Free distribution start-up bids to disrupt hotel sector

By Travolution
By Travolution
November 1, 2011 06:00 AM GMT

A new hotel beds distributor hopes to turn the sector on its head by offering suppliers a free route to market.

Global Hotel Exchange, which will launch simultaneously in the US and UK in January 2012, will effectively put the cost of distribution onto the consumer by charging them a $2.99 fee per transaction.

Traditionally hotel owners pay millions to online travel agents, channel management companies and Global Distribution Systems, whose fierce rivalries and bargaining power have the effect of driving down prices.

GHE is the brainchild of Magnuson Hotels founder Thomas Magnuson, who told Travolution: “Our goal is to provide a growth vehicle in a non-growth environment. We have developed the technology and are in final testing. It’s fully set for deployment in January. The key to this is that there would be no cost to the hotel owners.”

London-based Magnuson said GHE will announce a key tie up with a British technology firm on Tuesday November 8, along with more details of the UK launch.

The idea for GHE comes at a time when existing systems for distributing hotel beds are being challenged by intermediaries and suppliers alike.

As technology globalises the sector, hoteliers are forced to negotiate multiple region-specific laws governing the way price is determined and controled.

Commoditisation and oversupply in the market, particularly in the US, coupled with the economic downturn have prompted hoteliers to question their distribution costs, said Magnuson.

“There is increasingly product blur, lack of growth, high fixed costs and downward pricing pressure. We do not see any growth prospects either in north America or the UK. The only way we propose that hotel owners are going to regain any semblance of survival through future growth will be through cost reduction.”

Magnusson said many hotels are struggling with occupancy levels of around 50% to 60% and are “really struggling with pricing”.

“This is going to be a game-changer because once the effects of commoditisation set in they do not reverse,” he said.

Magnuson believes that the GHE concept hasn’t been tried before because the industry is used to going through business cycles, and assumes that the current slump will be followed by renewed growth.

“People would tend to utilise the incumbent systems and say let’s try to ride this out. [But] this does not look like a cycle, it looks like a re-set,” he said.

The US private housing bubble also affected the hotel industry. While the number of rooms on the market has increased by 70% in recent years, unemployment is running at around 20% in a country whose economy relies on consumer spending, Magnuson said.

He said the UK was in better shape economically, but added: “Everyone in the UK industry would agree that pricing is going down as the OTAs take over the pricing structures. That’s got out of control.”

“We think as hotel owners see that they can sell rooms at no cost they will be able to sell rooms at lower prices on GHE and still make more money.”

Magnuson said he does not envisage resistance from consumers because the $2.99 fee will not be viewed any differently to a credit card fee or ATM charge.

He claimed he has spoken to most of the large hotel chains in the US and found “a tremendous amount of support” for the concept.

At launch GHE will be a standalone platform, but Magnuson said he would look at opportunities for partnerships that would help widen distribution, increase volumes and reduce the costs to hotels.

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