The biggest China PMS vender

2008 is the new start year for China hotel distribution. Starting from this year, China Internet distribution companies (IDS/ADS) start heterogeneous competition and diversified operation. From this year, China global distribution company (GDS) emerges, and starts to change the market by drawing high attention. Also starting from this year, Travel Management idea is being accepted gradually by China companies, and this is attracting lots of traditional strong competitors to provide service in this area; From this year, the industry starts to realize: Human resource cost is high, and we should rely on technology to boost growth! Switch technology type companies are getting great opportunities to grow.

2008, all the hotel distribution models in global market can be found in China and most of them have turned into rudiment. Not only the traditional booking centers are booming, but also the newly emerging GDS, Switch companies are showing promising growth.

Traditional Strong Competitors Heterogeneous Competition
In China market, for traditional hotel distribution, two big names are CTRIP and ELONG. They started operation at the same period and became public companies later. They are showing the miracle of the industry growth and also shaping the whole industry.

In May 2008, ELONG (www.elong.com) proudly announced new 4G strategy after CEO change. The 4G means Guarantee (service quality guarantee), Green (Environmental friendly travel), Global (global resources) and Go-online (reservation on-line). ELONG interprets these 4 Gs presenting the future trends for China online tourist industry development, and it is the start of China online tourist market upgrade. At the same time, ELONG starts to pave on the all E-service path as its name presents. After this, ELONG started to cooperate with several distribution technology companies and hotel chains on test, and full technology interfacing with suppliers. Simultaneously, ELONG got the advantages of different distribution systems: PMS, CRS and Switch to improve its own system to make it with more powerful and fully functional. Based on the technology upgrade, ELONG started full product upgrade, customer service and operation process upgrades.

In August 2008, CTRIP (www.ctrip.com) announced “Starway Alliance” to build China’s first hotel alliance. Based on its powerful marketing networks, CTRIP is attracting lots of middle and small hotels to join to build a quite large hotel group with loose structure. In fact, back to last year, CTRIP started working on the operation strategy to integrate upstream and downstream. Besides putting more control on hotels (product suppliers) through Starway Alliance, CTRIP has started to invest on one China PMS company, which can be found in CTRIP’s latest quarterly company report. Even the PMS company’s name remains unknown, we can see CTRIP is not only trying to put more control on hotels but also trying to control hotel resources by controlling hotel information system to build up strategic reserve for future real-time online distribution. However, for those hotels who are using the system will need to balance the relationships with CTRIP and the relationships with other distribution organizations. At the same time, CTRIP also needs to take good control over the situation of having more competitors caused by the up and down stream integration.

The two big giants’ new strategies have shown their start of heterogeneous competition. In the future, they will not only be the reservation center. CTRIP may become the giant of China hotel up and down stream integrated operation while ELONG may become B2B and B2C pure e-business operation, especially the typical model of 4G.


Reservation Center Severe Competition

“It is easy to enter the hotel distribution, but quite hard to get scale operation” this is the industry participant’s deep understanding. Before CTRIP and ELONG, there were lots of companies and individuals doing the hotel distribution: through small range of hotel contracting and simple manual phone service to serve some high end customers. At that time, hotel has no concept for commissioning fee and customer has no concept for third party service. Now, the hotel distribution evolved to reach perfection, and lots of customers turn to third party for service. Although the industry companies realize the difficulty of the distribution, and the major market is occupied by CTRIP and ELONG, the great potential of China market is still attracting lots of brand name companies with service network and client resources. These companies are providing value added service to customers while trying to build up another public listing company.


Travel Agency

CTRIP and ELONG are not created by travel industry people, so people think it for granted to create a successful Internet Reservation Company by China’s traditional giant travel agencies. AoYou which was founded by China Youth Travel Service (www.cytsonline.com; www.aoyou.com) reemerges this year after many years ups and down. The re-modeled CYTS e-business platform is brining whole new experience for customers by integrating the traditional CYTS travel grouping, vacation package and other comprehensive services. Mango City (www.mangocity.com ), from its hit on the market with surprise in 2006 to the current step by step taking over the market, is approaching success. It is said that Mango is actively preparing IPO to gain capitals for future expansion.


Airline

The hotel + air ticket are essential for business travel. China’s monopolized airline companies are dominating quite large client resources. The air travel is the first step: hotel room reservation can be made only after air ticket issued. Therefore, as the first step of business travel, airline companies take quite advantageous position.

It is meaningful for Airline companies to provide business travel service? Many aviation companies think business travel service is low profit, lots of trouble, high initial investment, and not worth investing big efforts. However, the competition is getting severe, and the aviation industry is reaching pure competition. Aviation companies discover that providing customers with full service is becoming a must for future competition. Based on the understanding, many airline companies are trying to provide hotel + air ticket service. Four major airline companies and many private airline companies are stepping in to explore this market by union or individual. In the future, they will be one part of China’s hotel distribution, and even the major one.


Telecom

Telecom is the biggest hotspot for recent two years, and it also brings a new area for the market: Relying on such a simple telephone number can do the operation so well.

Probably for most people, they don’t really understand the difference between 118114 and 116114, but the strong hit to the market by China Telecom and China Netcom bring great shock to customers and hotel industry. China Telecom 118114 has got the third ranking for China hotel distribution after two years effort, and it has reached 200k nights/month. China Netcom has entered the top 10 hotel distribution ranking, and its bookings in some hotels in some cities are even more than the traditional bookings. These two giants started the business by working with strong partners – cooperating with strong traditional travel service companies. The travel service companies provide product and services which they provide frontend marketing and telephone service. After many years try and cooperation, they get familiar with the industry’s rules and operating models. Whether operating on their own is the next step consideration for them, and the merge of China Netcom with China Unicom may also bring some changes to the hotel distribution.

China Telecom and China Netcom’s achievement is reached through 2 years, but China Mobile 12580 (www.12580.com ) only used 3 months to surprise the industry. 12580 started as independent running, and hired many hotel industry professional managers. Relying on China Mobile’s overwhelming advertisements, integrated marketing planning, distributed branch support and professional operating teams, 12580 entered the top 10 within 3 months, and squeezed into top 5 within 6 months. We believe in future, 12580 will bring more surprise to the industry.

Bank

Many years ago, China Merchants Bank started hotel and air ticket booking with hotel distribution giants. Following CMB, China Construction bank and Bank of China tried this business as well. With credit card’s popularity, bank’s customer loyalty is increasing. Even though no banks enters this industry, many banks with wide customer loyalty have investigated on this area to try to explore the new business opportunity and growth opportunity in travel industry by focusing on the hotel distribution. The potential opportunities could provide more services to customers while bring profit for the banks.
New Business Model

Before 2005, China hotel distribution had mainly traditional travel agency model and later formed B2C reservation center model, and it seemed no other models. In 2005, China Travelsky hotel distribution brought in GDS (B2B) model into China. By 2008, there are more and more distribution models in China.

Emerging of GDS

China’s economy growth and China’s interaction with the world bring in more international customers and new business models. GDS ‘s dominant position in global market is unshakable, the big four (now big three) GDS companies have entered China market, and generating huge reservation amount. After three years growth, Travelsky (www.sohoto.com travelsky) has been the No.1 positioned in China B2B hotel distribution market, and the top 5 in hotel distribution. In 2008, Travelsky will switch commissioning to GDS model, and strive to China’s No.1 GDS company. It will also utilize its several thousand agencies to occupy business travel market to achieve its ultimate success.

If there is only one GDS – Travelsky, we cannot say GDS is rising in China. Beijing GTSS Tinsia travel marketplace, Derbysoft, Hubs1 are the new powers of this model. They all gain certain level of popularity in the market, and they will push GDS growth in China forward all together.

Switch Model Formation

Almost everyone knows about travel reservation center, and GDS and IDS/ADS are well known by high class hotels. Switch company is seldom known by people, but for overseas market, Switch companies are the industry technology innovation leaders. Pegasus becomes the most successful hotel distribution company. The Switch, in simple word, is to build a “tunnel” between hotel’s PMS, CRS and all other channels to enable the information transfer through the “tunnel” to realize real-time direct connection. This will enable all business flows automatically and real-time. Through Switch, hotel’s real-time price and real-time room availability will be shared to customers and channels (reservation centers and so on) by PMS and CRS, and manual price adjustment and checking are not required any more. The booking transfer will not involve fax, telephone or E-booking (it is called Extranet) fees, and can be confirmed real-time. As for the reservation center, PMS can transfer customer stay history to channel system directly through the “tunnel”, and will not need tedious telephone or fax confirmation. This will help ensure 100% accuracy.

However, in the world, there is only one Switch company. The reason is becoming Switch company requires the prerequisite to have wide PMS and CRS customer base. Because Switch model has strict requirements for PMS and CRS, if the company is not PMS and CRS vendors, it cannot achieve Switch model on technology, but also the PMS and CRS License fee will not be affordable (for overseas market, one hotel PMS license costs dozens of thousand US dollars). Only these PMS and CRS system providers which have abundant hotel clients (satisfying the channel business requirement, for example, domestic reservation center usually has around 3000 hotels) can become successful Switch companies. Pegasus is the representative company. In China, now there is only one company can reach the requirement to provide Switch technology – Beijing Zhong Chang Shiji Network Information Technology Limited. Its subsidiary CHINAonline (www.chinaonline.net.cn) is focusing on the third generation hotel distribution technology – Switch technology. It is believed that in the near future, Switch will take important role in hotel distribution and lead the distribution technology to reach new height.

For the first half of 2008, China hotel distribution market share is declining, but the industry leaders’ business share still increases dramatically and new companies are growing fast. Comparing with 70% market share from Network in abroad market, China IDS/ADS (HRC), GDS and other distributions only take around 30% market share. While the technology getting mature and gradually gaining customer recognition, we believe China hotel distribution will grow dramatically in faster steps and new companies, new models and new technology will boost the industry to reach summit.

In 2008, China ADS/IDS market share drops by month, but GDS market share increases step by step, the hotel online direct sales shows promising increase as well. The hotel e-marketing has moved to a multi-dimensional development phase. In order to capture the opportunity, Zhejiang Province Hotel Association held provincial wide e-marketing training session at Hangzhou from Aug 12-14, 2008. The training helps Zhejiang province hotels understand e-marketing, and hence to develop wide range of marketing channels. As the third generation distribution technology promoter, Shiji CHINAonline (www.chinaonline.net.cn) gains widely industry recognition through its unique advanced distribution technology. Perceiving its industry uniqueness, Zhejiang province hotel association invited CHINAonline to participate in this training to provide distribution technology development analysis and have in-depth discussion with training parites over current China hotel distribution situation and future development trends. CHINAonline General Manager Mr, Cai Yongyuan made in-depth presentations about the development of global distribution technology, 360 degrees analysis of the typical models, technology realization methods and typical clients for these different distribution development phases: PMS(Property Management System hotel front desk management system), CRS(Central Reservation System), GDS(Global Distribution System), ADS/IDS(Internet Distribution System) and Switch (Hotel two-way direct connection to clients). Traditional hotel distribution all relies on offline methods (offline, the counterpart is online), mainly includes travel agencies and other agencies. This is still quite popular in China, especially for second line and under cities, most distribution sources are provided through travel agencies. Comparably, the global distribution, even through agencies, is mainly performed online. The first generation distribution had no specialized distribution technology tool to support, mainly relies on PMS to manage the distribution channels, including FIT and group reservations and so on. China PMS suppliers include Beijing Zhongchang Shiji Information Technology Limted Co. (www.shijinet.com.cn , Shenzhen Stock Exchange A share 002153) providing Fidelio, Opera brands and its subsidiary Hangzhou West Lake Software Technology Limited Co. providing Foxhis brand, Talent, China Soft, Qianlima and so on. Shiji Information has more than 60% market share in high tier hotels market, and has up to 95% market share for 5-star hotels. China CRS suppliers include Shiji Information subsidiaries - West Lake software and CHINAonline, China Soft and so on. Shiji Information has more than 50% market share. When Hotel industry steps to Chain operation, the emerging of CRS has enabled lots of single hotels to operate towards centralized operation, to move from single operation towards centralized client management, centralized marketing management and at the same time to better support distribution development to form comprehensive marketing. Following the trends, GDS and ADS/IDS distribution appears, and gradually becomes the main stream to have quite large market share. Different from the first generation distribution: the second generation hotel distribution fully relies on technology creation to evolve. Using its powerful B2B platform, GDS enables hotels to sale to several hundred thousands agencies and charge transaction fee and system usage fee. Taking advantage of Internet, ADS/IDS promotes hotel products to end customer (B2C mode) effectively, and charges hotel commissioning fee based on end customer reservations. Different from global trends: China has the ADS/IDS at first – well-known Ctrip and Elong, and until recent year, GDS type company emerged – like Travelsky and so on. For both ADS/IDS and GDS mode, most companies charge commissioning fee instead of abroad common practice - GDS charges transaction fee and system usages fee. Along with China market dramatically increase and oversea market increase, ADS/IDS in China is experience severe competition. Travel agencies (Mango, CYTS) and Telecoms (118114/12580/116114/China Unicom) are the most prominent competitors. Strong invasion of oversea competitors gradually makes many hotels to accept these GDS companies running on transaction fee and usage fee charge. We believe through several years market incubation, several representative GDS companies will emerge in China, and the second generation distribution will turn to mature. For China market, the third generation hotel distribution Switch mode must be less known. This is because such type of companies is quite rare in the world and the threshold for this type is very high. Among them, Pegasus is one of the best. The third generation hotel distribution technology more tends to be pure technology service, and has less involvement in business operation. The principle is to combine hotel PMS, CRS to have standard and integrated interfaces to directly connect to all distribution systems (GDS, ADS/IDS, TMC and so on). By doing this, it can enable full automatic processing, such as hotel price change, real-time room availability, reservation real-time confirmation and so on. This kind of technology requires the company having its PMS and CRS widely used by lots of clients, and this makes it unreachable for most of companies. Pegasus has operated globally for many years, and has become the major player in hotel distribution system. Most of hotels and channels have quite close cooperation with it. Comparably, in China, only Shiji Information has large PMS and CRS customer bases, and Shiji Information is trying to use it advantage over this to promote the third generation hotel distribution technology through its subsidiary CHINAonline. CHINAonline is now the only Switch company to provide mature third generation hotel distribution technology. Currently in China, there are almost one thousand hotel PMSs or hotel chain CRSs are connected to China top ADS/IDS and worldwide top TMC, IDS/ADS to have automatic business cooperation through CHINAonline’s Switch mode, and this is being widely recognized. After usage, many clients praised this mode to be an extraordinary experience which they have never had. Even though the preparation is quite complex, the operation is quite simple after fully functional. The previous complex price change, room availability check, tedious reservation processing, low efficiency customer stay history and other issues are all solved easily without manually interruption, which makes the business operation not only flexible and easy but also accurate and high efficient. After almost two hours discussion, CHINAonline General Manager – Mr. Cai Yongyuan described the several main characters of China hotel distribution in a comprehensive way: the prosperousness of ADS/IDS, the maturity of GDS, the growth of Switch, the emerging of hotel e-marketing. These several modes will lead the industry to have dramatic revolution in the coming 2 years. The market players must pay high attention to the trends and follow up it to take preemptive opportunities in the future severe competition to increase profits. In addition, Mr. Cai foresees the prosperous future of e-business in hotel industry. Comparing with abroad counterparts over 70% whose profits come from online, China market’s online business still falls a lot behind, and this leaves the great potential for e-business marketing in China. CHINAonline exclusively sponsored the diner banquet of this activity, and showed great appreciation to all PMS, CRS and CHINAonline Switch clients. CHINAonline also hopes to get continuous support from all market players, and believes the support will ensure CHINAonline grow more sustainable and rapidly.