Huckestein: Yes, but what does Hotels.com stand for? Access and cheap rooms. I'm not sure it's anything more than a tool, but it is a brand, no doubt about it. If they're spending a reported $100 million to promote it, it definitely is a brand, but it's a brand that's a conduit to purchase another brand.
BTN: Hilton's agreement announced in April to give Expedia preferential online access to its inventory was the first of its kind. What was significant about that deal?
Huckestein: Again, it was really about rate integrity. The agreement created a direct connection between our central reservation system and Expedia. This allows hotels that participate to manage price and availability in a dynamic way. It's really impossible for Hilton around the world to oversee yield management from a central point. The dynamics in the marketplace today are just so fast that each hotel really has to manage its own inventory. That's why we've put such a huge amount of time and resources the past few years into training our yield management staff.
BTN: What general guidelines, if any, does Hilton provide?
Huckestein: We inform all our hotels—whether franchised or company owned and managed—that there's a framework that we have negotiated for them. They can play within this framework as long as pricing integrity is maintained: "Go out and enjoy it and manage your yields." This way, the owners still have options. It's their choice.
BTN: So when the economy strengthens and demand returns, will the merchant sites lose their advantage, or has the model changed permanently?
Huckestein: It's hard to say, but wholesalers were a similar concept to the merchant model—only with the Internet, it's fast and transparent. That diluted the net rate for the hotels. If segments of the business, such as corporate travel, come back, I guarantee you hotels won't play on any of these channels to the degree they have been because they won't need to. The merchant sites may well change their approach from, "We're getting you the cheapest room" to "Oh, we're the one that can get you a room, never mind the price." That's a different story, but it is supply and demand.
BTN: Hilton's technology upgrades coincide with what seems to be an upturn in the industry. Are you confident things really are turning around after what has been a buyer's market for two or three years?
Huckestein: The third-quarter news about the jump in the gross domestic product certainly was positive. We know from the past that GDP and hotel revenue per available room tend to move along parallel lines, so that was an encouraging sign. Other trends also suggest that Corporate America is starting to travel again. Training hasn't been happening to the extent it should be. The pent-up demand we've all been waiting for gradually is appearing. However, the hotel business habitually tracks four or five months behind a turnaround in the economy.
BTN: Through the downturn, has the way you define a key account changed?
Huckestein: When we look at an account, we look at whether the Hilton family of brands is being utilized. The objective is to increase our marketshare and revenue with the account. Yet, in working closely with the travel manager, it doesn't really matter that the business has a certain dollar value. It matters, though, if they can really direct their travel, whether they have a highly enforced or mandated travel program. If companies don't have these, there's no way they can move the marketshare to us.
Our sense is that policies are getting more mandated and being more strictly enforced. Often from the perspective of the CFO, travel costs are huge. A lot of companies just ignored that. By contrast, they now are looking for the best ways to reduce costs and get greater value. So you're seeing more companies going toward consolidation as well as toward mandating their travel, and that's a great benefit for them.
BTN: Have there been bright spots to counteract the slump in business travel?
Huckestein: As an industry, the leisure market has been strong the past few years. However, leisure business traditionally is lower priced. So occupancy rates have been high, it's rate that has been the problem. What's happening is corporate meetings are coming in, business travelers are traveling more and international business, which almost had totally disappeared, is starting to kick in. Consequently, our pricing power will be better and our yields will be better.