Introduction

The first e-business system was developed by the airlines in the 1960’s and facilitated electronic Business-to-Business commerce in the 70’s when the airlines realized that the very manual seat-by-seat sale of a plane by travel agents all over the world was extremely inefficient. Today, the ubiquitous internet has created a new ways to reach potential customers, and several companies, like Expedia, LastMinute and Opodo, cater to the needs of the online customer of travel products. They provide information, allow for product comparison, and in essence, are the internet travel agents or internet department stores with travel merchandise. Within the European hotel market, it is a fact that most hotels are not electronically connected and that they are not able to sell their inventory electronically. The Mediterranean leisure hotels are no exception and tend to do their business as usual. The last year, however, has shown clear indications that hotel distribution is extremely dynamic. This article explores what the Mediterranean hotel market might look like in one to two years and how hotels and companies providing services to hotels with regards to electronic distribution can best position themselves.

Methodology

In order to understand the existing environment, the latest available data on current trends in hotel distribution were used from PhoCusWright, the Center for Regional and Tourism Research in Denmark, and the Spanish tourism office Turespaña. For current internet-related trends and data,Forester Research has proved to be invaluable. To more specifically understand the Spanish leisure hotel market, many interviews with hoteliers and experts of this segment were conducted. Additionally, a survey was sent to approximately 100 randomly selected hotels in randomly selected leisure markets. In effort to better understand the Mediterranean leisure traveler, surveys were distributed at typical tourist locations in Barcelona that were direct hubs for transportation to the typical leisure markets. And even though the main objective is forward-looking, it was important to understand the history of hotels in this segment. Finally, new emerging models and technology even outside of the travel industry were examined, in an effort not to fall into the trap of focusing on minor product improvements whereby the overall purpose of the product in its setting is lost. These pitfalls are rudimental to the creation of new emerging distribution models.

Market review

At the May 2005 HEDNA conference in Barcelona, the closing, keynote speaker, David Jones, of the GDS Amadeus, illustrated the state of the European hotel industry through an analogy with the airline industry: “Imagine every airplane having it’s own systems and the captain is in charge of it’s distribution.” It would be truly unthinkable to have that situation in the airline industry because of its complex, interrelated, time-sensitive components (such as) with connecting flights to move its customers from point A to point B. The hotel industry, however, is much simpler in that hotels do not move and their occupancies are not interdependent. Therefore, perhaps a GDS-like system was not or is not necessary for the distribution of hotels.

In many ways, in Europe, it is business as usual but it should be noted that the traditional sales lines are blurring. Tour operators are travel agent networks, are online agencies, are discount airlines, and are even partial or complete owners of hotel chains. Hotel distribution is more dynamic then ever, especially because the old models that have been so ingeniously transferred to the internet are now exposing all the margins upon which they were built.

History and Culture

It is crucially important to understand why things have developed the way they have before any prognoses on the future are made, or before blindly stating that the trends seen in the industry will also be true for the Mediterranean leisure market. First, it should be noted that Europe consists mainly of Small and Medium-sized Enterprises (SMEs), and 75% of hotel properties are not part of a chain but are independently owned (Jager, 2.14). This is much different than the US, where many of these trends originate. Spain has a thriving leisure market and receives more than fifty-million tourists each year. What is the secret to their success, or perhaps the appropriate question is, why change? or why take risks?

From a cross-cultural perspective, Spain has been identified by Geert Hofstede as a risk adverse country. For that reason, Spanish hoteliers are perhaps understandably hesitant to change their business model for a new one when clearly the old one still works. Hofstede also points out that “there is a strong relationship between Uncertainty Avoidance and age: older people tend to have higher uncertainty avoidance.” (Verluyten 181) Noting that nearly all Spanish leisure hotels are still under the direction of the people who started the Spanish leisure market twenty-five to thirty years ago, one might expect this to be even more pronounced. Secondly, the first thing normally mentioned in nearly every publication about doing business in Spain, is that “the national business culture of Spain is relationship-focused” (WorldBiz, 1). One simply cannot expect to do business in Spain without building a relationship first.

Many hoteliers and experts of the Spanish leisure Hotels explained that the Spanish leisure hotel industry was build on relationships, first with the customer and then through symbiotic partnerships with tour operators and travel agents. The hoteliers had entrusted them to sell, and as the businesses grew, they had become dependant on them. In the last few years, because of increased international competition, new technologies, and especially because of the internet, travel agent / tour operators have drastically increased their size through mergers and acquisitions. Additionally, this was because of the rapidly declining to non-existent airline commissions. For that reason, travel agents had to focus on the hotels to ensure income. It is important to understand this evolution of the relationship-based distribution model while it is the underpinning reason why the GDS has very few leisure hotels represented. Simply put: the GDS is not built on personal relations by which it is abundantly clear that somebody is working for you to promote your hotel. The GDS, in effect, demotes the more personal business.

Current Technology and Acceptance

In the last few years, Europe’s improved technology infrastructure has helped the adaptation of online travel commerce. Online travel sales increased by as much as 40% from 2003 to 2004 and reached EUR 17.7 billion, or 7.4% of the market. A further increase of about 26% during 2005 to about EUR 22.2 billion, 9.1% of the market, may be expected. In 2006, it could reach EUR 27.0 billion or 10.8% of the market (Marcussen). Reineke Reitsma of Forrester Research concluded in her latest study on the European online consumer that 120 million consumers are online across Germany, the UK, Italy, France and Spain. Not surprisingly, Email was the most popular online activity, the second and third most popular activities were “researching holiday destinations” and “preparing trips online,” respectively.

HEDNA recently published a whitepaper titled Hotel Distribution Nirvana: A Multi- Channel Approach. The paper explains that multi-channel distribution has complicated the successful pricing and selling of the hotel rooms, especially due to the transparency of the internet, but even though it is complex, there is “… more power to capitalize on the opportunities the new world of distribution offers.” (Helsel, Cullen 3) It is unlikely the small independent Spanish leisure hotels will embrace the complex multi-channel model, let alone capitalize from it because of the same issues discussed above. It does seem, however, that they are interested in selling online, as became abundantly clear this year with the success of Turespaña’s Plan de Innovación Technológica en Alojamientos (PITA). Through this plan of technical innovations for accommodation, 7500 websites were created. It cannot, however, be assumed that the hoteliers are getting their websites, because it must be the cheapest way to distribute as the internet is the most efficient distribution medium ever invented. It is much simpler even than that, tells a webmaster from a leisure hotel in Lorrett de Mar; “The sites were free.” From the survey, (it can be said) that the main reasons Spanish leisure hotels have a website is to control their brand and hotel image. The airline(s?), in the mean time, are truly trying to simplify their business by completely switching to e-tickets (IATA) and strongly encouraging direct sales from their websites, as sales through intermediaries like travel agents will result in efficiencies that cost the consumer extra fees (Ryanair). The discount airlines in particular have had a significant effect on the leisure travel in Spain. Just a few years ago, most leisure travelers preferred the vacation package while now they are increasingly planning their own vacations.

Even though there are many indications that Spain’s leisure market customers are increasingly shopping online, and are even planning their own vacations, as opposed to buying the traditional package, it still does not mean that these hoteliers are ready to embrace direct selling through their own electronic channel. There are cultural issues and risks to sever relationships that have cost years to develop and, lets not forget, have been very good for this segment. Those that have built these relationships, and have learned how to profit from them, are still in charge. This is important to note because seniors, over 55, are much less likely to embrace the internet (Reitsma 3).

Emerging technologies

Although some form of dynamic packaging, where the customer tailor makes his travel package, has been available, Christine Brosnahan, from Carlson Hospitality Worldwide, tells us that true dynamic packaging is defined as “a package for which the overall price and component prices change based on the business rules that govern them, as well as the value of the customer to the supplier, packager to intermediary, and the value of the trip to the traveler.” This will require real-time connectivity and intelligent technology. For this type of packaging, the traditional travel agent brochure or window advertisement will simply not suffice. It is likely to be successful as it is “consumer driven”.

With so many websites focused on travel, the all inclusive search sites like Expedia, Opodo, LastMinute, and the thousands of others that do the same, with the travel agents and tour operators that now have moved their package posters from behind their windows to behind the glass of your computer screen, and with all the direct suppliers, another travel search site seems the last thing the world needs. Steve Hafner, CEO of Kayak, explains in the March 21 issue of Newsweek that this is exactly why you need it. Kayak.com is just one of the new travel search engines aiming to help the customer search all the other sites. Their business model is just like that of other search engines; Direct internet traffic and help customer increase their traffic through selling advertisement. Travel search engines aim to be comprehensive and objective. Kayak, for example, places a lot of emphasis on independent reviews and actually provides links to the hotels reviews on sites like Foder, IgoUgo, or TripAdvisor. Even though most of the travel search engines were started in the US, they are much better suited for the fragmented European leisure hotel market because they allow the small independent hotels to be noticed, however, most likely twice, once through the tour operator and once again independently. Also, thanks in part to Europe’s obligatory national quality standards and the national tourist offices that have put the traditional paper guides online, travel search engines can easily scrape the static descriptive hotel information of all nationally recognized hotels. Some of the travel search engines’ influence has already shaped online travel, as it has forced the destination hotel search to be disjoined from the availability hotel search. By disconnecting the non-volatile descriptive data of the hotel, search engines are also able to produce results much faster on even larger volumes of data.

Real Simple Syndication (RSS) is just a simplified form of XML, and XML is just like HTML, but specifically created to mark up data for internet use. While this obviously is an over-simplified description, it helps emphasize how it can impact the travel industry. The use of RSS has exploded in the last six months and just about every news site allows you to click an orange RSS button to set up an automatic stream of this marked-up data to the interface of your choosing: Yahoo, MSN, Newsgator, and soon, your new Windows version. Most of them are like the newsletter email that you could sign-up for but with the added advantage that it does not fill up your mailbox. To further simplify RSS, it is designed for syndicating data that has the same structure every time. Both the hotel’s static and dynamic price and availability data is very structured. And if you see how it can syndicate the most dynamic data (news headlines), you can imagine what this could do to the hotel industry.

For years, directories have been the tool to match buyers with sellers. Telephone books and the more business oriented Yellow Pages are good examples of this. Last May, a new internet top level domain, dot travel, was approved and will go live later this year. This initiative, which is alleged to have all travel businesses represented, will feature a directory as the most important value-added service. Ron Andruff, CEO of Tralliance Corporation, the sponsor and registrar of the dot travel initiative, explained in an interview that he thinks this can move the $150 billion into a 1.5 trillion industry in five years. The key to its success is the directory that will be created as part of this initiative and that only reputable, recognized travel businesses will be able to register. To objectively determine which businesses are reputable and recognized, Tralliance has “… set up a not-for-profit corporation, the travel partnership corporation TTPC with representation from each travel industry segment,” Andruff explained. The board of the TTPC is travel industry’s All-Star team and has had significant success in convincing industry associations to sponsor this, as most globally recognized travel associations are listed as members. Another reason this has been initially successful is the collaboration Tralliance has with the World Tourism Organization, WTO. Together they agreed to reserve all country and city names, as well as UNESCO sites. In an interview with Mark Leher from WAND Incorporated, the technology provider of the directory, he explained what the taxonomy looks like and how it will be utilized when the www.directory.travel comes online later this year. What it comes down to is that every business will be able to put itself in any or many of the 1400 categories that were defined by the TTPC. The user of the directory can narrow in on what he is looking for by selecting the categories as narrow or broad as he likes. But what is most important to realize, according to Tralliance and WAND, is that every result will be a recognized, reputable and authenticated travel company matched to your specification, which is something no other search engine can provide. Because there is no commercial aspect to the listing in the directory, it levels the playing field, which is something beneficial to all the small independent hotels in the Spanish leisure market. While it remains to be seen how comprehensive the directory will become in the next two years, it is here to stay as it has already been made a part of the infrastructure of the internet itself.

Instant Messaging, IM, is one of the fastest growing uses on the internet. It is not just a thing that kids do, but it is what companies like IKEA, CitiBank, and CISCO do through their websites. The message it sends is simple: I am here for you, can I help you? It allows you to guide the user to information already published on your website, and it encourages your web customers to talk about your site, which could result in an improved site. It is important to know your customer and build a relationship with him so you can give him what he wants…or more. Happy customers talk and recommend. While this is nothing new and perhaps is even one of the main contributors of the success of the Spanish leisure hotels, it should be fostered, especially in the online world. Many of the popular peer travel review sites, like IgoUgo and TripAdvisor, have been bought by the big intermediaries because they understand this concept. They know it helps build confidence in listed products. In May 2005, BusinessWeek had a cover story with a powerful message: Blogs…“are going to shake up just about every business -- including yours.” People have a desire to share their experiences and opinions. It is therefore important to “find ways to get customers to show off” (Seybold 316). With so many other factors, it will not be the one thing to impact the Spanish leisure hotels most, but it will be important to stay informed. The simple fact is, your quality is not proven by the number of stars near the entrance of your hotel, but by how your customer writes and talks about you. A bad product or bad service simply cannot be hidden anymore. Customer Relationship Management, CRM, is, therefore, more important then ever. Patricia Seybold’s book, Customers.com, discussed how the most successful e-business companies electronically help the customer do business with them and how, by doing so, rich data could be collected to help them build better websites that result in lasting relationships with their customers. Many of the most successful businesses online still use this strategy. E business as usual.

Conclusion

As dynamic as the global travel market place has been, not much evidence of this can be found in the Spanish leisure market. In this market, business is best described as business as usual. There are no significant indications that the Spanish leisure hotelier has any intention to fully embrace the new electronic distribution models because doing so might sever relationships that have been delivering customers to them year after year. This risk and the characteristics of the new model, that it is technical and a less personal approach, compounded by cultural and age related characteristics of those in charge, raise doubts as to whether this situation will change in the next two years.

Because of this, one could conclude that in the next two years, there is no potential for companies selling services related to electronic distribution. The adage “give the customer what they want, or somebody else will” is still true. And this is precisely why the travel market place has been so dynamic. Nonetheless, most have been blindly adhering to their old ways and most of the changes have been efforts to improve the old models. Airlines have been the forerunner in the use of technology for distribution and many similarities exist with regards to product as well as customer base. Therefore, they have naturally provided the base of most technology used in the distribution of hotels. But it is time to take a step back and look at the complex model we have built.

In the words of Albert Einstein,

“Any intelligent fool can make things bigger and more complex....

It takes a touch of genius - and a lot of courage - to move in the opposite direction”.

The epitome of the leisure travel market is the fact that the customer wants a vacation. The needs of this customer are the most important for all players in the travel industry. Forgetting to cater to this customer’s needs will allow others to steal your business. To make the best decision regarding vacation product, customers have indicated that they need comprehensive and objective selection tools. This is what is needed to find the best value, and it is exactly why you see the big get bigger and why you will even see more mergers, acquisitions and partnerships. It is, therefore, inevitable that the Spanish leisure hotels will be sold online, even if the wholesale transaction with the hotel was done offline. The more efficient model will provide an even better price and, as such, create more value for the customer.

The fundamental nature of the Internet is that is distributes information in a transparent manner. Static hotel descriptions are widely available, but increasingly, so also is the more dynamic price and availability information. This is why customers shop around, and why travel search engines came into existence. It is the complexity of the electronic distribution models that led to the disparity of the publicly available rates. As a result, hotels get a second chance to break away from the control of the ever more powerful intermediary. By partnering with travel search engines and helping them get the information they seek, these search engines can help the small, independent Mediterranean leisure hotel get noticed online and attract the traffic needed to be successful. It is of utmost importance to strive for price parity to level the playing field and attract customers as they have indicated that they prefer to buy direct. The net-rate should be used by hotels to continue to show appreciation for the efforts and volume provided by the tour operators. The increasing competition for tour operators will only improve negotiating position for the hotels.

It will be important for hotels to start building relationships with companies that have the know-how to succeed in the new environment. It is inevitable that their product will be sold online, and it takes time to build relationships. As the large and efficient online travel suppliers increase their supply of (dynamically) packaged or unpackaged hotels, the traditional tour operators, with less efficient distributions, will not be able to compete. It will be important for hotels to find full service providers, in which the symbiotic partnership is emphasized. It is similar to how the tour operator relationship evolved and is contrary to the impersonal GDS adaptation failure. The Mediterranean leisure hotelier needs to “see” that their partner is working for them, not just connecting them to potential customers. It is unlikely that the hotels will play an active roll in this partnership, until a younger, more technically savvy staff arrives. The active service model could be constructed similar to the full service Application Service Provider (ASP) models that are common in the technology world. However, in this Page 8 new, full service ASP model, it should be emphasize that the service provider will sell the hotel using their technology, and that it is a symbiotic partnership. Additionally, it will be essential to provide special attention to the relationships with the tour operator in effort not to sever these relationships.

While from the Mediterranean hotelier’s perspective, it might be business as usual, it pays to examine why it will be business as usual and come to the conclusion that it is e-business as usual.

Bibliography

Andruff, Ron. Tralliance Corporation. Phone interview February 32005 18:30 GMT Brosnahan, Christine. Carlson Hotels Worldwide. “Dynamic Packaging”. HEDNA Conference, Barcelona, May 2005. Helsel, Caryl and Cullen, Kathleen. “Hotel Distribution Nirvana: A Multi-Channel Approach”. HEDNA, 2005. IATA. Simplifying the business Fact Sheet Electronic Ticketing. http://www.iata.org/ps/events/agm/2005/ newsroom/fact06.htm Retrieved August 22, 2005 19:38 GMT. Jager, Olivier. “European Online Travel Marketplace Update 2002-2006: Focus on Germany” (2.14). PhoCusWright Inc, December 2004. Jones, David. “The multi channel challenge: Key success factors”. HEDNA Conference, Barcelona, May 2005. Leher, Mark. WAND Inc. Phone interview July 27, 2005 16:00 GMT Marcussen, Carl H. “Trends in European Internet Distribution – of Travel and Tourism Services”. Centre for Regional and Tourism Research, Denmark, http://www.crt.dk/uk/ staff/chm/trends.htm , Retrieved August 8, 2005 22:36 GMT. Reitsma, Reineke. “The European Online Consumer”. Forrester, May 16 2005. Ryanair. News Release “STOP THE TRAVEL AGENT RIP OFF”. Ryanair, June 14 2005 http:// www.ryanair.com/site/EN/news.php? yr=05&month=jun&story=gen-en-140605 Retrieved August 22 9:12 GMT. Seybold, Patricia B. Customers.com. Times Books, a division of Random House Inc., 1989. Verluyten, Paul S. Intercultural Communication in Business and Organizations An Introduction (181). Acco, 2004. WorldBic Inc “Doing Business in Spain”. WorldBic Inc, http://www.worldbiz.com/product_info.php/cPath/118/ products_id/360 Retrieved July 6, 2005 10:32 GMT.