Global Reservations

Technologies

R
apid advancements in technology have changed the manner in which hotel rooms are
booked. Just a few years ago a hotel’s posted available rooms were manually adjusted and
sold on a daily (even hourly) basis, whereas today rooms are sold electronically through
myriad channels with little or no human interaction (see Exhibit 3). This represents a substantial
change in methodology over a few short years. What does the future hold for hotel reservations?
Imagine the following rather futuristic scenario:

Heading to the airport for a hastily scheduled business meeting, a technologically savvy
corporate businessman accesses the Internet on his smartphone. Through the mobile
phone, he checks availability at his favorite New York City hotel, discovers that rooms
availability is tight, but manages to reserve a Parlor Queen room for $345 that night. His
credit-card guarantee is transmitted automatically, and the return confirmation number is
conveniently stored in the smartphone for later retrieval. As he waits for the airplane, our
corporate executive downloads a podcast from the New York City hotel, complete with a
virtual tour, greeting from the general manager, and highlights of dinner and drink specials
he’ll enjoy that evening.
Several hours later, this futuristic scenario continues as our business traveler arrives
at the Holiday Inn Wall Street. The moment he steps foot into the hotel’s lobby, his mobile
phone alerts him that a message is waiting. The text message on his telephone asks if
he would like to proceed with electronic check-in. No wonder he loves this hotel. Of course
he readily agrees, and simply types “yes” into his cell phone and enters a preprogrammed
personal identification number (PIN). Then, in one last attempt to up-sell to the guest, the
hotel’s property management system prompts him with several additional room-rate options.
He decides to treat himself to an Executive King Suite for $425 and indicates as much on the
phone’s screen.
As he walks across the lobby (secretly boasting because he’s avoiding the growing
check-in queue), his text message provides him the room number and even directions to the
room (not that he needs directions—after all, this is his favorite hotel). As he exits the elevator,
the hotel’s short-range radio-wave technology senses him and prompts his telephone by
again requesting his PIN. As he approaches the guestroom (within, say, 15 or 20 feet), the
door automatically unlocks itself.
Relaxing in his room a few minutes later, his smartphone again alerts him to a text
message. It is the hotel’s food and beverage department prompting him through the guest
history database to see if he would like the same breakfast he ordered last visit—two eggs
scrambled, dry wheat toast, juice, and coffee—delivered at the same time, 6:30 am?

What a truly seamless series of transactions our corporate guest experienced. Each transaction
was fully electronic—both paperless and faceless (no printed receipts or mailed confirmations, and
no one-to-one or guest-to-employee interactions). Quite futuristic, you must agree! But wait . . . this
technology is already in place at many hotels across America today. The technological innovations
mentioned in the above scenario are available and accessed regularly by today’s corporate guests.
The future is here!

From Chapter 5 of Check-In Check-Out, Ninth Edition. Gary K. Vallen, Jerome J. Vallen. Copyright © 2013 by Pearson
Education, Inc. All rights reserved.
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 Global Reservations Technologies

Global Distribution
Understanding the channels through which hotels receive reservations is challenging.
There are numerous channels of distribution available for hotels today, with new types being
introduced every year. Today, travelers can make reservations by telephoning the property
directly or the chain’s central reservations office, through email, via the hotel’s website, with
a travel agent, on the chain’s website, or through any number of other online travel sites
(see Exhibit 1).

Exhibit 1 The United States is the global leader in online travel reservations. Online travel expenditures grew at roughly 43% per year
between 1996 and 1999. The growth slowed in 2006 for several years, due in large part, to the lackluster economy. Growth in 2011 and
2012 is estimated at 10% per year. The above figures are for U.S. online travel revenues. Worldwide, the number is closer to $300 billion
annually, which equates to more than 1 billion transactions per year (or better than 2,000 transactions per minute)! The three major GDS
companies; Amadeus, Sabre, and Travelport employ more than 23,000 persons.

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a brief history
Hotel reservation technologies owe their beginning to the airline reservation systems of the
early 1960s. The lodging industry has historically followed the airline industry into adopting
new technologies (reservations, inventory control, revenue management, etc.), waiting for
the more capital-intensive airlines to perform expensive research and development before
wading in. By choosing to wait on the sidelines in the early stages of development, hotel chains
saved time and money. This holds especially true for the development of the airlines’ global
distribution system (GDS).
Travel agents were the first step in the development of today’s GDS. Airlines, in an
attempt to improve efficiency over telephoned reservations, began installing reservation
terminals in travel agencies. This allowed the travel agency access to the airlines’ seats
inventory and a means by which to electronically ticket clients. Larger agencies, with access
to more potential bookings, received more dedicated computer terminals than did smaller
agencies. More terminals meant access to more airlines, because each airline had a dedicated
proprietary system.
Travel agents enjoyed the increased efficiencies associated with computer access. It was
a vast improvement over telephoned reservation, the method smaller travel agencies were still
required to use. It was not long before airlines were also offering select hotel rooms and rental
cars through their fledgling global distribution systems. American Airlines’ Sabre and United
Airlines’ Apollo were the original two global distribution systems (see Exhibits 2 and 3).
Not all hotel chains joined the early GDSs, because many thought it was cost prohibitive.
Hoteliers were accustomed to paying a per-reservation fee for rooms booked through the

The Three Global Distribution System Providers

Amadeus
Sabre 36.9%
23.9%

Travelport
39.2%

Exhibit 2 American Airlines developed the first automated booking system in 1946. Since then,
the three major Global distribution system providers have evolved dramatically. Here are some
examples from recent years:
• There were four major GDS Systems until 2006. Here’s what has happened in the last 10 years;
• In 2005, Cinven and BC Partners, two private equity firms, took control of Amadeus for roughly
$6 billion.
• In 2006, Cendant Corporation sold Galileo to the Blackstone Group, a private equity firm, for
$4.3 billion. Galileo became better known by the name: Travelport. By the way, Cendant only
owned Galileo since 2001 when it purchased the GDS for $2.9 billion.
• Travelport also merged with Worldspan in 2006, essentially creating 3 major GDS Systems.
• American Airlines sold its Sabre GDS to Silver Lake Partners and Texas Pacific Group for $5 billion
in 2007. By the way, Sabre generates about $3 billion in annual gross revenues.
At this time, all 3 major GDS Systems are controlled by private equity firms.

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Name Originally Created by Also used by

Amadeus • Air France • Online travel sites, including:

• Iberia • Anyfares
• Lufthansa • CheapOair
• SAS • ebookers
• Cheap Tickets
• Expedia
• Flights
• Opodo
• Jetabroad
• Tripsetc
• Air-Savings
• Over 500 individual airlines
• Over 99,000 travel agencies in more than 195 countries
• Over 86,000 hotels
• Over 24 Rental Car brands
Sabre • American Airlines • Online travel sites, including:
• Volaris
• Travelocity
• zuji
• Lastminute.com
• Travel Guru
• Priceline
• Over 800 individual airlines
• Over 55,000 travel agencies in more than 100 countries
• Over 88,000 hotels
• Over 24 rental car brands
Travelport’s • United Airlines’ • Online travel sites, including:
Galileo Apollo Reservations • Volaris
System • CheapOair
• ebookers
• Flight Centre
• Orbitz
• Over 500 individual airlines
• Over 44,000 travel agencies in more than 100 countries
• Over 60,000 hotels
• Over 24 rental car brands
Travelport’s • Delta • Online travel sites, including;
Worldspan • Northwest • Expedia
• TWA (Following its merger • Hotwire
with American Airlines, • Hotels
TWA began using Sabre). • Priceline
• Orbitz
• Over 500 individual airlines
• Over 44,000 travel agencies in more than 100 countries
• Over 60,000 hotels
• Over 24 rental car brands

Exhibit 3 Along with the 3 major GDS Systems (listed here as 4 systems to demonstrate the history of Galileo and
Worldspan, now operating together under the name Travelport), there are a handful of smaller GDS systems operating
around the world. Included among these smaller systems are:
• Abacus (primarily Nippon Airways, Cathay Pacific Airways, China Airlines, Malaysia Airlines, Philippine Airlines,
Singapore Airlines, and others).
• KIU (primarily Latin American airlines, including; Sol Líneas Aéreas, Aeropostal, Maya Air, and others).
• Patheo (primarily Finnair, KLM, Lufthansa (now with Amadeus), and others).
• TravelSky (primarily Air China, China Southern Airlines, China Eastern Air, Hainan Airlines, and others).
Imagine how much longer the list would be if we added rail carriers (Amadeus lists over 50), tour operators (Amadeus lists over
180), cruise lines (Amadeus lists 130), and so much more.
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chain’s central reservations office. And hotels were accustomed to paying a commission to
travel agents (usually 10% of the room rate for each night of the guest’s stay). But this new fee,
paid for each sale over the airline’s GDS, seemed an expensive way to attract reservations.

seamless Connectivity
Another early issue for hotels was the outdated rooms inventory information listed on the
airline reservations system. Because rooms inventory had to be updated manually on the
airline global distribution system (GDS), this information was always outdated. Not only was
this manual updating prone to error, it created time lags between the creation of new data
and its appearance on the GDS. Even when the hotel’s inventory and pricing was regularly
updated, it was the source of many problems. Hotels needed to close availability on the GDS
when only a few rooms remained, or else they could find themselves oversold. Hotels were not
able to alter rates at a moment’s notice. And hotels were only allowed to sell a few categories
of room types.
An important step occurred in 1989 when the airline GDSs and the central reservations
system (CRS) of the major hotel chains began exchanging real-time information. Now travel
agents working through the GDS could view the same information a reservations agent working
in the hotel chain’s central reservations office (CRO) was able to see (see Exhibit 3).
This was a slight improvement, but unfortunately, hotel central reservations system in the
late 1980s were also out of date with regard to the rooms inventory information they carried.
The hotel chain’s CRS required constant manual updating from each property’s in-house reserva-
tions department. The hotel’s in-house reservations department was responsible for tracking the
rooms sold by the CRO and manually adding them to its first-generation property management
system. Once added, a new rooms availability count was calculated. The CRO never knew
how many rooms a given hotel had available; it just knew that rooms were still open for sale.
This placed an important responsibility on the property’s in-house reservation manager
to manually notify the CRO when room availability began to tighten.

last-room availability Because it was manual, communication between each hotel in the
chain and the central reservations office was anything but efficient. In-house reservation manag-
ers were continually monitoring rooms availability for all dates. When a date began to show signs
of filling, the hotel’s in-house reservation manager closed availability with the CRO. Sometimes
the decision to close availability came too soon and the hotel found itself with rooms left to sell.
Sometimes the decision to close availability came too late and the hotel found itself oversold. In
either case, this lack of efficiency was expensive to the chain.
Interfacing the central reservations system with each of the chain’s individual properties
was also expensive. This was especially true in the 1980s, because the individual hotels within
the chain were often using dozens of different property management system (PMS) software
vendors. Writing programs that electronically linked each hotel’s PMSs with the CRS was the
next step.
It was a costly step, however. Because each chain had to invest in their own proprietary
systems, there were no industry economies. Software was developed at the corporate level so each
hotel’s PMS interfaced in real-time with the CRS. But at the property level, investments also ran
high. Chains mandated only certain PMS software and related hardware would be supported by
the chain. Individual properties were faced with large investments, though many chains assisted
their properties with a portion of the costs or with inexpensive loans.
The idea behind this substantial investment (running in the hundreds of millions of dollars
for the larger lodging chains) was if the CRS could view each property’s rooms inventory in
real-time, it could sell each property’s very last room (hence the name “Last-Room Availability”
technology). Those last few rooms sold by the CRO represented almost pure profit to the hotel
and therefore the chain. In spite of the substantial cost, the investment had a relatively short-term
payback.
Lodging chains also came to realize that real-time information from each property had
other advantages as well. Electronic access directly into each hotel’s PMS allowed chains to
perform research and corporate wide developments, including revenue management, inventory
control, and guest history.

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ElECtroniC switCh tEChnoloGy As the computer eclipsed the telephone as the

preferred method for making airline and hotel reservations, travel agencies soon found them-
selves crowded with various computer terminals. With a dedicated computer for each hotel
chain and airline the travel agency represented, large travel offices were supporting literally
dozens of separate computers. Each of these systems was developed uniquely, and that meant
a different set of rules, computer codes, and procedures for each. Not only did this growing
number of terminals take up space and require training to learn each system, but travel agents
also found themselves spending time moving back and forth between terminals comparing
prices and availability.
It took a new innovation, switch technology, to get all the companies speaking the same lan-
guage. The original electronic switch system, THISCO (The Hotel Industry Switching Company,
known today as Pegasus Solutions), was introduced in the early 1990s (see Exhibit 3). It was
developed by 11 major lodging chains namely Best Western, Choice, Days Inns, Hilton, Holiday,
Hyatt, La Quinta, Marriott, Ramada, Sheraton, and Forte in conjunction with Rupert Murdoch’s
electronic publishing division. Switch technology functions like a clearinghouse. All reservation
transactions are processed through the switch. The overwhelmed travel agent now needed access
to just one terminal to communicate real-time reservation requests and confirmations to any
of hundreds of airlines, hotels, car rentals, and other related services (see Exhibits 3 and 4).
Switch technology functions as a translator as well as a real-time communicator. It translates
codes from all the various hotel CRS into one common switch language. Thanks to switch tech-
nology; when a travel agent books a room with, say, two queens, the agent does not need to
remember the exact input code for the particular chain in question. One chain might identify
two queens with a QQ code, another chain might use 2Q or DQ for double queen. The electronic

The Flow of Information Through the Global Distribution System

The Individual The Corporate The The GDS

Hotels Hotel CRS’s Switch GDSs Users

CHAIN Travel
Chain Hotel,
Los Angeles
Agents

Consumer
Amadeus Internet
Users
CHAIN
Chain Hotel,
Riverside
Hotel Internet
Companies' Travel
CRSs Pegasus Sabre Sites
Solutions,
(Originally
THISCO) Opaque
Chain Hotel,
CHAIN WizCom Internet
San Diego Sites
Travelport

Travel
Wholesalers
CHAIN
Chain Hotel,
Santa Monica

Others

Exhibit 4 The global distribution system is enormous. Each of the three airline GDS systems
processes over 100 billion transactions per year (that’s about 300 million requests for information
per day).
The flow of information works like this: The supply side of the flow begins with the hotel
where information (rate and availability) flows through the chain’s CRS to the switches. The switches
provide that information to the three GDSs. Travel agents, consumer Internet users, Internet travel
sites, opaque Internet sites, travel wholesalers, and myriad other end users (still to be invented) access
the information through the GDSs. The demand side of the flow works in the opposite direction, with
the resulting room reservation finally coming to rest in the hotel’s reservations system.

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switch allows the user to learn one system of codes and translates that information across each
chain’s particular CRS language.
The introduction of the switch has allowed seamless connectivity across the spectrum
of reservations. Now travel agents, airline reservationists, hotel central reservations agent, and
in-house hotel reservation clerks access the same information at the same speed. So too do all
Internet applications (including travel websites) and channels of distribution. All reservations
are made in real time and the rooms inventory updated the moment the reservation is confirmed
(see Exhibit 4).

application service Providers

The evolution of hotel CRSs from stand-alone call centers in the mid-1960s to today’s seamlessly
connected systems has only been possible at a substantial price. Because of the heavy investment
required, not all hotel chains are in the same place today in terms of their respective levels of
sophistication.
Last-room availability software requires an ability to integrate all of the chain’s hundreds
(if not thousands) of individual hotel property management systems. Some chains are
still dealing with the mistakes they made decades ago, allowing each hotel—franchised or
corporate-owned—to select its own PMS (hardware and software). Different hardware and
software applications across each property in the chain requires a myriad of programming and
hardware changes to get all systems speaking the same language. It is this challenge that has lent
itself to the successful introduction of application service providers (ASPs). Application service
providers are software companies (Pegasus’ RezView and Swan’s Unirez are two such examples)
that offer a suite of software applications via Internet-based access. No longer is it necessary
for a hotel chain to purchase and maintain specific PMS hardware and software for each hotel.
Rather, through a website, each hotel runs off the same suite of software by simply using any
Internet-ready computer—even a laptop!
Generally, ASPs offer four primary functions in their arsenal of applications: a CRS, GDS
connectivity, connections to “alternate” distribution systems, and Internet reservations. Hotels
simply subscribe to the system, and all property-specific data are stored off property in ASP-
maintained warehouses (see Exhibit 5).
Numerous benefits are associated with ASP applications. Hotel chains do not have to make
large capital investments in hardware and software. Nor do they have to employ a fleet of special-
ized software engineers to maintain the system and program new applications. Because every
hotel uses the same software, new software enhancements are implemented immediately at the
ASP site and made available to all users instantaneously.

Web-Ready
Hotel Properties
An application service provider offers such features as:
• Real-time availability and pricing of all property room types
• A Web-based property access tool for
o rate and inventory management
o property information
o electronic report distribution

• Central reservations decision support

• Connectivity to major electronic global distribution systems

• Connectivity to major Internet-based distribution systems

• Interfaces with revenue (yield) management systems

Exhibit 5 Features provided through an application service provider.

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 Global Reservations Technologies

sinGlE-imaGE invEntory The biggest benefit associated with ASP applications is

single-image inventory. Similar in concept to last-room availability, single-image inventory
allows all users to feed from the same database. One inventory—price and availability—is
viewed by the GDS, central reservation call centers, and Internet-based distribution systems.
The result is a lower error rate in reservation bookings and a resulting improvement in overall
customer service.
Although last-room availability and single-image inventory (also known as true integration)
appear quite similar, they are fundamentally different. The difference is that last-room availability
uses PMS inventory for its information. With single-image inventory, all reservation applica-
tions as well as PMS applications look at the same database and draw from the same well of
information.
As such, the rooms inventory can become available for others to access. One result of having
an accessible inventory is an overall savings on reservation commissions. Imagine negotiating a
special corporate rate with Pepsi, for example. Rather than having Pepsi book its special rates
through a travel agent (and paying commissions to the travel agent and fees to the GDS and other
distribution system providers), the hotel could provide Pepsi a unique access code. All reserva-
tions booked against the inventory using this special code would be virtually commission-free to
the hotel!
Similarly, access to inventory can be made available to corporate or tour and travel group
room blocks, giving groups the ability to develop their own rooming lists. Groups can then
manipulate their room blocks, change names as often as needed, and simply send the hotel a
completed rooming list at the touch of a button.

traditional reservation Channels

The explosion of the Internet, advancements in airline global distribution systems, and the
increasing sophistication of switch technology have all played a role in changing the hotel
industry’s reservation landscape. As websites and online bookings grow in reservations volume
(see Exhibits 1 and 6), other traditional channels have decreased in revenues and altered the
traditional manner by which rooms are sold.

thE ChanGinG rolE of thE travEl aGEnt On August 30, 2001, just days before
9/11, almost every travel agent office in America closed for part of the day as a symbol of
protest. The travel agents’ National Day of Awareness was designed to alert consumers to the
substantial airline commission changes impacting the travel agent industry. Until just a few
months before their day of protest, travel agents were generously paid by the airline industry.
They enjoyed a mutually beneficial relationship that created a market in which travel agents
were the number one option for consumer airline ticket purchases. Those days are gone
forever.
Historical commissions for a $1,500 round-trip, first-class domestic ticket had been $150
(10% commission). That commission eroded in a few short years. In 1995, Delta Airlines started
the trend with a $50 cap on its 10% domestic commissions. Two years later, the airlines cut the
commission rate to 8%, and then in 1998, instituted a first-ever $100 commission cap on inter-
national tickets. In 1999, most airlines cut domestic and international commissions to just 5%.
Then, in August 2001, American Airlines (and its subsidiary, TWA Airlines) reduced the $50 cap
on domestic ticket commissions to just $20. Within days other fleets followed with their own
reduced commissions.
This was devastating for the travel agent industry. Its bread and butter has always been
airline ticket commissions, but now (using the $150 commission example above) commissions
were reduced from $150 to just $20. In 2002, they lost even that paltry sum when most major
airlines simply stopped paying commissions altogether.

why airline Commissions Changed? Increased operating costs and rising fuel
prices have squeezed airline profitability. Competitive pressures among carriers and the
ability of consumers to comparison shop fares have kept airline ticket prices relatively low. To

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U.S. Online Retail Sales

($ billions)

300

250 $248.7
$229.8
$210.0
200 $191.7
$172.9
$155.2 Online travel purchases are
150
43.9% of all online sales
Online sales as percentage
100 of total U.S. retail sales

50

0
2009 2010 2011 2012 2013 2014
6% 7% 7% 7% 8% 8%

Exhibit 6 In the late 1990s online travel purchases outpaced online personal computer purchases,
for the first time. Travel has been the leading Internet sales category for better than a decade, and
continues to grow at the fastest rate, representing 43.9% of all online sales. That’s because online
travel bookings make sense. According to Internet experts, the travel industry is a natural for online
bookings. Through the Internet, clients can readily compare prices, amenities, and other features
before making their purchase.
But hotel bookings lag behind airline bookings in terms of online purchases. This is due, in part,
to the fact that hotel bookings are more complicated. Air is the simplest online purchase, followed by
rental cars, with hotels coming up third for “ease of use.” As such, just one out of every three or so
Internet air bookings is accompanied by a related hotel booking.
“All Other Online Sales” includes, in order by revenue, computer hardware, apparel, office supplies,
consumer goods, electronics, books, software and games, event tickets, and furniture/appliances.

stay profitable when prices are low and operating costs are high requires saving money wher-
ever possible. Doing away with the 10% travel agent commission was a logical cost-saving
measure.
Whatever the reasoning, certainly the airline industry has been successful in moving con-
sumers away from travel agent bookings toward self-directed Internet bookings. Attractive and
easy-to-use airline websites have helped simplify the do-it-yourself process. Discounts, double
frequent flier miles, and Internet-only specials have also played a critical role in motivating con-
sumers to visit airline websites.
Changes still to Come Once there were 500,000 travel agencies across the world.
In the past decade, and with increasing frequency, the travel agent industry has experienced
numerous bankruptcies and going-out-of-business signs. The biggest change for consumers
has been an increased fee structure—consumers now pay travel agents $10–$25 per airline
ticket booking fee.
In a move similar to the elimination of travel agent commissions, most airlines also reduced
or eliminated commissions to Internet travel sites (Travelocity, Orbitz, etc.). Where airlines had
generally been paying travel sites a 5% commission (maximum $10 cap per ticket), most now pay
none at all. Internet travel sites now add a surcharge similar to the booking fees charged by travel
agents.
It is hard to predict what such changes will mean to travel agents, consumers, travel
websites, the airline industry, and the hotel industry, but we can make a few conjectures. Travel
agents will attract consumers from higher economic strata. These consumers will appreciate (and
pay for) higher levels of service. The travel agents’ expertise, the ease and convenience of one-
stop shopping, and familiarity with the customer’s unique needs and wants are the products that

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travel agents sell. As the travel agent industry evolves, larger agencies will absorb smaller ones.
The resulting few mega agencies will undoubtedly carry more clout then we see today in terms of
price/fee negotiations, wholesale travel prices, Internet websites, and more.

thE hotEl–travEl aGEnt rElationshiP Although some experts predict that hotel com-
missions to travel agents will go the way of airline commissions, that appears unlikely. There are
simply too many hotels competing with each other. Even hotels within the same chain or brand
are in competition with each other. Hotels cannot afford to limit their chances of selling rooms by
limiting their exposure to the global distribution system.
Travel agents are a major source of hotel reservations. Travel agent bookings represent
about 15% of all hotel rooms booked. Hotels pay a 10% commission—more in off-seasons to
generate volume—for all rooms booked by an agency. Fees are not governmentally regulated.
Amounts paid vary from property to property and even within the same property over time.
Overrides, additional points of 10–15%, are paid to encourage high levels of business from one
agency. Guests used to pay no fee to the travel agency for its services. This is almost unknown
today. Most agencies charge a service fee for all bookings, not just airline tickets.
Many hoteliers believe they are in direct competition with travel agents, fighting for the
same business and paying a commission to boot. This kind of thinking is being supported by the
appearance of powerful mega agencies and consortiums of agencies. Large-volume dealers stand
toe to toe with national hotel chains. By securing the travel contracts of small and large corpora-
tions, these mega agencies squeeze discounted rates from the national hotel chains anxious to
get or retain a piece of the business. This has become especially true with high-demand periods
in selected cities. Certain major markets, New York City for example, have such high demand
during key periods of the year that corporate buyers are using travel agency room blocks as one
approach to guaranteeing room availability.
travel agent Commissions The classic argument between hoteliers and travel agents
revolves around commissions. Travel agents argue that hoteliers are slow in paying commissions
and when the check does arrive, it is often inaccurate. Studies show that from 15% to 50%
of all hotel commissions are inaccurate. Hoteliers argue that certain travel agents provide so
little business that the commission check costs the hotel more in processing fees than the value
of the check.
The advent of travel management software tools (a popular one is Kalypso, by ECommissions
Solutions) have deflated most of these arguments. Hotels are better able to track business from
travel agencies, choosing to accept business from those with which the hotel has a better relation-
ship and possibly denying business from low producers. Travel agents are paid quicker and with
more accuracy. Furthermore, both the hotels and the travel agents are able to evaluate annual
business levels and choose with which operators they prefer to do business.

CEntral rEsErvation CEntEr Although there is a distinction between the terms central
reservations system and central reservations office, today’s jargon has made them virtually
interchangeable. Technically, the CRS is the electronic system, including the last-room avail-
ability interface with individual chain properties. Included are the switch technology connec-
tions with the GDS and the chain’s Internet websites. The CRO is the actual office site(s) at
which chain reservationists reside (see Exhibit 7). Most hoteliers simply refer to all these
activities as the CRS.
outsourcing Call Centers Central reservations office reached their peak demand in
the mid-1990s. Today, even though many chains have grown in size and volume, their CRSs see
less business than a decade ago. The result has been a reduction in CRS staffing and the closing of
select central reservations office around the globe (see Exhibit 7).
Reduced CRS staffing has created a new trend in call centers—outsourcing. Outsourcing the
CRS means room reservations are sold through call centers or reservationists not directly staffed by
the chain. Two techniques are proving quite popular. The first is outsourcing to a complementary,
noncompetitive industry. An excellent example of this relationship is Choice Hotels’ outsourcing
arrangement with 1-800-Flowers.com. Choice overflows CRS call volume to 1-800-Flowers.
com and vice versa. The two organizations find their business cycles to be very complementary.

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Exhibit 7 The Beardsley Operations Center is one of three remaining international reservations
centers operated by BWI. As call volume has dropped, so have the number of call centers worldwide.
At its peak, Best Western operated five call centers, including Beardsley (shown above), and call
centers in Glendale, Arizona (on the campus of Glendale Community College); Dublin, Ireland; Milan,
Italy; and Sydney, Australia. Today, Best Western operates just three call centers: Beardsley, Milan, and
Manila, Philippines. Courtesy: Best Western International, Phoenix, Arizona.

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Choice is busiest in the summer season, posting its largest call demand between the months of
May through September. This is the slowest season for the flower industry. Flower demand is
highest between October and May, with surges in call volume from Thanksgiving to Mother’s
Day. By training operators at each company to handle double duty, each chain benefits from the
relationship. The operators/reservationists benefit as well, because their job has more variety, there
are fewer slow periods, and the two products are widely disparate.
Another outsourcing technique takes advantage of the work-at-home revolution. Driven
by expanded broadband access to the Web, cheaper computer technology, improved call-routing
systems, and increased dependence on ASP providers, CRSs are beginning to find their answer
to overflow call demand in at-home workers. Flexibility is the primary attraction for at-home
workers. Access to skilled labor, often without the need to pay costly employee benefits, is the
draw for the hotel chains.
Some 70–80% of at-home reservationists have a college degree, compared with 30–40%
of reservationists working CRS call centers. The employee turnover rate is lower with at-home
workers as well. There is still the boredom of taking call after call, but at-home reservation-
ists temper the monotony with the benefits of staying home every day. The result is a growing
dependence on stay-at-home reservationists, approaching one-fourth of all reservationists on
the job today.

Processing the Call Reservations agent receive incoming calls and process them in
two to three minutes. They are assisted with sophisticated telephone switching equipment. To
save labor, automated telephone systems answer the call and segregate the caller according to a
variety of options. The caller listens to the options and selects a specific number on the telephone
keypad. Large chains use the telephone system to segregate callers according to the hotel brand in
which they are most interested. Another common way to separate callers is according to whether
their reservation is for a domestic hotel property, a European hotel, an Asian property, a Latin
American operation, and so on.
Once callers have been routed, they may be placed on hold for the next available reserva-
tionist. During the holding period, a recording provides information about the chain, special
discount periods, new hotel construction, and the like. In recent years, more and more record-
ings recommend callers visit the website to save time and view special Internet-only discounts.
Automatic call distributor equipment eventually routes the telephone call to the next available
reservationist.
Time is money, with labor and telephone lines the primary costs of CROs. Reservation
management constantly battles to reduce the time allotted to each call. A sign in the office might
read: “Talk time yesterday 1.8 (meaning minutes). During the last hour, 2.2. This hour, 2.1.” Even
more sophisticated devices are available which monitor each agent, providing data on the num-
ber of calls taken, the time per call, and the amount of postcall time needed to complete the
reservation.
Employee evaluations are not judged on time alone. Systems often evaluate the percentage
of the agent’s calls that result in firm bookings and the relationship of the agent’s average room
rate to the average being sold by the entire center. Remember, CROs charge a fee for each res-
ervation. Since the CRO is usually a separate subsidiary of the corporate parent, even company-
owned properties pay the fee of several dollars per room-night booked. Franchisees pay more
than just the booking fee, including a monthly fee on each room, a percent of gross rooms sales,
and other national and regional marketing costs. Though franchisees may complain about the fee
schedule, the CRS and its interface to the global distribution system and other channels of distri-
bution is the major attraction of franchising.

in-housE rEsErvations Whether chain affiliated or independent, all hotels accept direct
or in-house reservations. In many properties, the number of in-house reservations is mini-
mal. Others—especially nonaffiliated, independent hotels and resorts—may sell the bulk of
their rooms through in-house reservationists (see Exhibit 8). In-house reservations are also
handled in quantity by hotels with large sales departments. Such business is generated by the
hotel’s own sales department, and those bookings often bypass the CRS. Bypassing the CRS
improves the profitability of each room sold by eliminating fees associated with the reservation.

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 Global Reservations Technologies

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Exhibit 8 Because hotels pay commissions on reservations booked through the CRS, a website
can drive traffic directly to inhouse reservations. Shown here is a popular independent resort in
Arizona. In spite of the attractiveness of the Web page, you’ll notice the guest cannot actually check
availability or book a room online—this still requires a call to the property. Courtesy: Rio Rico Resort
and Country Club.

Where group rooms are deeply discounted, this small savings on each reservation amount to a
boost in annual earnings.
Experienced shoppers often call the hotel directly. The in-house reservationist is more
informed about the property. He or she has one hotel, whereas the CRS agent has hundreds or even
thousands. If the hotel is full, reservations might be refused by the CRS but still be accepted on site.
Although it doesn’t make sense, reservation calls directed to the property are being discouraged
by, of all entities, the property itself! The hotel, which should encourage callers to bypass the CRS,
is often too poorly staffed at the front desk to accept in-house reservations. The caller, waiting on
hold to speak with an in-house reservationist, is unknowingly re-routed to the CRS. This can be
especially frustrating when the caller has made the effort to look up the individual hotel’s telephone
number, called the operator, and asked for reservations, only to have the line redirected to the cor-
porate CRO. This approach makes sense during busy or understaffed periods. But systems which
send all reservations to the CRS are doing both the property and the guests a disservice.

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 Global Reservations Technologies

• Over two-thirds of all Internet hotel bookings are for rooms selling below $100 per night.
• While the ADR for hotel rooms has been growing at roughly 7% per year, online Internet hotel room
rates have been growing more slowly—only 5% per year.
• Hotel rooms booked over the Internet sell for an average 21% lower rate than hotel rooms booked
through other GDS channels.
• For rooms selling for $301 and higher, the Internet actually sells a higher ADR than for hotel rooms
booked through other GDS channels.
• The average length of stay for Internet hotel room bookings is 2.1 nights. Hotel rooms booked
through other GDS channels have an average length of stay of 2.2 nights.

Exhibit 9 Some interesting facts related to Internet hotel bookings.

intErnEt- anD wEb-basED rEsErvations Internet users have a staggering array of

options for booking hotel rooms. Travel-related bookings make up the largest category of
Internet transactions (see Exhibits 1 and 6). And each year, the Internet attracts a larger share
of reservations away from more traditional sources—growing at a rate four times faster than the
rest of the industry (see Exhibit 9).
Over its relatively short business cycle, Internet travel bookings have experienced signifi-
cant changes and increasing sophistication. One factor in the success of a hotel’s online marketing
performance is search engine optimization. The use of search engines by guests seeking accom-
modations is growing at a rate of roughly 50% per year.
search Engine optimization Some 80% of all Web visits start in a search engine.
Search engines such as Google, Bing, and Dogpile scour or mine the Web for a list of sites which
match the search criteria requested by the user. The search criteria is a key word or words, or a
phrase, such as “Hotels at LAX.” The user hopes that search phrase will identify hotels located
at or near Los Angeles International Airport. In fact, a quick search on Google with the phrase
“Hotels at LAX” actually turned up 3,900,000 results!
The goal of search engine optimization is to juggle all the components of a search strategy
so the hotel’s website migrates toward the top of the search. Even the top 1% of a search with
4 million results isn’t good enough. For the hotel to be found by potential buyers, it needs to make
its way into the top 5–20 listings. Statistically, that means, for this example, making it into the
top-listed 0.0005% of all results! Users will view most of the first page, rarely the second page, and
then revise their search if they haven’t found what appeals to them.
The hotel’s search engine strategy will usually have both a paid and an organic component.
Organic searches are the purest and most trusted kind. When the user looks up “Hotels at LAX,”
one or more paid listings will appear at the very top. These are usually distinguishable to the expe-
rienced user because they are a different color, have added graphics, or are listed on the sides of
the top page. Experienced users often ignore these paid commercials and opt for organic results.
Organic results are different from results based on who paid the most to be listed at the top of
the page. Organic, sometimes called “pure” or “natural,” search results are based on which websites
appeared most relevant based on the nature of the content search. Organic results boast a higher res-
ervation conversion rate than paid results because users trust organic results more. Organic results are
often very accurate and detailed—for example, adding words like swimming pool, free breakfast, and
free airport shuttle to the original search of “Hotels at LAX” dropped the 4 million results to under
90,000. A few more criteria—free parking or club room—and the search will be further refined.
Paid searches can be costly. Hotels pay both for key word placement and for each customer
click on the search engine to the hotel’s website (called click-throughs). Software packages are
available to help hoteliers compare costs for Internet placement versus increased returns in room
sales. If the reservation is the final goal, and the manager knows what each reservation is worth,
the software will estimate the profitability of the search strategy. It calculates two variable compo-
nents: the click-through rate of each search engine and hotel’s website’s reservation conversion rate.
Search engine optimization strategies employ a blended mix of paid and organic results.
But search is only half the battle. The hotel’s website needs to be attractive and user-friendly
enough to get the potential guest to open it, linger a bit, and ultimately book the reservation
(see Exhibit 8). The website should be up to date with regard to photographs and video images
that showcase the property’s ambiance. Information should be updated frequently and detailed

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enough to explain amenities and provide seasonal information. Information should be written in
a variety of languages which parallel languages used by the hotel’s guests. And the website should
enable guests to make other on-site reservations (golf and dining, for example). No wonder the
hotel’s website is being called the front desk of the new millennium.
hotel websites Hotel managers realize the importance of spending marketing dollars
on the Web just as they spend on billboards, print media, brochures, and so on. A realistic goal
for a property is to spend approximately 40% of its annual marketing budget in online products.
A worthy goal, though today’s industry is not yet there. In a recent study (see Exhibit 10),
most hotels stated they were spending only $1,000–$35,000 annually in online marketing. That
approaches only 10% of the average property’s annual marketing budget.
Spending online in such areas as search optimization, regularly updated content, rich
imagery, and interactive maps can return substantial profits. When a guest books directly into a
hotel’s proprietary website, profits rise because the reservation has lower, if any, associated costs
or fees. A $100 room booked through the property’s website is worth $100 (less nominal pay-per-
click fees charged by the search engines). A $100 room booked through an Internet travel site
(Expedia, for example) may be worth just $60 or less!
Chain websites In the early years of the Internet, lodging chains lost ground quickly
to third-party travel sites and lodging aggregators like Expedia, Orbitz, Hotels.com, and
Travelocity (see Exhibit 11). Early on, these third-party travel sites attracted greater demand
from Internet users than chain websites. By establishing certain inventory and room-rate
pricing rules that all hotels were required to follow, heavily promoting low-price guarantees,
and investing substantially in attractive and easy-to-use websites, the travel sites were running
before the chains could react.
Times have changed, however, as third-party travel companies have begun losing
Internet demand back to the chain websites. The catalyst for this change was a gutsy move by
Intercontinental Hotels Group in November 2004. Intercontinental announced it would pro-
vide the best room prices on its own website. Shortly thereafter, most of the other major lodging
chains followed suit, undercutting the biggest attraction for third-party travel sites, lowest rate
guarantees (see Exhibit 12).

Budget Percentage of Hotels

$60,000+ 17

$35,000−59,999 13

$20,000−34,999 19

$1,000−19,999 21

Exhibit 10 The weighted

average annual expenditure by
hotels for online marketing is
just $26,400. This correlates to
only about 10% of the average
hotel’s overall annual marketing
$0−999 30
and advertising budget. Online
expenses are projected to grow
as a percentage of a hotel’s
overall marketing budget for
years to come.

141