GDS vs. Channel Manager: What's Better for Small Hotels? - 1 views
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Small accommodation providers have two options when it comes to distributing their online inventory. They can either do it via a global distribution system (GDS) or via a channel manager.
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GDS acts as a middle-man that connects your small hotel to a network of travel agency professionals, including corporate travel bookers. You connect to the GDS, giving you access to all of the travel agents your GDS is connected with. Those travel agents then sell your rooms to their customers (a mix of corporates and leisure travelers), and any bookings made are automatic.
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Retail model This is the traditional model, ie. how you would work with a retail or traditional travel agent.
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Merchant model This model applies to third party service providers that connect you to retail travel agents (by integrating with a GDS) and online travel agents.
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Opaque model In this model, your guests don’t know they’re staying at your specific property until after they’ve made the booking.
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Small accommodation providers can benefit greatly from using a GDS to connect to retail travel agents and corporate buyers. However, we highly recommend that you steer clear of the merchant model, because you would be paying commission to both the third party service provider and the OTA.
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In this kind of business relationship, it’s much better to retain full control of your rates and inventory
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In the distribution landscape, Global Distribution Systems (GDS) are just one of the many players involved in selling your rooms to a world of travelers. They are one of the oldest kinds of distributors in the industry, so it’s important that you understand how you can work with them effectively.
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A GDS doesn’t work exclusively for accommodation providers – it does the same for airlines, activities, and car rental companies.
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Your rooms are sold through all channels connected through the GDS e.g. traditional travel agents. Whoever sells your room earns a standard commission. Your guest pays you, then you pay your agent. An easy way to understand this model is if you think about how you would work with your local brick and mortar travel agency, that caters to walk-in customers. This is the default model used upon connecting with a GDS.
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In this model, you would work with online travel agents (OTAs) like Booking.com via the third party service provider. An OTA sells rooms on your behalf, allowing your guests to find and select your hotel, check your availability, and make a booking.
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However, this is very costly. As they are a third party provider of GDS services, you would not only pay commission to the OTA (a percentage of each booking), but you would also be paying the third party service provider a commission for use of the system (usually $10-$12 per reservation).
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The only difference is, they won’t guarantee it (there is less of an incentive to sell you because there is no additional commission for them), and they will de-emphasise your listing (by placing it at the end of the list, hiding images, hiding room rate, and other strategies).
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You set up several rates (usually 25%-45% less than retail rate), selling your rooms based on bids that guests make based on location, star rating, and other attributes. For example, Priceline uses a bidding system, and Hotwire allows guests to make bookings based on discounted rates.
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GDSes are great for tapping into the corporate travel market – however, it is being used more for other types of travel than for accommodation.
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Compared to large hotel chains and airlines, the GDS can play a different role for businesses of smaller sizes. For small hotels, it may be beneficial to make use of a channel manager instead of depending on sales from a GDS. The article suggests to smaller hotels that channel managers, who work directly with travel agents, can mean more profit for your business. Using the GDS and a travel agency, you are technically paying 2 commissions. With a channel manager, you would only be paying one. Having this business relationship will cut out a middle man, and hotels with smaller budget will find this strategy more efficient.
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I find this article a little misleading. The GDS are channels, can be managed by a channel manager, or in conjunction with, or separately but usually for smaller hotels require an intermediary. Accessing the GDS(s) are used less by smaller hotels for two main factors: 1. Costs and Fees 2. Scope of demand (driving the right customers). 3. Program Fees The article cites figures which have changed substantially since 2015, as of Q4 North American GDS growth was up 6.4% and ADR was up 4.2% YOY with 18.4% of all bookings coming through GDS. TravelClick, Inc. (2019, March 4) What isn't highlighted in the article was the fact that margin agreements with OTAs for smaller independent hotel range anywhere from 20-35% . If the article had done an actual cost comparison (access through intermediary to GDS instead of OTA) the 10% commission + access and delivery fee may have proven more profitable. It would have been better if they had done a little more comparative cost analysis. TravelClick, Inc. (2019, March 4). GDS Booking and ADR Growth Drive Strong Q4 2018 RevPAR Performance in Hospitality. Retrieved from https://www.hospitalitynet.org/performance/4092226.html
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This article from the Little Hotelier talks about what exactly is GDS and the Channel Manager and which on is better for Small Hotels. Small Hotels should opt for the system that gives them what they need, but in their price range and for the size of their business.