Hotels To Bypass CRS - 1996-11-25

<I>Santa Clara, Calif.</I> - In the first major challenge to the dominance of the CRS systems over the travel distribution channel, technology vendor TravelNet and THISCO parent company Pegasus Systems this week will announce a cooperative venture to link corporate travel buyers directly with hotels' internal reservations systems.

By the first quarter of 1997, the partners said, travelers will be able to access live hotel inventory and individual corporate negotiated rates in hotels' own databases, without using a CRS as an intermediary-and thus without invoking CRS booking fees.

In an exclusive interview with <I>BTN</I>, TravelNet president Randall Malin said this is but the first in what he anticipates will be a number of direct supplier links that TravelNet will offer corporate customers. Next on the agenda: car rental companies.

"CRS bypass has been on everyone's mind, but until now it's been all talk," Malin said. "Now it has become a reality. This is a big step, but it's only the first step."

TravelNet partnered with the hotel network first because THISCO offers the ability to access a large number of hotels in one block, Malin said. "But we can do the same thing with rental car inventory systems and airline inventory systems directly," he noted.

Accessing corporate negotiated hotel rates has been a frustrating experience for both travel agencies and corporations for some time, Malin said. As a result, something less than half of corporate hotel bookings are made through CRSs, where hotels pay a fee; the balance is called in to staffers at hotel reservation offices, also an expensive alternative.

That's why TravelNet's Voyager system was designed from the beginning with "a unique capability to make bookings in more than one system simultaneously," Malin said. "When a traveler makes a reservation, the air booking will go to the CRS, and the hotel booking will go to THISCO."

The TravelNet-THISCO partnership is not exclusive, and Pegasus president John Davis declined to say if he is negotiating with other automated booking system developers. But industry insiders said two of TravelNet's major competitors-the Microsoft-American Express team and Internet Travel Network-also are interested. Sabre is doubtless in a more difficult position regarding the CRS bypass issue for its Business Travel Solutions system. Sabre did not return calls by press time, but its senior executives repeatedly have said they will do what the marketplace demands to remain competitive in the corporate arena.

Dallas-based Pegasus Systems is the holding company of THISCO, whose UltraSwitch originally was built by and for 15 major hotel companies as a way to link their reservations systems to the CRSs. Today, 70 hotel chains-with the notable exceptions of Holiday Inn and Radisson-use the THISCO switch, and hundreds of travel agencies rely on Pegasus' Hotel Clearing Corp. to track their hotel commissions.

Pegasus broadened its focus in 1995, accepting a $7.5 million investment from Trident Capital, bringing in Charles Zug from Southwest Airlines and Bill Lush from American Express, and opening The TravelWeb booking and information site on the Internet (<I>BTN</I>, Jan. 15). TravelWeb reported bookings of $3.5 million in 1996, including $1.2 million in the past two months.

TravelNet produced the industry's first viable automated booking system. Its Voyager suite of booking and reporting products is available directly to corporate customers, and serves as the booking engine for Carlson Wagonlit's ActOne.

Linking Voyager directly with THISCO's UltraDirect switch will allow corporate travelers and travel arrangers to see hotel room availability and prices, make a booking and get a confirmation number back instantaneously. And it should provide real value in the booking of meetings as well.

While it is possible in theory to do that through a CRS, "hotels have made a decision to only load the corporate rates for which there are going to be lots and lots of requests in the GDSs," Davis said. "But customers are saying, 'I want new information and I want it this way.' It's easier for us to meet that need than it is for a GDS that's been around for 25 years. But in order to provide better information in a better flow, we had to get out of the constraints of the distribution system and into a seamless interface with the hotel systems."

Another advantage of the THISCO interface, Davis said, is that it offers hotel information as an unformatted data stream, making it relatively easy to rearrange and format the data in whatever way a customer desires. But the biggest advantage, of course, is that by bypassing the CRS, TravelNet customers also will bypass the fees. With CRS fees adding $2 to $4 to every hotel reservation-and costing major hotel chains $5 to $10 million a year-a direct TravelNet-to-THISCO link should yield a considerable amount of value to divide with corporate customers, said Dallas-based travel industry consultant Nick Bredimus. And Bredimus predicted the future will bring more efforts like this one.

"Whenever you talk about CRS bypass-and that's being talked about more and more-you have to consider THISCO," he said. "Everything THISCO is doing could be done by a CRS. But hotels don't want to keep loading confidential negotiated rates into the CRSs or paying the fees. So it's fair to say that Pegasus is going to have much greater access to corporate rates than the GDSs."

Still, Bredimus noted, the absence of Holiday Inn and Radisson, Carlson's own hotel company, "are two big missing pieces," and a major drawback. "Every supplier should be a participant in any reasonable distribution system," he said.

Malin declined to comment on whether TravelNet is in talks with THISCO's major competitor, Wizcom International. But he noted that Wizcom provides links not only to the two missing hotel chains, but also to car rental inventory systems, including those of Avis and Budget.

Malin also wouldn't discuss the financial arrangement between TravelNet and THISCO. But he said the venture will benefit both parties and their respective customers-and not just replace the existing CRS fee structure with a new one payable to THISCO. "There aren't millions of dollars changing hands here," he said. "The point is to make this financially advantageous to everyone."

Which is, after all, precisely the point of putting in an automated booking system in the first place, said Sybase Inc. corporate travel manager Patricia Carlin, who this week begins a beta test of the Voyager system (see story, Page 1).

"This is pretty exciting news," Carlin said. "I think it's the first example of what's coming, and we're going to see more direct links like this between corporations and vendors through automated booking systems. I'm interested to see how the hotels are going to implement this, and how they will share the potential savings with their corporate customers. I would hope they'll step forward and take the initiative, but I think it's the corporate partners who will have to drive the negotiating."

While they are working on that, corporate travel buyers might also consider Malin's response when asked if he could imagine any customer not wanting to use the THISCO link for hotel bookings.

"Theoretically, customers could say they don't want it-especially agency customers, who may have financial incentives to make hotel bookings through the CRS," Malin said. "It's conceivable that an agency with a contract that rewards CRS bookings would want to continue to make reservations that way. But it should be financially advantageous to the customer to go direct."

But at Carlson Travel Network, senior vice president Dick Smith remained unconvinced. "Coming out of the hotel industry as I do, I guarantee you hotels are not going to pass the savings through to customers-they're going to put that money right in their pockets," Smith said. "Unless a corporation is smart enough to go to the hotel directly-and few companies are smart enough to do that-they'll never see that money."

Smith acknowledged that Carlson, like every travel agency, "certainly has a financial incentive to route bookings over the CRS, and it will certainly make the CRSs unhappy if we start rerouting traffic around them. But I assume such an arrangement will also be available from THISCO; otherwise, why would any travel agent use them? Until I can really understand the benefits this has to us and our clients, my intent will be to stay with the traditional booking sources we have today, and to have our version of Voyager, which we call SoloAct, continue to talk to the CRSs."

Indeed, Smith said, the question for agencies in the dawning age of open computer systems is not whether to use a CRS or THISCO, but whether to use a CRS or go direct to hotels themselves.

"If I'm going to bypass the CRS, why screw around with THISCO?" he said. "Our preference that we probably will consider pursuing will be direct connection to the hotels, bypassing both the CRS and THISCO.