GDSs are still strong in the US hotel market
In the US hotel market, global distribution systems (GDSs) are as strong as ever, when the data is looked at in a certain light.
The resilience of GDSs flies in the face of a decade’s worth of industry chatter that GDSs are experiencing rapid decline. Business travelers continue to allocate a huge share of their travel spend through travel managers who use GDS systems. An aggressive move into the corporate booking portal market has paid off.
The four GDSs command slightly more than 10% of all US hotel revenue (excluding an online travel agency (OTA) volume that is powered by a GDS), according to PhoCusWright. OTAs drive at most 9% of reservations in the US market, says TravelClick.
A cost advantage
On a revenue base of $100 billion, the dollar value of fees hotels pay to facilitate transactions through GDSs is about $1.3 billion, according to a study by the American Hotel & Lodging Association (AHLA). A large share of those fees are passed on to the travel agents.
The comparable figure for bookings made through online travel agencies (OTAs) is nearly double that figure, at $2.5 billion, on the same $100 billion base revenue.
So GDSs have a cost advantage over OTAs. That’s partly because of the higher value of the transactions they typically process at volume, compared with the typical bookings that come through central reservation offices, OTAs, “brand.com” websites, and other direct channels.
Business travelers tend to stay at properties with the highest average daily rates, elevating the average transaction value of GDS bookings. It costs about the same to process the higher value transactions, giving GDSs an economy-of-scale edge.
The major GDSs are racing with each other to become more dynamic and allow hoteliers to connect to travel agents at the point of sale and increase upsells of guests on amenities, says STR. Agents earn commissions that hover around 10% for ancillary sales, according to industry sources, so they have a vested interest in accelerating this trend — which, in turn, could enable GDSs to maintain competitive moats around their businesses.
NB: Image of hotel revenue managers courtesy of BTO University/Flickr/Creative Commons.