In view of the turbulent ups and downs in the US & European economy, business travel buyers are increasingly looking at newer opportunities to cut travel costs. Our own internal bookings report for HotelHub shows almost flat growth in GDS hotel bookings in 2011, while non-GDS bookings grew at a much faster pace. We first noticed this growing share of non-GDS hotel bookings in mid-2011 and the full year data confirms this trend. While this is strictly based on bookings passing through HotelHub, we believe that this represents a wider, emerging trend.

What is driving this trend for increased bookings through non-GDS hotels? Looking at what is happening in the market, we have identified the following factors:

Business travel slowdown imminent
Last week GBTA forecast that business travel spend would increase 4.6 percent in 2012, but that growth is expected to be slower than past year – with a 0.8 percent decline in person-trips. Last week also saw a report that U.S. travel agency air transactions processed through ARC in December decreased 4.6% year over year – the 11th consecutive month of declining volume.

Rate negotiation process is getting increasingly tougher
As hotels try hard to remain profitable in a slow economy and with declining market demand, they have toughened the rate negotiations with buyers. Initial reports indicate rate increases in most markets. This is forcing corporate travel buyers to look at alternative strategies to generate savings from their travel programs. Some are consolidating hotel use to fewer properties, so that the volumes can be used for negotiating lower rates. Others are looking at benefiting from negotiating off-cycle (like Citi does by running their program from April to March).

Demand for wider range of rates to aid policy compliance
With negotiations getting tougher, corporates must still focused on their key objectives of improving travel policy compliance and security for travelers during business trips. They are finding a better value proposition in using hotel aggregators. The real-time availability of rates and inventory from GDS and non-GDS channels helps corporates access to wider rate options, without compromising on amenities.

Hotel aggregation offers key value proposition
Aggregating GDS and non-GDS hotels from multiple channels to a single interface, helps Travel Managers and TMCs save lot of time and cost in servicing booking requests. The latest versions of HotelHub already displays policy compliant hotel search results customised for individual traveller profile, which offers a major advantage in corporate hotel reservation process. The technology behind this has undergone major refinement over past few years due to better connectivity and common standards adoption across the industry.

The limited hotel/rate choice traditionally on a GDS and largely exclusively used by TMCs, has capped the share of business travel hotel bookings that channel could attract. Buyers are moving to other options offering wider choice. The moves by GDS firms to aggregate non-GDS content is an indication that they are realizing the gap and are attempting to do something about it. But TMC and corporate buyers as well as the economic and resulting business travel slowdown will probably continue to change the way GDSs are addressing these business models in the future.

During the past month, the travel industry has been buzzing with news on airline-OTA direct connect spats, lawsuits and even deals. The issues at the heart of all this buzz and news revolve around distribution strategy and the battle to control and optimize the return delivered by competing channels to market. There are many parallels for the hotel industry.

While hotel suppliers have an obvious interest in minimizing their distribution costs, they need the wider reach of hotel aggregators to grow their business. The question for hotel suppliers is whether or not this reliance upon content aggregators is a short-to-medium term need that can be eventually reduced by building their direct booking channel or is it a permanent, effective and strategic part of their distribution strategy?

It is apparent that historically most hotels have not invested enough time and money into growing booking share from their direct channels and many hotel suppliers within the industry lack the online marketing expertise and financial resources required to significantly grow their direct bookings.

This is reflected in TravelClick’s booking data, which shows that the share of bookings on brand (hotel) sites is declining when compared to those on merchant sites as seen in the table below…

Driving these trends is the ability of these content aggregator websites to service the needs of the hotel buyer more effectively than the direct booking channel. This is particularly the case with business travel where content aggregation provides a number of significant advantages over stand-alone, direct websites.

While hotel aggregators are at an advantage with their technology and customer reach, they do offer benefits for both hotels and business travellers alike. Here’s how…

Benefits for the Business Traveller:

The technology used by a ‘typical’ hotel content aggregator collects, sorts, standardizes and presents the rates and inventory information in real-time from various channels into a single interface to help simplify the booking process. This used to be a complex process, but with the adoption of common technology standards/API, availability of better hardware, cloud computing and faster online connectivity at cheaper costs, hotel aggregation technology has improved significantly.

A hotel content aggregator, such as HotelHub from Travel Centric Technology, boasts an interface that meets all the needs of today’s business travel buyer presenting rates and inventory seamlessly from numerous GDS and non-GDS channels in a single display.

Content aggregators simplify the frequently complex business requirements from TMCs and their customers for the end user, the person booking business travel. The search results offer a wider range of options, are easier to compare and select, while respecting customer travel policies.

Travel managers and TMCs are increasingly turning to integrated hotel solutions like HotelHub, which enables them to enhance their service for their business travel clients. Travelport also provides a Universal API to aggregate content from multiple partners.

The Benefits for Hotel suppliers:

With the effects of recession still lingering on in most parts of USA & Europe, hotels are uing every possible tactic to stay profitable. Most have clearly that understood online is the next growth area, and have invested in professional websites and booking engines.

Selling rooms directly from your own website is a good start, however, the next level of growth can only be achieved if you secure effective distribution of your content to ensure it reaches the maximum available audience. If your booking engine can communicate with a universal API hosted by a hotel aggregator this is a very good start.

Although customer reach is the main goal the efficiency savings are also considerable. For example, inventory and rates need to be updated only once, and the system would automatically spread it across all channels you have authorized. Most aggregators offer seamless integration for your content to show up on their sites.

An alternative, longer-term option for hotels is to start investing today to build traffic and user-engagement on their direct channels – hotel website, and social media channels like Facebook, Twitter – which over time would help reduce dependence on OTAs and other costlier channels. The revenue management basics also point in this direction – hotels need to analyze their current sources of booking and the related costs. Then, work on maintaining or growing booking share from more cost-efficient channels to grow profits. However, the investment required will be significant and whilst this might work to attract leisure travellers, for business travel the need for intermediaries remains clear.

Aggregators do still need to work hard to add value for hotel content suppliers in particular by: providing a simple API interface; by allowing them to upload rich media content and by providing effective marketing solutions to promote their assets. Content aggregators should play a key strategic role in any hotel suppliers distribution strategy and be viewed as an essential channel partner rather than a competitor for margin.

What Business Travelers Want:

The business travel booking process is complex and time-consuming, and it is logical that business travel managers would embrace any channel that makes it easier for them to find the right hotel at the right price worldwide. This is much preferable to trawling through endless direct hotel websites to find rates and inventory availability and then trying to figure out which ones comply with business policies.

Direct connects are good when they help shave off that extra distribution cost, but just won’t help when the client wants to compare multiple options and choose the best option, while remaining within travel policy guidelines. In particular issues of travel policy compliance and crisis management implication mean that companies increasingly have a legal obligation to track the whereabouts of their business travellers – a situation made substantially more difficult when using multiple direct bookings.

Delta airlines signing the direct connect deal with Farelogix, shows that also airlines ultimately need an aggregator, to have a wider customer reach. The situation with hotels is no different – though the significance of direct connects may increase over time, content aggregators will continue to be a critical component of any effective distribution strategy.