Is electronic distribution in the hospitality business economically sustainable?

There are many ways how to advertise a hotel room in the web:

• Central Reservation Systems and Global Distribution Systems are accessible (partly via other intermediaries) for potential guests
• Hotel associations, NTO’s and DMO’s are providing opportunities to distribute hotel rooms
• The distribution channel with the strongest growth rates are the Internet Distribution Systems
• Another important eDistribution channel is the booking engine on the hotel’s own website
• There are further variants to distribute hotel rooms

The various business models require in-depth knowledge about the specific distribution channels and general knowledge about multi-channeling as hoteliers face various challenges when distributing hotel rooms. They have to know the tools, the business models and their conditions and they have to manage the occupancies. A growing number of hoteliers uses a channel management tool in order to lose less time.

However, most of the intermediaries have a strong position in the market as they have a growing customer base. A stronger position in the market results in increasing commissions for using the various systems. The big global hotel chains are able to negotiate with the powerful e-distribution intermediaries on the same level. Private hotels are in a clearly weaker position. Moreover, airlines also negotiate with the intermediaries about the conditions. Some major intermediaries such as the GDS and Expedia operate in the hospitality and in the airline sector. The major airlines are known well and have user friendly web-booking engines implemented on the web. This helps enables them to negotiate out of a strong position with intermediaries. Intermediaries therefore more and more tend to increase the commission in the hospitality sector and to reduce commission to (almost) 0% in the airline industry. In other words: The hospitality sector “subsidizes” the airlines and pays for an increasinly expensive landscape of distribution channels. Is this development economically sustainable in the medium and long term? Are the market mechanisms good enough to prevent a monopoly in this sector?

Dr Andreas Liebrich, Head of the Major in Tourism, Lucerne School of Business