Online Reservation: The Path to Tread

Published on 13th June 2006
With the rapid spread of the Internet, the last decade has seen the use of the Internet increase

especially for commercial transactions. The concept of connecting computers began in the early 1960s. When the resulting research and academic networks were merged in the late 1980s, they formed an interconnected computer network that spans the globe, now called the Internet. In Kenya, the Internet first became available for use in 1993 resulting in the spread of Information and Communications Technologies (ICTs) and impacting on commercial transaction by creating new internet based business models such as Business-to-Business (B2B), Business -to-Consumer (B2C) and Consumer-to-Consumer (C2C). This integrated model further cuts through traditional channels of business and company borders, leading to distributed B2B2C.

The Internet provides an inexpensive medium for ecommerce transactions hence the Prisma Project forecasts that it will diminish dependence on traditional central reservation systems and the global distribution systems of airlines. Online intermediaries will change the role of traditional travel agents as direct online bookers make up a significant portion of the tourism spectrum.

The Internet has allowed de -monopolization of information flows and dis-intermediation.

Developing countries can now make the most of their tourism resources by targeting potential tourists directly. The UNCTAD e-Tourism Initiative, an electronic component of the UNCTAD Task Force on Sustainable Development, aims at increasing the capacity for developing countries showcase their tourism facilities and offers, while meeting global demand. Developing countries would therefore directly benefit from international presence. Enhancing capacity would include locally producing information about the tourism offer of the country, instead of having this information presented by parties in developed countries, and offering value-added on-line services such as reservation systems.

In an interview with BTN, John Davis (CEO of Pegasus Solutions) said that his company has noticed that hotel chains seem to be grabbing 80% of Internet bookings in the US directly on their websites. As a result, independent hotels do not seem to stand a chance. Pegasus was considering launching a website for independent hotels that would directly compete with the proprietary sites of such chains as Marriot.com and Hyatt.com. With international trends demanding that a proprietary site bring in over 50% of a hotel’s revenue, it is not enough for a hotel to just have a website.

A search of Kenyan hotels on the travel portal, www.tra velocity.com, reveals that very few of them can be booked online. In a study that involved a group of 18 five-star and four-star hotels, leased lines were the most used type of connection by town and vacational hotels. One town hotel had fibre as a second connection type but for lodges, considering their remote locations, the majority had other means of connection such as VSAT (Very Small Aperture Terminals).

In an exploration geared at identifying the legal factors affecting the adoption of electronic commerce tools, such as Online Reservations Systems (ORS), nearly all the respondents strongly agreed that the lack of an ICT policy inhibits the use of e-commerce. Seventy one percent strongly agreed that lack of domestic E-commerce laws in Kenya affect the adoption of E-Commerce. In addition, over half of the respondents cited lack of domestic mechanisms to provide security for electronic transactions hence eroding trust in e-commerce transaction.

The risk of fraud and lack of a secure way of processing payment for electronic reservations were cited among top reasons barring adoption of online reservation systems, alongside lack of skills. As revenue generation is a major function of the systems, having a high perceived risk factor for revenue collection would reduce the adoption rate of a technology. Lack of skills to handle the system was cited by 5 hotels. This would not be perceived as such a high risk factor because training can be carried out to improve skills.

While all sampled hotels had websites, fifty six percent of them set up their websites in 2002 while forty four percent redesigned their websites in the year 2004. Fifty six percent of the hotels updated their websites when required, while sixty one percent did not know the number of visitors on their websites on a monthly basis. For seventy two percent of the hotels that did not have online reservation systems on their proprietary websites, their clients preferred to make reservations largely by e-mail, followed by phone and facsimile.

Sixty percent of the hotels with online reservation systems were situated in town and weremembers of, or affiliated to international hotel chains. The guarantee method for all therespondents for the online reservations was by credit card which was not provided by Kenyan firms. Three of the hotels belonged to one hotel group.

Considering the role of the websites, 4 hotels (22% of respondents) expect the website to increase the number and satisfaction of suppliers and clients, hence the desire to adopt and maintain technologies that could help achieve this goal. Five hotels (28% of respondents) did not cite what role the website carried out for their hotel.

As a measure to establish whether the proprietary hotel websites were a source of revenue for the respondent hotels, a survey was done requesting the percentage of business generated by the website. Eighty three percent are currently earning between one to five percent of their business from their proprietary site; two respondent hotels generate between six and ten percent and only one hotel generates between eleven and fifteen percent. Proprietary sites do not seem to contribute significantly to business for the hotels.

Of the five hotels that had online reservation systems: majority of them had a system provided by a third party. Sixty percent of the respondents incurred a fee with every transaction through the system while sixty percent incurred a maintenance fee for having an ORS. No hotel had a system provided by a Kenyan firm. One hotel had an interface between the ORS linked to global distribution system, significantly increasing the possible revenues generated. One hundred percent of the bookings through the systems were guaranteed by credit card.

Twenty three percent of the hotels attributed their failure to make use of ORS to implementation and maintenance expenses. In addition, their financial systems could not cater for online payments, as indicated by twenty one percent of the respondents. Twenty percent cited hidden transaction costs as the third reason, Investment risk (19%) fourth, and cost of staff training fifth.

The top three reasons cited for hotels using Business-to-Consumer (B2C) e-commerce were: to be competitive (44%); to keep up with other hotels that are using B2C e-commerce (22%) and to gain experience through learning (19%). The management of the hotels has focused on the costs of the technology rather than on the advantages of e-commerce which are total reduction of costs through increased efficiency of the whole business process.

It was felt necessary to determine which business channels provide business to the respondent hotels. All the respondent hotels received business from tour operators and by referral from clients. This was followed by ninety four percent for travel agents, direct bookers, and hotel website. Eighty three percent of the respondents had walk-ins. Only forty four percent used the global distribution systems and third party Internet booking sites were used by only twenty eight percent of the respondents.

A measure to establish whether the respondent hotels had the foreign business volume that could drive an online reservation systems showed that forty one percent of the respondents had business from foreigners constituting between sixty one to eighty percent of the total business received by the hotels; thirty five percent had eighty one percent; eighteen percent of the respondents had foreign business between forty one to sixty percent while sixteen percent had foreign business between twenty one and forty percent. The top three source markets cited were UK with sixteen percent, Europe with fifteen percent and USA/Canada with fourteen percent. Others were East Africa (12%), Southern Africa (10%), India and the Middle East (8%) and Australia (7%).

Examining the player who had the biggest influence on rates, nearly all the respondents hotels cited Tour Operators, Direct bookers (6%) and the global distribution systems (6%). The study revealed that the channels used by all hotels were tour operators and referrals by previous clients.

By having online reservation systems, the hotels could bypass the tour operators, increase their revenues and make the whole booking process seamless for their clients. However as the study further revealed, hotels would rather maintain travel agent relationships than adopt a technology that would jeopardise business from this channel.

With a predicted annual growth rate of online lodging sales of 26% in some parts of the world, all hotels, motels and other accommodation providers must embrace e-commerce or lose out to the competition. According to TravelCLICK, Internet reservations received at central reservation offices of major hotel brands grew by 43% in 2003. Brand Web sites were the source of 66% of those bookings. Online reservation systems should be considered as an enhancement to proprietary sites. This will provide a seamless environment for clients and suppliers to directly interact with the hotel and further help reduce overall operation costs, consequently increasing revenue. Adequate resources should be assigned to e-commerce and management should use this as the main channel for bringing in business. Hotels should strive to develop trust in their proprietary sites by creating a secure environment. This can be done using Verisign and eTrust and secure sockets layer for transfer of confidential information such as credit card details. ICT and e-commerce policies should be implementedas lawyers increase their knowledge of e-commerce transactions

By Jimmy Macharia, Assistant Professor of Information Systems, School of Business-United States International University and Catherine W. Gachie, Grp. eCommerce Manager – Sarova Hotels, MBA student-School of Business, United States International University


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