New York Hospitality by Vijay Dandapani

Against the tide - India

The World Travel & Tourism Council which labels itself as a forum for business leaders in the Travel & Tourism industry says that "growth in the hospitality industry (in India) is pegged at 15 per cent every year and with 2,00,000 rooms (both luxury and budget) needed in India, the segment is poised for a stupendous growth." That process is expected to be aided by "initiatives like massive investment in hotel infrastructure and open sky policies made by the government are all aimed at propelling growth in the hospitality sector." Furthermore the Indian government’s "decision to substantially upgrade 28 regional airports in smaller towns and privatisation and expansion of Delhi and Mumbai airports has improved the business prospects of hotel industry in India."

International hospitality companies seem to be endorsing the WTTC's views as evidenced by their expansion plans. The growth is not limited to the luxury sector as the domestic traveler (business & leisure) starts to travel within the country limited service chains, both domestic and international. have made steady inroads. Underscoring the potential in that segment is the level of interest in the forthcoming Budget & Economy Hotels in Singapore in October of this year.

However, the Indian hotel industry has not exactly been unaffected by the worldwide economic contagion as this article India's reputed Business Standard newspaper points out that hotels there are not "really expected to turn in good numbers for the June 2009 quarter. But occupancies (for one hotel major), estimated at 40-45 per cent, were lower than estimated and coupled with low average room rates (ARR) resulted in the stand-alone top line coming off by 24 per cent, way below the Street’s expectations."

A well known limitation to growth in India is the lack of trained personnel despite a growth in the number of hotel and catering institutes resulting in many hospitality majors developing in-house training institutions. Nevertheless, as any visit to the country is likely to underscore, employees there, more so than most other places, have a can-do as opposed to a must-do attitude to work. That goes a long way towards delivering excellent service.

A penny for your thought (room) - Fat Finger Rates

The Crowne Plaza in Venice, Italy created news worldwide due to what appears to be a fat finger rate of 1 cent per room. Fat finger rates have been around since the dawn of online commerce with incidents occurring in all fields of retail. Best Buy was a recent "victim" while travel sites have committed such bloopers fairly frequently. Travel site Expedia, a few years ago,  had a rate snafu that they initially refused to honor irking travelers before relenting and agreeing to honor the rate or at least its equivalent value for another booking.

Few merchandisers harness the unexpected worldwide PR exposure to their advantage and the hotel in Venice seemed slow off the mark in responding with a Reuters newsreport noting that staff at the hotel, some 25 km (16 miles) outside Venice, declined to comment. The parent company, Intercontinental Hotels Group, also failed to respond saying that a spokesman "was not immediately available". That is unfortunate, as the hotel group chose to honor the fat finger rate unlike Best Buy which plainly refused to honor the large screen TV "purchases" made uner the non-offer of $9.99. The hotel's 90,000 Euro mistake could well have been turned into a positive PR opportunity highlighting its reputation for rate integrity. 

A penny for a room can, however, be a genuine offer. That is the case with some Red Roof Inns in the US per an offer on the economy hotel chain's website  The lodging chain hopes to garner positive PR as well as convert penny pinchers into dollar spenders once they have stayed at a Red Roof Inn. The initiative is essentially akin to "free offers" that seek to keep the marketing conversation going:with new customers to the product or service as the real value of a free offer is the ability of the merchandiser to follow-up and continue the marketing conversation.when the time is right and the prospect is ready to take advantage of the services.  Red Roof Inn clearly hopes to entice the penny spenders to use the chain as their lodging of choice.

Pricing: Going backwards with reverse auctions

The Wall Street Journal reports that analyst reaction to Priceline's profit surge ranges from using words like "impressive" to a state of astonishment. While the news is a shot in the arm for Priceline it is one in the head for most hotels given the implication for their bottom line.

Most hotels participating in the lemming like rush to discounting entailed in a reverse auction (which is esentially what priceline's business model is based on) are foregoing most, if not all, profits in trying to meet the marginal cost of a room with many debasing their brand and, thereby, making it significantly harder to raise prices whenever the recovery begins to trend upwards.The latter is why, in another piece, the WSJ quotes an analyst on Disney as saying that "If they don't raise admissions prices at all now and an economic recovery comes later this year, they could find themselves in a position next year where they would have to raise prices at a surprisingly higher rate to keep pace with overall market growth." It goes on to note that "Disney's willingness to raise prices and whittle back some promotions suggests that Disney is expecting an economic recovery as the stock market rebounds and economists find signs of a turnaround in some economic indicators."

No pricing model can be successful unless both buyer and seller derive value. One reason priceline has endured while some others that tried to enter the field in the early years of the dot com boom have failed is that sellers (hotels and airlines) have found value in it even if in the long run, it is nearly certain to be detrimental to them. It also helps that priceline has a number of ancillary websites that contribute to its sustenance and even dominance. These include Bookings.com, Travelweb.com, Lowestfare.com, RentalCars.com and BreezeNet.com. Priceline.com also has a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. Priceline also licenses its business model to independent licensees, including priceline mortgage and certain international licensees.

Hotels could and should, instead, do what they have already done well which is adopt a dynamic and granular pricing policy by segment and time across distribution channels. In the latter case, as is well known, every customer has a unique set of criteria that defines their willingness and ability to pay. While pricing power remains weak over the near term, hotels should set prices keeping pricing risk in mind where the latter takes into account what is at stake for each segment of the market.

Disintermediation disconnect

Few would argue that the internet has brought more rather than less transparency for consumers in virtually any sphere of commerce. Most hotels and their guests have certainly reaped the many benefits that accrue from greater visibility and concomitant critical review from user-generated content and access to consumers across the globe. As a distribution channel, it is certainly unrivaled in scope and size. That model, however, has been under attack, not from competitors of emerging technology, but by the tax man in jurisdictions around the country, And the astonishing depth and endurance of the recession seems only to have sharpened their resolve to go after the resellers.

In some ways, resellers arguably represent a disconnect in the distribution process that in many, though not all, instances extract from owners and operators and fail to pass on the benefits in a material to the consumer. They do so by carving up inventory as they seek to be a one-stop platform for travel while failing to fully disclose to the consumer the transaction costs stemming from their intermediation. That is unlike in most other instances of brokerage, which is essentially what the resellers do, where brokerage fees are fairly transparently divulged. Their rapid growth has only enhanced their seemingly unassailable position. That has been helped along, partly by the fact that, unlike travel agents who are paid a percentage of the gross room charge to a consumer, resellers' revenue model depends on "fees" that have heretofore not been subject to hotel occupancy taxes. All that is about to change, at least, temporarily till the courts fully resolve the validity or not of the occupancy tax on resellers' revenue.

Among the first jurisdictions to post a "win" over the intermediaries in San Francisco where The San Francisco Chronicle reports that "Expedia Inc. and Hotwire Inc. wired over approximately $35 million they had previously refused to pay the city in hotel occupancy taxes. The payment came in the wake of a California appeals court decision rejecting their petition against a Los Angeles Superior Court ruling that the disputed taxes are subject to the pay first rule." But as the Chronicle notes "Expedia and Hotwire claim they are not subject to San Francisco's hotel occupancy tax and (they) have sued the city to get off their back."

A fast diminishing tax base has spurred New York City to follow suit and the city's Mayor signed a law that goes into effect on September 1st 2009 whose "provisions of the law are not limited to online travel companies" and goes on to state that "all payments made to travel intermediaries as a condition of occupancy, including booking fees, will be subject to tax." Quite naturally an assortment of affected individuals and companies have protested the taxes loudly (to no avail thus far) and "predicted last week that the measure would discourage travel sellers from booking rooms in the city and thus exacerbate the deep slump the Big Apple is seeing in its hospitality sector."

The US Tour Operator Association's representative has called the law "impossible to administer" and "unenforceable". While the last part has to be decided by the courts it is, nevertheless, unclear that the law is as retrograde as it is being painted to be. The comparison with travel agents' commission is not entirely tenable given that occupancy tax is paid by the hostelry on the gross amount. Whether it leads to increased rates to consumers or not remains to be seen. But a corollary could be a break up of the oligopoly of the approximately four large companies that rules travel websites.