Rise And Fall

As the initial hype of Internet offerings comes to a plateau, hotels find true ways to use the Web to their advantage.

By Rebecca Oliva, Technology Editor -- HOTELS Magazine, 6/1/2001

To say the Internet has changed the hotel industry would be a mere

understatement. Instant bookings, endless travel research available

to the consumer and a redefined purchasing process all conspire to move

the industry forward. On one end of the spectrum, the Internet provides

the industry access to abundant cost savings through e-procurement.

On the other end, through e-commerce, it provides the tools to increase

revenue at a fraction of the traditional cost of booking.

However, many of the greatest benefits the Web offers this industry

are yet to be implemented at the property level. Expensive technology

and large amounts of time are top on the list of challenges holding

up the process.

Getting Over The Hurdles

E-procurement pledged to end the hurdles of an

inefficient buying system with cost controls, fully automated order

processing and corporate power to require properties to be 100% compliant

with purchasing habits. Yet, the promises of last year’s e-procurement hype proved empty. The

industry has not quite made its transition to reap the total benefits

of e-procurement. “It’s supposed to be a completely automated

process,” says Julian Sparkes, global managing partner, Accenture,

a management and technology consulting firm, Atlanta, “but it’s

not.” Sparkes defines full integration of e-procurement as a system

where each aspect of the purchasing process is done electronically— from

the department head ordering the product to the payment being pulled

from the hotel’s bank at the point of sale. “The problem

is that it requires a fair amount of up-front money to integrate,” he

says. Many companies are not ready yet.

“There is a lower adoption rate than people thought a year ago,” says

Brian Weed, executive vice president of marketing development and strategy,

Avendra, co-founded by Marriott International, Hyatt Hotels Corp., Club

Corp, Bass Hotels and Resorts and most recently Fairmont Hotels and

Resorts. “There are a lot of things to bring together to make

e-procurement a ‘go’.” Weed says he wasn’t surprised

by the delay in implementation.

Avendra is a procurement service company, both on- and off-line. Yet,

according to Weed, a very low percentage of its properties are practicing

e-procurement. So, what is the hold up?

Perhaps it is a lack of up-to-date technology

and the fear of change. “There

is always a resistance to change,” Weed says. “There are

also necessary components properties must be wired to do, and that takes

capital investments.” In addition, training employees, loading

catalogs and other integration issues contribute to the

lag in implementation.

Avendra is currently working with technology companies

on ways to integrate systems that would allow the purchasing process

to be truly automated. However, Weed sees no e-marketplace happening

in the near future for Avendra. “E-procurement is going to come,

just not yet.”

Still, at its infancy stage there are benefits of electronic B-to-B

purchasing that offer time- and cost-efficient savings to individual

properties. At full integration, when broken down, a hotel that saves

10% using online purchasing will see 5% of that coming from price controls,

3% from standardization of volume and quality of goods, and 2% saved

on the payment end, or integration, according to Accenture.

The Value Of Control

Others measure the savings elsewhere. Last year Wyndham International,

Dallas, introduced its e-procurement initiative to 165 of its owned

and managed properties mandating that all hotel operational supplies,

such as office and housekeeping needs, be purchased via GoCo-op Inc.,

Maitland, Florida, a provider of e-procurement solutions.

Overall, the company expects savings of 10-15%

of its yearly spend, which averages about US$40-50 million. But savings

aside, e-procurement offers the value of control to the corporate

office. “It allows

us to control quality of goods, consumption of goods and cost by each

property,” says Jay Litt, senior vice president, chief procurement

officer, Wyndham International. Because Wyndham manages

its properties, it was able to negotiate low costs with vendors brand-wide.

Reports are sent to the corporate office comparing properties purchasing

volumes.

Items purchased via the Internet include linens, china, guest supplies,

paper supplies and even computers. Litt says furniture is not purchased

online, as there is nothing uniform about it.

At the property level though, kicking the habit

of traditional purchasing wasn’t as easy. “It took a while to adjust for many of the

managers,” says Jim Maclean, area controller for Wyndham New Orleans. “Losing

control of being able to select their own vendors was difficult. But

now, a year later, it’s a way of life.”

Maclean says the ease of access to purchasing

has saved the hotel time. The approval process also has been cut down.

Purchase orders pending approvals are e-mailed to management, and

once approved, are directly sent out electronically. On the receiving

end, Maclean says there haven’t

been any problems with shipping or wrong orders. “We do not have

to enter any invoices or mail any checks,” he says, noting that

all bills go directly to the corporate office.

Maclean says the software system is comprehensible enough for anyone

to navigate. GoCo-op trained regional managers who then dispersed the

information to department managers, the only employees using the system.

Along with Wyndham and Avendra, another hospitality

company using GoCo-op’s

technology to coordinate e-procurement includes HotelnetB2B.com, Palma

de Majorca, Spain. Created by Sol Meliá, Barcelo and Iberostar,

the hospitality marketplace will serve the Latin American

and European markets. Total investments are expected to reach c30 million

(US$26.2 million) within the first 24 months. In addition to the main

anchor hotel chains, there are more than a dozen other hotel companies

participating in the venture, although none of the properties has been

connected to the system yet.

Worldwide, Sparkes believes true e-procurement is one to two years

away in the United States and about three years for the European and

Asian markets due to fragmentation in those areas.

E-Bookings

One area gaining more rapid acceptance among both hoteliers and their

customers is e-commerce. Online bookings are showing dramatic growth,

according to PhoCusWright, a research company based in Sherman, Connecticut.

The gross value of Internet hotel reservations was US$2.6 billion in

2000, up 136% from 1999. Of that, 55% of bookings came from hotel-branded

Web sites and 45% from online travel agencies such as Travelocity and

Expedia. Internet bookings are projected to reach US$4.6 billion in

2001, with 53% booked through hotel Web sites.

“The hurdle is getting consumers to try booking through the Internet,” says

Greg Jones, president and CEO, WorldRes, San Mateo, California. “This

year we saw a significant growth in bookings, following

a similar revolution consumers had with general online shopping.”

Jones says consumer trust is the biggest issue of e-commerce and consumers

tend to trust a hotel-branded Web site first, rather than an outside

source such as an online travel agency. Yet there are consumers who

are loyal to some GDS channels because of the low rates they offer.

Realizing the growth potential of online GDS revenue,

some hotel companies are jumping to form additional partnerships.

Wyndham, Marriott and Hyatt are among the first companies to become

vendors through Orbitz, the online travel distributor owned by major

airline companies. Under the terms of agreement, each company will

promise that any special deals available through their own Web site

will also appear on the Orbitz Web site, which has not yet launched. “Orbitz is likely to be

a very strong site because of its backing,” says Shafiq Kahn,

vice president, e-commerce, Marriott International. “We want to

participate in every major channel.”

Branding The Web Site

One of the best examples of driving traffic to a Web site is Marriott

International. Revenue through Marriott.com has more than doubled, reaching

US$150 million, or 3% of its total sales, in the first quarter of 2001.

Much of the increase is a result of its newly redesigned Web site. The

site, launched late last year, features its own booking engine. In addition

to displaying photos of amenities and locations, it focuses on generating

transactions by offering visitors the ability to store content for personal

profiles.

“Overall, we are pretty much on track to double our Web revenue

in 2001,” says Khan. Of total Web bookings, two-thirds of revenue

comes from Marriott.com. Khan believes Marriott’s success is due

to the strength of its brand and the fact that consumers have always

relied on booking directly through the hotel instead of intermediaries. “People

have always booked through a travel agent for airline travel,” Khan

says. “In the case of hotels, it’s almost the reverse. People

call the hotels directly.”

Since its inception, Marriott has been able to

save US$2 per Internet booking using its own booking engine instead

of an outside source. Other hotels have realized similar savings through

Internet bookings. According to PhocusWright, Hilton, for example,

saves US$25 on each Web site booking (compared with a traditional

travel agency booking). Hyatt’s cost

for an online booking is US$3, compared with US$9 to

book via the call center.

Looking for other ways to improve e-business,

Marriott has begun to partner with large corporations to bring its

Web site into their Intranet’s

travel page. “Corporate America is looking for ways to create

as much synergy with its partners as possible,” says Steven Richard,

vice president of alliance, Marriott International. “Companies

are willing to do as much electronically as they can.”

Through the program, a business traveler will

be able to link to Marriott’s

site through his or her company’s Intranet. The link is a customized

page, which displays the company’s special negotiated rate. There

are currently 10 companies linked to view Marriott’s site and

three to four additional ones that can actually book through it. The

cost of programming the Web pages ranges from US$5,000 to US$8,000.

Although Richard says many people are looking at the site, they are

not booking. Problems, he says, result from consumers’ resistance

to change and a lack of proper marketing within the companies.

Chain vs. Independent

Much of the success of Internet bookings comes

from knowing how to market a hotel’s Web site, a luxury many independent hotels cannot

afford. “The clients who are booking through our site aren’t

doing research, they know exactly where they want to stay,” says

Emanuel Berger, managing director, Victoria-Jungfrau Grand Hotel & Spa,

Interlaken, Switzerland. Berger says booking through the Web is convenient

for customers who frequent the hotel; however, he doesn’t anticipate

gaining new customers from the site.

Victoria-Jungfrau Grand Hotel & Spa has experienced a steady increase

in Internet bookings via its Web site. The 216-room luxury hotel installed

booking capability to its site just five months ago and receives about

three bookings per day. The Victoria-Jungfrau is currently planning

a US$100,00 redesign of its site that will allow visitors to view the

hotel’s location, rooms and amenities in detail. Still, Berger

feels most new customer bookings will be done through

other channels.

One avenue is through the redesigned site of Leading

Hotels of the World. As a member, the Victoria-Jungfrau will benefit

from Leading’s

new site, launched in the first quarter. With 384 hotels in 76 countries,

Leading’s new site is a one-stop shop for consumers looking to

book through the Internet.

Through its program Leading Hotels Reservations

Online, the site provides real-time booking capability and links members’ local Web site

directly into its central reservations system. “Our new Web site

is expected to convert more lookers to bookers by offering greater functionality

to serve as a valuable resource for luxury hotel shoppers,” says

Erica Kasel, executive director of marketing, Leading

Hotels of the World, New York.

Features on Leading’s new Web site include

up to 15 photos per hotel, search capability by activity, access to

all available rates and profile pages in French, Italian and Spanish

in addition to English. Currently, Internet bookings

provide about 2% of reservations income to Leading Hotels, but Kasel

expects to double that this year.