Hotel rates for tour operators

//Hotel rates for tour operators
In Europe, many tour operators have worked in the same way, loading hotel rates that come in by email (or even fax) for many years and have never taken up using some of the distribution methods that Online Travel Agents usually use. This can make them uncompetitive at certain times or can lead to them needlessly giving away margin to remain competitive.

The following are a few random notes that might be of assistance to a tour operator wishing to have access to more dynamic rates.

The two main types of hotel rate

1. Postpaid rates:

Also known as: Guaranteed rates, commissionable rates or (standard) retail rates.
Booking method: A travel intermediary passes the end customer’s credit card details to the hotelier to act as a guarantee.
Hotelier payment method: When the end customer checks out of the hotel, the customer pays the hotelier directly at the check-out desk.  The card details given in the booking solely act as a guarantee: should the end customer no show, the hotelier will claim a cancellation fee using that credit card.
Intermediary payment method: The travel intermediary claims a commission from the hotelier for the booking, which the hotelier pays directly to the intermediary.
Access to rates: These rates are generally available for booking by accredited travel intermediaries and are normally commissioned at a rate decided by the hotelier (normally 10%).  Commission override deals can be negotiated with a chain/hotelier, which would allow the intermediary to achieve a higher commission.
Summary: These rates are for accommodation only and are not normally used by tour operators

2. Prepaid rates:

Also known as: prepaid retail rates, net rates or merchant rates
Booking method: A travel intermediary makes the booking with the hotelier but does not pass a guarantee credit card.  Usually the booking is marked “payment on account”.
Intermediary payment method: The travel intermediary is paid directly by the end customer.
Either the travel intermediary charges the end customer the “prepaid retail rate” or the “net rate” or “merchant rate” plus a markup.
Hotelier payment method: The hotelier invoices the travel intermediary according to payment terms negotiated with the chain/hotelier.
If the rate is a “net rate” or “merchant rate”, the intermediary is invoiced for the rate amount and the intermediary retains their markup.
If the rate is a “prepaid retail rate”, the intermediary is invoiced for the rate, less a retained commission amount.  That retained commission amount is normally 10% but overrides can be agreed to allow a higher retained commission.
When the customer checks out of the hotel, the end customer pays only for extras charges incurred during their stay at the hotel.
Access to rates: These rates are not generally available for booking and access to these rates is normally negotiated between the travel intermediary and the chain/hotelier.
Summary: These rates are available for accommodation only sales and as FIT (“Fully Inclusive Tour”) rates and are the main rates used by tour operators.

What exactly are hotel rates?

Hoteliers consider room rates to be loaded in groups, designated by a “room type” code and a “rate group” code (which is sometimes confusingly called a “rate code”).

For those familiar with hotel central reservation systems (“CRS”s), a room type code may look something like “A1K” or “A2Q” (usually, but not always, “standard king-bedded room” and “superior queen-bedded room”); and a rate code will look something like “RAC” or “PRM” (indicating “rack” rates and “promotional” rates).

Actual rooms (i.e. room numbers) are not normally stored in the hotelier’s CRS but are bundled by room type, which then stores the number of rooms available of that room type.

A “rate”, the price at which the room is to be sold, is associated with a combination of room type and rate type.  For instance, the rate code “A1KRAC” would be the rack rate of a standard king-bedded room.  The price associated with a rate will then vary according to a “rate card”, usually on a daily basis but sometimes in blocks of more than one night.

Normally, a rack rate will be created for all room types and then other rate groups will be discounts from that rack rate.

Some rate groups might be widely distributed to all travel intermediaries and other rate groups might have a more limited distribution.  For instance, a chain might create a rate group, called “BAR” (best available rate) for distribution to its preferred distribution intermediaries and will give access to this rate to all of a selected list of intermediaries.

Sometimes a hotelier might create a rate group for a single special intermediary and that rate group will only be available for sale to that intermediary.

How do hoteliers handle allocations?

(note that hoteliers often use the term ‘allotments’ for what tour operators call ‘allocations’)

Hoteliers often handle allocations manually outside their CRS, although some CRSs have allocation handling modules.

Generally, when a hotelier agrees to allow a particular travel intermediary to hold an allocation of its inventory, a spreadsheet will be updated showing the travel intermediary in question, the number of rooms and the rate agreed for sale.  They will then decrement the number of available rooms of each room type as appropriate in their CRS.

Should the travel intermediary wish to book one of these rooms, the hotelier will normally check the spreadsheet and decrement the allocation of that room.  They would then normally increment the availability of that room type in the CRS and make a manual booking on behalf of the travel intermediary.

Many allocations are created on a “sale or return” basis and when that allocation expires, usually a certain number of days before the check-in date, the hotelier will normally increment the availability of a particular room type in their CRS by the number of rooms remaining on the allocation for that date.

The travel intermediary will normally load allocations into their own allocations database and will decrement their allocation as they receive bookings.

Rate loading

Hoteliers normally load all of their rates into their CRS (this simplifies the hotelier’s revenue accounting) but may additionally pass rates to travel intermediaries as negotiated rates.

Rates are passed to travel intermediaries in a number of different ways:

1)     Paper/email/fax: the rate is written down and passed to the travel intermediary, who will then normally load the rate into their own rate database.  This method is normal for individual hotels and smaller chains who do not have access to electronic distribution channels.  This method means that both the hotelier and the travel intermediary will load the rate and the travel intermediary will be responsible for any loading errors.  This is the usual method of distribution of rates and inventory to tour operators.
2)     Extranet: Some larger travel intermediaries will provide the hotelier with direct access to their rate database.  This will then allow the hotelier to enter rates directly into the travel intermediary’s rate database.  This method means that the hotelier will load the rate twice and will be responsible for any loading errors.
3)     Direct access: The hotelier will allow the travel intermediary direct access to its rates via an electronic channel (see below).  This method means that the hotelier will load the rate only once and that it will be responsible for any loading errors.

Making a booking

Given the rate loading methods explained above, a travel intermediary has a number of different ways of selling a particular rate:

1)     The travel intermediary finds a rate either:
a.   In its own rate database,
b.   In the rate database of another travel intermediary, or
c.    By directly searching for rates in the CRS
2)     In order to sell the rate, the travel intermediary must inform the hotelier (or the other travel intermediary) by either:
a.   Sending a supplier notification message (either one booking at a time or as a rooming list, a certain number of days before the check-in date of a series of bookings), or
b.   By lodging the reservation directly in the CRS of the hotelier or the booking engine of the other travel intermediary.

Bed banks

A number of companies will allow 3rd party travel intermediaries to use their rates.  These rates are normally associated with an allocation for that third party.

These companies are generally referred to as “bed banks”.

Hoteliers will usually use bed banks to expand their distribution range and to “fire sale” rooms if sales are running below target.

Typically a bed bank will only sell room only rates and not FIT rates and will own the reservation with the hotel after it has been made, meaning that modifications to the reservation will have to be arranged via the bed bank.

The 3rd party will normally access bed bank rates either by building a direct electronic connection with that bed bank or by booking on a private extranet site.  The 3rd party will then hold details of the booking in their reservation system and will be responsible for the relationship with its customer, leaving the bed bank responsible for the booking in relation to the hotel.

Direct connects, switches and GDSs

Electronic communication between a travel intermediary and a hotelier has many advantages.

For the hotelier:

·       Rates only need to be loaded once
·       There is no need to maintain allocations or to process them
·       Bookings do not need to be manually keyed
·       Reservation numbers can be communicated directly to the travel intermediary and therefore check-in errors are reduced

For the tour operator:

·       There is no need to load rates
·       Financial leakages as a result of errors is substantially reduced
·       They have access to the full inventory of the hotel, not just their allocation
·       Supplier notification is automatic and instant
·       Reservation numbers can automatically be loaded into their booking and their customer accurately notified.

From a tour operators point of view the downsides are:

·       Increased technical complexity
·       Slower response times than looking for a fixed rate in your own database

There are three main methods of electronic distribution:
1)     Direct connections can be built between the travel intermediary and the hotelier.  This is technically expensive but, if large numbers of bookings are to be made between the two parties then this can provide the cheapest distribution channel.
2)     Switches (e.g. Dhisco and IBS Demand Gateway) have access to many different CRSs and therefore a travel intermediary can build fewer connections and still access many hoteliers’ CRSs.  This is a cheaper way to operate than by using a GDS but hoteliers pay a small transaction fee to the switch company for each transaction.
3)     GDSs (e.g. Amadeus, Travelport, Sabre) have access to a switch and have some direct connections with the CRSs of major chains.  An electronic connection can be built between a travel intermediary and a GDS but there are few advantages to this method over building a connection to a switch company since functionality is more limited, distribution reach is the same, and costs are significantly higher for the hotelier.

Switch company comparison

(Please don’t take my figures for granted – check with the provider)

Dhisco has the widest reach (roughly 90,000 hotels) and is a relatively low cost solution for hoteliers.  Its strategy appears to be to maximise profits by maximising volumes of transactions and to keep its technology simple and effective.

IBS Demand Gateway has a smaller reach (roughly 45,000 hotels) and is often preferred by large chains to Dhisco.  Its strategy appears be to act both as direct switch (like Dhisco) but also to allow travel intermediaries to distribute their rates to other travel intermediaries (known as the “hybrid model”).  This hybrid model would allow a tour operator to give other travel companies access to its room-only rates and for it to access certain other bed bank rates.

Please contact the Cool Travel team if you would like to investigate this further (or indeed to correct our ramblings).

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