Was Hotel Marketing Always This Complicated? The Birth of Global Distribution Systems – Part I of III

The slow pace of change in hospitality was in striking contrast to the rapid and systemic changes in the airline industry. In 1959, American Airlines launched SABRE and soon competing airlines followed suit with proprietary electronic distribution systems. The Global Distribution System (GDS) generated a groundswell of economic and technological advancements that helped full efficiencies in distribution while cutting out structural costs in operations. The GDS processed tens of thousands of reservations daily and future investments led to increased computational speed, yield management systems, and other advancements to help sell airlines seats.

Meanwhile steps to a market a hotel remained a constant. The only significant decisions were which photos to update, what rates to publish, and which paper stock to choose for the hotel brochure and booklet, and whom to speak with for advertising renewals.  A few hotel chains did proprietary technologies like the Holidex by Holiday Inn in 1965 but these were meant to be closed systems for internal controls on inventory management not open for outward distribution.

Not until 1988 did the hotel industry launch a similar universal electronic system. THISCO functioned as a switch to standardize the computer languages of competing hotel chains. Now travel agents could fulfill room reservations and airline seats from one computer terminal. The same efficiencies that benefited airlines twenty years ago were now being applied to hotels. The simplicity of electronic distribution processed by travel professionals spurred the growth and reach of tour operators, hotel brands, hotel representation companies, event planners, car rentals, destination marketing organizations, casinos, convention and visitors bureaus and practically anything that touched the travel industry. These were romantic times for the industry and for marketing.

As many as twenty different GDS companies were processing millions of requests and fulfilling hundreds of millions of dollars in transactions monthly to satisfy the growing demand of the domestic and international travel consumer. Over the next two decades the industry flourished with the GDS serving as a backbone to bridge all pieces together to make it work. Eventually, airlines sold off their interests allowing the GDS to flourish as independent companies.

After massive consolidation, by the early 1990s the GDS began to behave like an oligopoly. What was meant to simplify the communication and marketing channels for each end point (supplier and retailer) became an expensive and anti-competitive system. As was explained by a former American Airlines executive in 2001, the children have grown up to overthrow the parents. The analogy was very much to the point. The GDSs consolidated to become big and powerful and controlled the distribution channels of the entire industry.

For hotels this meant that accessing the GDS became cost prohibitive to join, increasingly expensive to sell, and increasingly inefficient as a system to help sell inventory. Large amounts of hotel inventory from an increasingly greater supply of hotels were unable, incapable, or excluded from selling through the GDS. For those that were technologically connected – namely the chains – the increasing costs of the GDS plus the agent’s commission could push a standard two night booking to cost as much as 20% per transaction. Fees included travel agent commissions, hotel switching fees, GDS pass through fees, commission tracking fees, credit card fees, bank clearance fees, telefax, fax or other service confirmation fees. Each year these fees grew and each year the hotels had no suitable alternative to replace the practice.

In the coming weeks look for Part II: GDS Consolidation and the Rise of the OTAs

About the Author & HeBS Digital:

Jason Price is Executive Vice President at HeBS Digital, a proud member of HSMAI since 2003 and recognized by HSMAI in 2011 as a Top 25 Most Extraordinary Minds in Sales & Marketing. In conjunction with the NYU Tisch Center in Hospitality, Tourism, and Sports Management, Jason proctors graduate students each semester on various hospitality consulting projects. HeBS Digital is the industry’s leading full-service hotel digital marketing, website design and direct online channel strategy firm based in New York City.  Visit www.HeBSDigital.com  for more information.  Follow us on twitter @HeBS_NYC.