Wholesalers and Butterflies

Wholesalers and Butterflies

At the beginning of June, I organised the recent Distribution Best Practice Forum for Travel Technology Initiative – www.tti.org.  (TTI will be partnering with WTM to bring you the WTM Travel Innovation Summit on the first day of the exhibition.  More of that nearer the time.)

Travel distribution is an increasingly complex subject.  As the years have gone by, technology has not made distribution any easier.  It has most definitely provided opportunities to reach new audiences in fresh markets but these opportunities have added complication, and nowhere more so than in hotel accommodation distribution.

At the Forum, Mark Bradbury of travel technology supplier, RWA, showed a complex diagram of all of the relationships in the hotel distribution chain.  The entities in the diagram included the hotels themselves, channel/rate managers, switches such as Pegasus, the GDSs, wholesalers, online travel agents, hotel websites and, of course, the customers.  Included in the diagram was a new genre of distribution player that I would call a meta-channel manager – a single channel to be used by a hotel to manage its relationship with many channel managers.  With all this distribution technology currently being deployed, it has made me ponder whether we will need accommodation wholesalers in the future or whether they might be a dying species.

The traditional wholesaler of the GTA variety contracts many hotels on the supply side and has relationships with many travel agents on the sales side.  I call this a butterfly business model.  It is taking advantage of a fragmented supplier base and a fragmented customer base.

One wing is the many suppliers and the other wing is the many customers.  The wholesaler sits in the middle.  It is the body of the butterfly.  Each individual customer, say a travel agent, appreciates access to the many suppliers on the other wing that can be reached through the wholesaler.  The individual hotel appreciates the many travel agents that it can reach through the wholesaler.  If one wing wilts then the whole business model dies.

The question: is, could technology allow hotels to reach sufficient numbers of customers that they no longer feel pressed to distribute via wholesalers?  If this were to be so then hotels would not feel the need to offer wholesalers high commission or substantially discounted rates.  This would result in wholesalers’ profits being reduced or them having to offer travel agents in the other wing less attractive rates.  Wholesaler businesses would simply wither into irrelevance in hotel distribution.  I remember from pre-internet days the amazing commission rates that the top wholesalers could command as hotels simply did not have the market presence to fill their rooms in sufficient numbers.  Does technology bring market power to hotels?  You could plausibly imagine a scenario where technology increases hotels’ market presence whilst enabling them to control their own rates.  This is happening now but not yet with sufficient impact to threaten wholesalers’ livelihood.

Presenting at the same Distribution Best Practice Forum was Mario Bodini, President and Chief Commercial Officer of accommodation wholesaler, JacTravel.  It was interesting to hear his take on how wholesalers add value to both wings of the butterfly.  On the supply side, he suggested that JacTravel offers hotels incremental business rather than cannibalising custom that hotels could achieve themselves.  He suggested that this is done whilst giving the hotels no payment risk, access to more varied markets and travel patterns as well as free marketing.  On the customer side, he suggested that travel agents are offered security, support, local language/knowledge, one point of payment and fast reliable IT.

Having heard Mario speak, I am inclined to believe that good, switched on wholesalers will continue to add sufficient value and will survive and thrive.  But those wholesalers who have a butterfly business model that does no more than feed on the fragmented nature of the hotel distribution marketplace might well find that, as distribution technology continues to develop, they are no longer needed.

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Paul Richer is Senior Partner of Genesys, a management consultancy specialising in providing advice on technology for the travel, tourism and hospitality industries. Genesys has built a worldwide reputation for its knowledge and experience of new system procurement, online technology and strategies including website audits and online booking systems, reviewing and formulating companies’ IT strategies and more. Clients include many of the best known names in travel. Paul has co-authored several reports examining the impact of technology on the distribution of travel, including “Distribution Technology in the Travel Industry” originally published by Financial Times Retail and “Marketing Destinations Online – Strategies for the Information Age” published by the World Tourism Organisation. He has presented at and chaired many online travel conferences, is regularly quoted in the press and has also been invited to make several appearances on television to debate the subject. Prior to founding Genesys in 1994, Paul was Business Development Director of Finite Group plc and Head of the Group’s IT strategy consultancy. He holds an MBA from Cranfield School of Management, is a Fellow of the Institute of Travel & Tourism and Member of the Chartered Institute of Marketing. More information at http://www.genesys.net/

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