Consolidation spurs CRS industry changes

Consolidation spurs CRS industry changes

Bruce Adams

The central-reservation-system business is going through several dramatic changes spurred by recent acquisitions in the industry.

Within the last 12 months, Pegasus Solutions bought Unirez, SynXis acquired HubX and Vantis International Corp., formerly VIP International, purchased Lexington Services.

“The business is changing so much,” said John Burns, president of Hospitality Technology Consulting, a Scottsdale, Ariz.-based consulting company. “The industry is moving beyond just connections to a more intense level of channel-management and revenue-management functionality and support. Representation companies are getting deeper into the service business to add coaching and counseling on top of connectivity.”

Two of the deals grew out of vulnerability and were spurred by opportunity.

“HubX and Lexington’s parent company, MyTravel, were struggling,” Burns said. “VIP bought Lexington at a fire-sale price of approximately $7 million a few years after Lexington was purchased for $37 million.”

Pegasus wanted to grow its representation business and bought Unirez, which had a large client base and interesting technology for $38 million, less $10 million in future tax savings, he said.

“One flavor did not fit all of our customers,” said Bob Boles, executive v.p. of sales and marketing for Pegasus. “We offered Utell by Pegasus for marketing and reservations and always wanted to offer more of a do-it-yourself offering where hoteliers get the tool sets and access to distribution and do it themselves.”

The do-it-yourself offering is Unirez, which provides a CRS, Global Distribution Systems connectivity and Internet-distribution capabilities to hotels, but no call center, promotional work or GDS advertising. Utell offers all of that plus a net-rate program, marketing to travel agencies and support for requests for proposals to bid on group business.

Kelly Blake, president and c.e.o., of Vantis, agreed with Burns about the need for coaching and counseling.

“Technology and CRS are a bit archaic,” Blake said. “They are necessary tools, but hoteliers are looking for somebody who can take the technology and wrap around services to optimize revenue. Just plugging into technology is not enough to compete in a hostile marketplace, where many hoteliers have given up control of their rates to a merchant-model company. They need somebody to analyze their business, their mix of business and determine how to get the right person in the right room at the right rate. Technology doesn’t do that.”

Shortly before VIP changed its name to Vantis, the company partnered with Buckhiester Management USA, a revenue-management company. The deal was designed to give hoteliers access to VIP’s channel management and sales support and Buckhiester’s business process and revenue-management toolkit in one turnkey solution to increase revenue. Fifty VIP representatives were trained as revenue managers.

“The fundamentals of CRS and distribution are evolving rapidly,” said Mark Ozawa, v.p. of Sceptre, a GDS service company that provides channel management and electronic-yield management services. “The CRS is morphing, and consolidation is part of that morphing. Companies are adding, building or buying capabilities, such as Web functionality or back-end connectivity. Some companies are buying clients to build their client base and spread out their costs so they can charge less per transaction.”

The changes are a natural evolution in the industry, Ozawa said, and he compared it to contraction among property-management system vendors.

“[Extensible-markup-language] technology makes it easier for people to connect the PMS to other channels and to the CRS,” he said. “The CRS always was the one place to put all your inventory to connect to all the electronic channels. The technology to connect all those sites was difficult and expensive. Now it’s easier to connect different systems. Some PMS vendors say, ‘Connect to me and avoid the CRS connectivity costs.'”

Some of the newer CRS companies, such as HubX and iHotelier, which was acquired by TravelCLICK in June 2003, had strong booking engines but were light on GDS connectivity, according to Kevin Cheetham, c.f.o. of SynXis.

“There were some problems of execution and delivery,” Cheet-ham said. “Some of the upstarts were a little disruptive from a pricing standpoint. There was confusion in the marketplace if they could deliver what they were promising.” SynXis offered “industrial strength” GDS connections, Cheetham said, and acquired HubX for its booking engine and interfaces.

“We are now much closer to one-stop shopping for a best-of-breed CRS,” he said. “We have all-around better offerings after the acquisition.”

VIP is a reseller of SynXis technology, and Sceptre used Unirez technology before it was purchased by Pegasus, and now works with Pegasus.

Mike Young, president of InnLink, which offers CRS services, said that one deal often invites another.

“Once one gets announced there is a lot more activity of people looking to keep up with the Joneses,” he said. “After the Pegasus/Unirez deal others are looking to see if they have the critical mass to compete with them. A possible downside is that you end up with very large companies that tend to be less responsive to individual hoteliers than smaller companies.”

Influence on hotels

While all the CRS companies that acquired competitors say the acquisitions made them stronger and better providers, are the deals good for hoteliers?

“It is good for hotels because some of those companies were not going to make it, so the hotels that decided to go with them are not stranded,” Cheetham said. “New companies often are hungry and drop their prices. But it is tough to grow your product and do the right things for customers when you do that. The companies now are better capitalized and more mature.”

“There are fewer players, but stronger players because the capital has been consolidated,” Blake said. “It makes for fewer choices, but that will lead to more standardization, which is good for hotels.”

“It allows the hotelier to have better options that will allow them to focus on how to optimize revenue,” Boles said. “It is good for hotels because providers will be stronger and have greater longevity and offer more diverse solutions.”

“Transactions are migrating away from CRSes to PMSes and merchant-model companies,” Ozawa said. “Hotels have more options for connectivity.”

“It comes down to how well the larger companies change the way they do business with hoteliers,” Young said. “We will have to wait and see how their customers react to the changes they facilitate.”

For more info …

Company Circle No.

iHotelier 370

InnLink 371

Pegasus Solutions 372

Sceptre 373

SynXis 374

Vantis 375

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COPYRIGHT 2005 Gale Group