Tuesday, February 23, 2010

Ctrip and Home Inns: How Different China Really Is

Just heard Ctrip CFO Jane Jie Sun speak here at the Goldman Sachs Technology and Internet Conference in San Francisco.

Obviously, as we all know, Ctrip has been growing like crazy and sees lots of room to continue those numbers - and for good reason. A few snippets in no particular order:
  • Only 2% of travel in China is booked online today - and Ctrip has 50% of that market
  • 80% of air travel is sold by agents - and airlines are generally happy with this "outsourced" distribution model
  • High speed rail presents a minimal threat because main stations are located far from the city center, stations themselves have few amenities and the trade-off just isn't there yet on a time or money basis
  • In fact, CTrip sees rail as a growth opportunity - not from selling train tickets but from selling more hotels as rail travel increases
  • Ctrip feels that at least 50% of hoteliers would pay more than the average 15% commission they currently ask for but Ctrip believes this is poor for the long-term partnership
  • The Shanghai World Expo is expected to be very positive because, unlike the Olympics, it is a six-month long event. The Olympics were so concentrated that many people stopped traveling to Beijing. The opposite is expected for the World Expo - business travel will continue into Shanghai and Ctrip expects large amounts of domestic tourism, particularly families with children to visit during the Expo.
  • The Chinese government in general "likes travel" and has designated travel as a "pillar of economic growth" which is always nice
But the biggest take away, however, was her discussion of Ctrip's recent investment in lodging operator Home Inns. If you are not familiar with Home Inn, you should be - they operate nearly 600 moderate hotels in China.

She said the investment has allowed Ctrip to gain access to deeper inventory and that Ctrip and Home Inns are in the early stages of connecting their systems to allow electronic distribution. She also mentioned that she saw this reservations connectivity and inventory management as a catalyst for other domestics chains - as Home Inns goes, so goes the industry.

We've known that business in China is different for a long time, but can you imagine if Expedia was to invest in Intercontinental Hotels? Or Choice? Even back when Cendant owned Wyndham and Orbitz/Cheaptickets etc, many in the supplier community thought that back door dealings were probably going on. (I've been since assured that Cendant was way too dysfunctional for that to actually happen.)

It will be interesting to watch how this relationship develops - but I'm not looking for it to be replicated here anytime soon.

Chase Feels the Hyatt Touch: GoldPassport Gets a Co-Branded Credit Card

Hyatt and Chase today announced a new co-branded credit card which will allow members of Hyatt's Gold Passport loyalty program to earn points with every dollar spent. Hyatt has been the key holdout among the large chains in issuing a co-branded credit card - Starwood, Marriott, Hilon and IHG have issued similar cards for many years.

Many feel that Hyatt has held out on this potentially lucrative revenue stream (banks buy the points that they offer consumers based on spend) because of the relatively small size of the Hyatt chain (which limited points burning options) and a desire not to dilute the earnings of members who have earned their points by staying in hotels - Hyatt's main business.

However, with the continued growth of Hyatt into new segments and the recent IPO, that thinking has clearly evolved. Also of note is that the card is a Visa - Hyatt has long partnered with Mastercard on Gold Passport earnings promotions.

Friday, February 19, 2010

Feds Ask to Halt Civil Rossgate Lawsuit - Criminal Charges Instead for Hilton?

AP is reporting that Federal prosecutors have filed a motion in the ongoing Hilton/Starwood Hotels saga saying that the current civil litigation could harm a criminal investigation.

According to the AP, "The filing Friday by the U.S. Attorney's Office says it is pursuing possible charges of conspiracy, computer fraud, theft of trade secrets and interstate transportation of stolen goods against Hilton and two executives it hired away from Starwood"

Starwood has been pursuing two ex-Starwood executives who are accused of making off with truckloads of confidential documents which were used in the development of Hilton's now ill-fated lifestyle brand, Denizen.

Wednesday, February 17, 2010

Orbitz For Travel Agents Pays 10% Commissions

Orbitz has launched a new platform for traditional travel agents which enables them to book stand-alone hotel rooms as well as vacation packages. This matches (for hotel only anyway) agentaccess, a program which hotels.com has offered to the agency community for some time.

The Orbitz for Agents platform offers a 10% commission to agents on stand-alone hotel bookings and 4% on packages which include air and hotel or car and hotel.

And, in an effort to sign up agents, the first 500 agents to register will be paid 12% commissions.

So now we have Orbitz, partially owned by Travelport, pushing agents to book outside of the GDS. And Orbitz is offering a strong economic incentive (at least for the 1st 500 agents) to do so. But will agents abandon their beloved green screens in large numbers? I doubt it - but plenty of small, independent agents may be interested.

And what of suppliers? It gives you some clue as to the level of margins Orbitz (and Hotels.com) are able to extract from hotels if they are able to not only match the industry standard 10% rate but still cover the other costs associated with the merchant model (e.g. credit card fees, fraud, customer care etc) which are normally borne by hoteliers under the agency model.

And it is a good move for Orbitz. Orbitz has a choice to drive incremental bookings - they can pay an agency 10% or Google. Stands to reason they already pay Google enough so this is an interesting way of lowering reliance on paid search.

Orbitz does allow for agents to add their own service fees - could this be the distribution model of the future in the hotel industry much as it has become the standard for airlines? Wait and see..

Friday, February 12, 2010

Expedia Delivers Opaque Branding for Flights: Where's Leonard Nimoy?

We found something new in our in-box from Expedia this morning. The usual claim for the best prices from point A to point B yielded a flight at the top of the display with both the carrier and the exact time of departure hidden until purchase. We’ve seen it with hotels, but not air. In our search there was just one opaque listing at the top of the display for a significantly better price in an otherwise uniformly priced market. It looks like this in the display:

Clicking on the Tell Me More link brought us to the following explanation for the terms. It’s similar to the brand opaque presentation we’ve all seen elsewhere for hotels, but to avoid having the consumer tie it back to a specific flight that would reveal the carrier, the departure times are also masked.

Given the success of this marketing technique on the hotel side, it’s almost surprising that it hasn’t been used sooner on air for all the same reasons. It preserves the general pricing structure for the carrier, and caters to a market segment that values price over convenience and brand.

Will we soon see Expedia commercials with Leonard Nimoy encouraging us to “Name Your Own Fare?”

Guest posted by George Roukas

Tuesday, February 9, 2010

DOT: LGA and DCA Slot Swap is a Go for Delta and USAirways

The DOT has just issued a tentative waiver that will allow USAirways and Delta Air Lines to swap their landing slots at New York LaGuardia and Reagan Washington National airports. As we discussed previously, this will allow Delta and USAirways to greatly increase their dominance at these two airports, respectively, by allowing them to effectively transfer under-utilized landing slots between themselves. USAirways operates a large operation at DCA which will grow larger while their operations at LGA will shrink dramatically when they cede slots over to Delta. Delta will pick up many of the small routes which US currently operates (often with small propeller aircraft) and be able to better integrate them into Delta's growing New York operation.

However, the DOT is mandating that US and DL give up some slots to "carriers with no or limited service" at DCA and LGA. 14 pairs at DCA and 20 pairs at LGA (a pair is required since take-offs must generally equal landings for a successful operation.) have been marked for re-distribution. To be sure, this is a small number of the 42 slot-pairs USAirways originally stood to gain at DCA and 140 Delta was expecting at LGA.

Let the jockeying begin but we expect JetBlue, Southwest, AirTran and maybe Frontier to be at the top of requesting parties.

And as we've said before, get ready for the final shut-down of Cincinnati by Delta as a hub or focus city. The airlines are only trading slots, not aircraft. Those 120 slots will need a substantial number of aircraft for operations - we bet they are going to come from the operation in CVG.

Wednesday, February 3, 2010

Sabre Travel Network announces new GUI workflow solution. Is that a green screen death rattle? Or just a chuckle?

Sabre Travel Network announced a global pilot of a new work flow solution for the agency community. The new product will include a new GUI (graphical user interface,) work flow management across multiple GDS, a customer profile, etc.

We haven’t seen it (though we'd love a demo at the right time) but we're going to give it long odds until the proof is in front of us. GUI agent desktops usually fail in the agency community on two counts. First, the experienced agents (especially corporate agents, who get those stressful calls from travelers on the road after their flight has been canceled) can actually go much faster on the green screen than they can with mouse clicking and typing. So the pretty GUI actually slows them down to the point where they get frustrated and leave it. New agents like the GUI because it gets them up to speed faster, but after a while they want to be with the ‘cool kids’ and they slowly migrate away to the green screen.

The second challenge is integrating supply into a common UI and booking record. The GDS have been trying to push everything they can into a PNR for obvious reasons, but some content just won’t go into an active segment, and passive segments present synchronization challenges. So there are too many trade-offs to be made from an agent perspective. They still have fragmented booking records and spend extra time trying to make sure everything is up to date when itinerary changes occur.

So if you think the new product is going to be a hit, how do you measure adoption? Not by looking at the number of installations of the new product. That doesn't really tell you much, though it's easy to measure. You have to count the number of messages that flow through the core via the GUI applications vs. those that go through the green screen products. Surprise! The GUIs probably count for a lot less than you'd think.

It would be possible to design a system that would overcome these issues, but it’s not easy to do. If the GDS are 'listening to their customers’ on this issue then they’ll likely fail. It's one of those situations where "It's what I asked for but it's not what I need." Interviews can't easily communicate the reasons for the relationship between the agent and the green screen. It's best to just observe them and see what they do, interpret the rationale and then plan the product accordingly. If you've ever spent a few (or many) afternoons watching how they work and asking a few follow up questions, you'll have a solid appreciation for how skilled agents work with the green screen and why it serves them so well. You'll also have a new appreciation for how good some of these agents really are.

Carry on, Sabre. We hope you’ve cracked the code.

Guest Posted by George Roukas

The iPad cometh; trade in your Tylenol for Assassin's Creed

Last week apple announced the iPad, a device designed to inhabit a middle ground between a Smartphone and a laptop. Having had a few days to digest the announcement and bounce a few ideas off of our colleagues in the travel and technology arenas, we thought it a good time to prognosticate about how the iPad might impact the world of travel.

First, a quick assessment of what the iPad is and who is likely to buy it. The easiest way to get a handle on the iPad is to think of it as a big-screen version of the iPhone (or iPod touch, which is similar but without the phone capability.) The screen resolution is 1024 x 768, which is comparable to a decent sized laptop or desktop. The physical size of the screen is about 9.7 inches on the diagonal, so it's a little more than four times the size of an iPhone but significantly smaller than a laptop.

So who is likely to buy these things? Well, the iPad provides a great platform for email, music, calendar, address book, eBooks, videos, and games. It's a convergence device, which means that it does a lot of things well. So if you have a blackberry, for example, and you want something that handles your video, eBook, and music tasks, then the iPad is a good solution for you. What about IPhone users? Well, we initially thought there was so much overlap that the iPhone community would be reluctant to buy an iPad. Why have two devices that have so many of the same functions? We’ve seen other posts about the impact of iPad on travel and they focused on the likelihood of a new class of application that would only run, or would work significantly better, on an iPad. If that happened, iPhone users might be tempted to use an iPad for those new apps. We don’t really see that happening, at least not in the short term. But there will be reasons why the iPad will change traveler’s lives—even travelers with iPhones.

We thought a little more about two critical factors of the iPad: (1) its function as the 'in between' device and (2) convergence. We've all seen how laptops have been shrinking over the past few years so that now you can buy both Mac and PC laptops that fit into a manila envelope. As travelers rebel against the 20 pound laptop briefcase crammed with cables and connectors and power cords, the option of a smaller and lighter device with 'just enough' functionality to allow them to leave the laptop at home or in the hotel seems almost too good to be true. Given all the special purpose applications available today in the iTunes store and the word processor/spreadsheet/presenter replacements for the iPhone/iPad such as Documents to Go or the (upcoming) iWork suite, it's not hard to see that travelers will view the iPad as the key to keeping their shoulders and backs safe from the scourge of the laptop bag.

The other factor, convergence, comes into play in still another scenario when travelers are trying to simplify their lives and lighten the load. We saw one prediction that posited the Kindle would thrive against the iPad because of the price differential. True, the entry level Kindle is only about half the price of the entry level iPad, but do travelers really want to carry a dedicated eBook reader like the kindle when it comes as part of the iPad? We haven't seen the screen of the iPad up close, but it's rumored to blow away the Kindle screen in terms of both readability and functionality. So the purchase of an iPad means you don’t have to buy and carry that Kindle, or the Zune, or any other single-purpose device that iPad can emulate.

So it seems like the market for the iPad among travelers will be brisk regardless of what's already in your pocket or briefcase. We suspect that many travelers will be lured by the siren song of a lightweight platform that has just enough functionality to un-tether us from our desktops and laptops for some period of time, then lets us sync up or transfer our work back to home base for final polish and refinement. Remember that it’s not a laptop (or iPhone) replacement—it’s a complimentary device that lessens your dependency on the others and provides a richer experience to boot.

If the frequent (and even not-so-frequent) traveler is a good target market for the iPad, then how will iPad applications evolve for travelers? It seems natural that some of the travel applications now available for the iPhone will be altered to take advantage of the larger screen on the iPad, but it's hard to see where the extra real estate will actually enable a new class of application. Travel guidebooks will be much richer on the bigger screen, we bet many of those are already written to take advantage of whatever screen size the device has, so it's not technically a rewrite of the application though it looks better on the iPad. Think of how Microsoft Word works--if you change the size of the window, the text automatically re-flows to fit the new window size. It'll be the same with the guidebooks.

Even the travel booking process, which is traditionally very demanding on the user interface, has been very ably addressed by Kayak, for example. (Kudos to the Kayak product management team for a very sharp design.) We're not saying that the guys at Kayak aren't probably jumping up and down in anticipation of what they could do with the extra screen real estate, but it's safe to say that aside from a slicker look there probably isn't much more they could do that's truly innovative with respect to the iPad device itself. Those apps may come, but they’ll take a while to arrive.

So our prediction is that travelers will be impacted by the iPad more in terms of the form factor than by unique travel applications. Sure, there will be some new ones to exploit that amazing screen, but the ones that are already available will continue to provide a lot of functionality. An expanded Kayak or OTA application will be simpler to use, but we see the iPad contributing to quality of life for harried travelers who will at last be able to do a little work, watch a few videos, read a book, and browse pictures of the kids on a 6 hour flight (iPad can show 10 hours of video on one charge) without changing batteries or dislocating a shoulder.

Maybe they should have called it the iSmile.

Monday, February 1, 2010

OTAs Prevail Against Anaheim: Court Calls Prior Rulings "Logical Fallacy"

The major Online Travel Agencies today notched a huge win in Anaheim, California where a judge threw out a $21,326,881.30 ruling against Expedia, Travelocity, Priceline, Orbitz and their related subsidiaries with a strongly worded rebuke to the Anaheim City Hearing Officer's earlier findings.

This case was originally heard by the City's Hearing Officer who made the determination that the OTAs did, in fact, operate hotels under Anaheim's definition. The Hearing Officer originally found that each OTA is both "the proprietor" and the "managing agent" of every hotel in the City of Anaheim. Wow. As such, the Hearing Officer found that the OTAs owed the princely sum of ~$21M covering back taxes, fines, interest and, no doubt, extra donuts for the office.

We'll get the whole decision up shortly for reading on your next flight but here are the highlights:
The big take away is that the judge who decided this case will also be presiding over several other similar cases currently in various stages of litigation in California. These include cases in Los Angeles, San Diego and a particularly nasty one in San Francisco where the OTAs have already paid significant damages in order to even have the right of appeal under the City's "Pay to Play" rules. (Note: Anaheim had this rule as well but the OTAs were able to get it overturned.) While no one can predict how a judge will rule and each case is obviously different, this judge clearly understands the issues at hand.

The ruling states "OTCs do not control and run hotels. The Hearing Office's factual findings list several functions performed by OTCs with the respect to resale of hotel rooms" including marketing functions, determining mark-ups etc. The Court correctly determined that "none of these facts comprise incidents of control of a hotel or give the OTCs the right to run the business of a hotel. The hotel control the production of the product sold, the quality of production, the channels of distribution of the product and the pricing of the product." This discussion of Marketing 101 and the " Four Ps" reminds me of my first marketing class in college - sounds as if the Judge may have taken a similar class along the way.

In one of the stronger worded sections, the judge concludes that the Hearing Office that it is "a logical fallacy to conclude, as the Hearing Officer apparently did, that because a hotel operator is responsible for collecting rent and taxes from [guests], any entity that collects rent and taxes from a [guest] must be an operator [and be liable for the occupancy tax] " The footnote explains it more clearly still: "Principles of formal logic demonstrate that when the statement 'if A then B' is a true statement, it is incorrect to conclude that the converse 'if B then A' must be true. Yet the Hearing Officer accepted this reasoning." Ouch. Basic logic, right?

However, the judge clearly leaves the door open for the City to base an occupancy tax on the total amount paid by the guest for the hotel room if the law was drafted (as New York City has attempted to do) and constructed to facilitate such a tax. "There seems to be no reason why such a tax scheme could not be drafted and considered." But before Anaheim goes off to re-do the tax wording, consider the Courts further discussion in regards to the City's position that times had changed (with the advent of the merchant model) and that the taxation laws should simply morph to fit the times: "where a taxing agency has not anticipated a new revenue opportunity, the court may not act to fill what might be perceived as a 'gap' in tax coverage. Creation of a larger tax rate or larger tax base requires voter approval pursuant to Proposition 218. California Proposition 218 states that "A taxing methodology must be frozen in time until the electorate approves higher taxes"

This ruling came down to carefully interpreting the current tax laws on the books. Clearly, opportunities exist for taxing authorities to adjust those laws (at least outside of California) to change with the times - but a go-forward tax is a far cry from a huge retroactive tax from the OTA's perspective.

United Matches American With One-Way Mileage Awards

United has announced that Mileage Plus members may now redeem awards on a one-way basis rather than the previous round-trip requirement. Best of all, there is no premium for a one-way redemption - it is a simple 50% of the miles required for a round-trip award. This new structure matches that of American, Alaska and British Airways, among others.

For members, it greatly simplifies award redemption. Now consumers can make an informed choice about to earn vs. burn based on the price in miles or money based on each direction of their travels. In addition, given the scarcity of frequent-flyer award seats these days, consumers can redeem the higher peak level one direction while taking advantage of the lower off-peak award in the other direction - previously, the higher mileage level applied round trip, even if the low mileage level was actually available.

One possible downside for consumers is that if they are booking these awards separately on the phone, they may get nailed with more phone booking fees - one for each direction of the trip.

And, alas, the new structure only works for United/United Express flights - no one-ways on Star Alliance partners. At least yet anyway - one Star carrier, BMI does allow one-way awards on all Star Alliance partners - we only hope United will do the same in time. And American and BA already allow one-ways on their partners.

United also announced that users can now combine "miles and money" if they are short on miles. While I like the flexibility this offers, I've never found combining miles and money to be in anyone's interest except the airlines....

Overall, however, greater flexibility is always a plus. Or a Mileage Plus in this case.