Welcome to Travel Again presents the weekly travel Roundup, covering the headwinds and tailwinds impacting the business of travel. Please welcome our hosts, Mike McCormick and Ed Silver. Hello Mike, how you doing? Hello. Season two! Wow, season two of the Travel Again podcast. We are back with episode one. Pretty exciting, Mike.
Yeah, so we finished up season one. I have to say I was really pleased to see the reaction to season one. We built up a really nice following very organically. It’s not like we were out advertising. We just used our network and word of mouth. Great following, really happy to see how fast it grew. Even the media was picking up on content from the podcast. I have a theory that some of it is in the new AI world we’re living in; people are finding the content in different ways too, which is really helpful to us. It was great with great guests, and the lineup coming in season two is maybe even better than season one. We’ll see, but I’m pretty excited about it. As always, every episode will go up on YouTube for our insiders who subscribe; they get first early access. Then it goes up on all podcast systems on Monday—on YouTube, on LinkedIn, and little short clips on TikTok now, Mike, for the TikTok fans out there.
That’s right, you got it. All right, we have a great show and the show flow is about the same as last year with a few twists and surprises. But Mike, I suggest we get on to the news. Are you ready? I’m ready. No one went to sleep over the summer. There’s been a bunch of things going on in the last 30 days or so that we got to catch up on.
Yeah, there’s plenty to choose from, but I chose what I felt like were some important things, even some things happening recently. So let’s just kick it off. Mike, Boeing went on strike. Boeing goes on strike and it’s unfortunate. They halted 737 production and the union decided they had to strike. Why don’t you give some context here and let our viewers know what your perspective is on this strike?
Well, the bigger holistic perspective to me is that this is all stuff that has to be resolved. Obviously, Boeing’s woes have been well documented in the media and everyone is following it because clearly the supply of aircraft is a vital part of the engine that turns the engine, which is travel. A lot of things cascade down from there. As much as I hate to see a strike and I hate to see this going on, at the same token, it also has to get resolved if the business and Boeing is going to get healthy again. The CEO who came in, the new CEO Kelly, he’s tackling it as best he can. All things that need to be worked out so that the organization can get back to the business of making superior aircraft.
One unusual thing I had noted when I was reviewing these articles is that the CEO of Boeing, and I believe it was the new CEO, had actually gone to the press and the union and pleaded with them this time not to strike. Please don’t strike. I assume the union felt they didn’t have a choice here.
Well, the comments from the union were that we kind of have this one opportunity to set things right for the long term for our workers and if we don’t do it now, we won’t have an opportunity later. Maybe they’re right. Without being in the room we don’t know, but from the outside looking in for the industry, clearly job one is getting Boeing healthy, making quality aircraft, and insourcing a lot of the stuff that they outsourced, which was some of the fundamental part of the problem. These are all things that have to happen, but when you’re doing all those things, you’ve got a lot of macro issues and labor issues that are a big part of that clearly. Wish them all the best in sorting it out. We need a viable, healthy Boeing for the industry.
Okay, thanks for that perspective, Mike. Next article I chose is about Southwest. Man, we’ve been talking about Southwest since before the summer, obviously through the summer break, but this time the Southwest chairman Gary Kelly stepped down after activist pressure rose to a temperature that simply couldn’t be ignored. What’s the context here, Mike, and what does it mean for Southwest in the long term?
I think first off, he kind of sacrificed himself in a sense for the greater good of trying to preserve the CEO who he’s had a longtime relationship with and what he thinks is best in terms of the future success of Southwest. I think fundamentally, though, the problem Southwest has is the one that’s been well documented, which is that although they’ve been successful and built a very successful airline over the years, the challenges that the hedge fund pointed out involve the fact that they don’t collect the kind of ancillary fees and revenues that the others do. So it’s tough for them to keep pace.
As much as you want to try to position Southwest as this upstart alternative airline, they’re not. Now they’re the establishment; they’re part of the big four. That’s just the reality of the situation. They’ve got to find a way to balance a whole lot of things here, which is getting the revenue piece in line and taking advantage of that, but then not losing their soul and their differentiators in the process. That’s a hard thing to do. Also, it’s that balance of, on one hand, organizationally they’ve built this real terrific culture. Anyone who’s dealt with them, which I have many times over the years as a customer and partner, knows they’re a terrific organization to work with and their people are fantastic. But they also are an organization that’s bred longevity and staying there, and they really have not had a lot of outside influences in terms of new ideas and direction.
Those are the things that have to be balanced. It’s a difficult one. We need them to be healthy as well; competition is good and we don’t have enough of it in the space. I think it’ll be one to watch. At some point Elliott is a hedge fund, they’re about the money. They’ll come and go if they get what they’re looking for. They’re not there to make the airline better per se; they’re there to make their investment pay off. So we’ll see where it goes, but everyone will be watching it very closely.
Okay Mike, the next one: late in the summer, the Department of Transportation launched a probe into the loyalty programs of the four largest airlines. I quote from the article: “The investigation seeks to determine whether recent industry trends like the devaluing the worth of miles and consolidation have adversely affected consumers.” Give us some context. What do you think? Have they in some way adversely affected consumers?
Well, look, first and foremost, I’m always for appropriately, whether it’s DOT or any agency, taking a look and keeping an eye on industries to make sure that they’re using appropriate practices. Loyalty has become a huge part of the driver of the travel business and the economies period, not just here but everywhere around the world. Points feed not only the use of travel, meaning airlines and hotels, but it’s the whole downstream effect of what it does to local economies and all the food and beverage and everything that goes with the long tail of all the spend that depends on travel. It’s a key driver of the industry, so it needs to be done and done well.
The airlines are saying it’s overreach. I think there’s a happy medium in there where companies need to be able to manage their programs the way they see fit—value their miles and their business the way they see fit, and price things the way they see fit competitively. But at the same token, there needs to be some fences. I keep drawing off these examples from the past of when we were working together at the Global Business Travel Association and did lobbying for things like the three-hour tarmac rule and no voice calls on planes, different things that are very positive for the customer. With the three-hour tarmac rule, the airlines put up a big “oh, we can’t do this, it’s going to be expensive and disruptive.” No, it just sets a standard for the industry, everybody follows it, and then competitively you go on your way. Now, do you hear any news articles about people being stranded on planes excessively without water? No, all that went away.
Here’s one where, okay, it’s a bit of a stretch talking about miles and points, but there needs to be some guidelines the same way there is around any pricing practices to make sure that there’s not a bait and switch. I earn miles, I earn points, and then five minutes later they’re devalued. There needs to be some guidelines on how that’s done and how customers are notified—just common sense things. The key is that where regulation can be healthy is if it sets a standard that everyone has to follow; then it’s not about competitively things being determined. One airline can’t have a practice that’s deceptive while another one’s trying to take the high road. Everybody’s got to follow the same rules and that’s good. We’ll see; the devil’s in the details here because you also know the overreach of the DOT in the business of trying to manage loyalty programs—that’s not the point.
But they are a currency, and in many ways they should keep a watch on what they do with a currency of this nature. So again, one to follow. You have to take each one of these—DOT has been very active with Secretary Pete, Mayor Pete. Good for him; I want that. I think that’s good that he’s a bright guy and seems to be pretty level in terms of his policies and practices. I have some good faith there that they’re headed in the direction of looking at the right things, but again, just within limits.
The last article I chose was more new news about Apple Intelligence. Come on, I know this is your favorite one. Here’s the background: the iPhone 16s got introduced and launched across a variety of different devices, and we got to see a little more during the launch of how Apple Intelligence and travel might integrate together. I thought this was a pretty good article covering the mixed reality here of the complexity of integration with travel along with some of the powerful features that are to come. It’s important for our readers to have context here. When the 16s land in a couple of weeks, you’ll be able to get your first 16. I pre-ordered mine, so it’ll be here as early as one can get it. But interestingly, most of the Apple Intelligence functionality will not arrive when the phone arrives. This is something they don’t do that often; they will add these features later with software updates.
Something this important that you can’t actually use when the phone lands is a little unusual. There is still a lot to learn about what’s going to happen here. The only other thing is our partner at Guyapan, who we did a spotlight with during the summer, has covered a couple of interesting articles about AI and particularly Apple Intelligence. There is a post on our website covering the details of what he believes, George Roukas believes, can happen once Apple Intelligence is fully rolled out with travel. He’s quoted in this article. If you want more details, there’s a great detailed article on our website. This article covering the article is also there. More to come, but definitely one to watch and one that I find very interesting.
Another one to watch is as those functionalities become real, you start looking at the impact it could have on travel planning. Pretty disruptive. It’s at the heart and center of everything we do if you use it to its fullest extent. It knows an awful lot about you. No one does privacy better than Apple, and trusting in that along with travel functionality could be pretty powerful. So we will keep our eyes on that.
We will be right back with our guest. I want to thank our sponsor Safe Travel RX, an app that takes the worry off your itinerary, providing travel peace of mind with emergency response components, travel security, and risk management, especially for those traveling internationally. It includes 24/7 global concierge assistance. Landed in the hospital in China? Forgot your prescription? Wallet stolen? Safe Travel RX is your prescription for better, safer travel. Download it today to discover the power of Safe Travel RX and reach out to them if you have any interest in this offering, putting this tool in front of your travelers to provide them with the duty of care you’re required to provide. Safe Travel RX is your prescription for better travel. Mike, any thoughts on Safe Travel RX today?
No, great tool. Take a look. Both from a standpoint of just as an individual user it’s great, but if you’re a company that’s looking to have that extension in terms of offering up a complementary product to your customer base, you should get in touch with them because it’s a no-brainer plug-in. It’s a nice value add for your customers.
Very good, Mike. And now on to our guest for season two, episode one. Please join me in welcoming Tobias Ragge, the CEO of HRS Group. Tobias is recognized globally as a technology pioneer advancing the efficiency and performance of corporate travel programs via deployment of HRS’s AI-infused data-driven platform solutions. HRS’s proprietary technologies are used today by 35% of the Fortune 500 and the world’s most prominent hotel chains. He is the only European named to the Business Travel News’s annual list of the 25 most influential executives in business travel four times. He has been the CEO of HRS since 2008 and is based at HRS’s headquarters in Cologne, Germany. Please welcome to the stage Tobias Ragge.
Hello sir. Hi Ed. Hi Mike. Nice to meet you. Thanks. On your episodes here, our intro, our season two intro, you are the special guest this time, so welcome to the stage. Thanks for joining us.
Nice intro, and I think at the same time, we’ve known each other for a long time over the years. Man, I can’t believe it that you took the reins now over 16 years ago. Yes, time flies. But you’ve really grown the business from the business you started with, which was a terrific business, innovative in its own right, more in the early heady days of going online and the early days of the merchant hotel business. Now HRS has grown and really truly expanded its scope globally and otherwise. You’ve become this global leader; you still have your private company roots. Just curious for a little perspective: what would you say were the high point and low point of all this over the years looking back?
I think the high point is that I always have the feeling the best is yet to come. Obviously in this journey, I’ve been about 20 years with the company, 16 years more or less running it. When you look at what it is that you are proud about, I think one is always when you’re able to globalize a business, creating a global culture. Going from maybe a European footprint to a global footprint, incorporating really a diversity of different cultures from the US to China—that’s a huge bandwidth to cover—to India, to new territories. That was a very exciting journey for me also personally, and it taught me a lesson that diversity—and I know it’s a very overstretched discussion nowadays—but the diversity of different perspectives, that’s what I think diversity is about. It’s not about race or nations or stuff, but different perspectives. They can be very culturally different in a global travel environment, which is a global industry, and it is very enriching.
I found it something that has given me a lot of rewards. On the other hand, when you think about culture and building the global culture and team belonging together—and we like to call ourselves a tribe of entrepreneurs, people who try to do something to create something together—then when you think about the creation element, yes, it was a big journey from an e-commerce business to a software as a service, a B2B business covering procure-to-pay value propositions. We built different platforms in the procure-tech, travel-tech, fintech space and combined it all together for lodging, for meetings, for workforce travel now. The product scope has expanded quite significantly. That is something that is exciting for me as a product innovation person.
Last but not least, I think this is now where I’m seeing the best is yet to come, although the future is always a challenge, in the capabilities of technologies that we’re going to see. You covered this in your intro when you guys talked about AI. How can we leverage good data? That’s why I’m so convinced for us the best is yet to come, because we were able, through covering this customer journey procure-to-pay and providing and building proprietary data around it, to probably leverage the capabilities of AI in a very interesting way in the future. I see there’s a huge opportunity for growers and the capability to build through AI software much faster automation of things. I think it’s just an amazing time we’re in. We still don’t understand where this will lead us, but I think that is something that excites me as a person whose glass is always half full. That’s what I really would say is the highlight.
Now, where there’s light, there’s also shadow. Talking about the low lights of my time, I definitely would say, like probably every executive who’s been in the travel industry, was COVID. That was absolutely a low light. It was not just dealing with the difficulty of the situation, but also from a people perspective. You had to let people go, you had to basically destroy teams that you were building up over all these years because you just were fighting for survival. That was the necessity and I had to do certain changes, but that was really difficult. The uncertainty of where is this going now, what’s going to happen to the market—that was definitely one of the low lights. But I always like to then think about Winston Churchill. He has a great idiom I like: “Success is not final, failure is not fatal: it is the courage to continue that counts.” That is really something which I think provides some opportunities there.
I would say so. One of the things that I really admire about you and your leadership is back when we were all going through that together, all the uncertainty at the beginning of the pandemic, we launched the Travel Again project to try to pull the industry together and you were just a terrific supporter of that. You stepped up. We talked a lot during the pandemic on and off, and one of the things I really thought was fantastic about your approach is despite all that, you took the time with your team to really go and dig deep further into the whole end-to-end process that you were talking about—the accuracy, the data, the interconnectivity of all your systems. You kind of looked at it as, well, we’re not going to have a lot of business right now, things are going to be down, how can I re-engineer and put people to work doing things that will help us once we come out of it?
To your point about glass half full, a lot of people were just putting their head in their hands and just wondering what we were going to do. Even leaders were really struggling to figure out what to do here, and fairly so, dealing with the hard issues of just how do I stay economically afloat during this and for how long. But you did that, and back to your point about now coming out, you talk about putting AI on the front of things. Well, it’s only the front; the data has to be great and the process has to be clean. You spent a lot of time on it. As we know, or people may or may not know, certainly our listeners and viewers that are in the hotel industry know it, but for a lot that aren’t as close to it, that end-to-end process of collecting all that data and making it accurate is no small feat. It has been the bane of the existence of the industry for the longest time. Think of all the years you couldn’t even get a check out and get a folio that had the data on it for the company. They couldn’t even track what people were spending. That was not that long ago. Just calling it out both in terms of industry leadership and leadership with your company, that’s a big step that now you reap the benefits from, but it’s because you did that at probably the lowest time in our history of the industry. s off to you.
Switching gears a little bit, for travel buyers today, what really are the drivers of the decision? Are people largely value buyers, are they price driven? Is sustainability driving decisions today for travel buyers?
I think there has been obviously a shift in sentiment. Last two years especially, the whole topic post-COVID… we have had all the debates about the rebound of ADRs, the rate hikes that we have seen especially in the US market with an immense pricing power because of the consolidated market structure of the three big chains. The European market and APAC are much more fragmented, so the pricing power is not as dominant as in the US. But also there, everybody was coming out of COVID and took a big hit on their rates. Nobody had people to come back. Hotels were running at occupancy levels of maximum 80% because you didn’t have the people to serve 100% capacity. Rates were basically going through the roof; we’ve seen 30-40% rate increases since then.
Cost has now become a focus also with the macroeconomic climate going down. In the US, from my point of view, it is good news that the Fed now basically made a bigger cut in their rates by 50 basis points. There’s the discussion about the recession. Looking from a European perspective, the European economy is also really sluggish right now, with a lot of problems from the growth perspective in the industries. I think the macroeconomic sentiment is more towards how can we basically now work on our bottom line and how can we drive cost down? That is really what drives the agenda now in the procurement organizations. Before, I think we were talking heavily about sustainability as a new driving force and obviously always employee experience, but I feel like now cost has become the number one talking point again.
I see also now a question in the buyer community where they’re saying: okay, how can we leverage our buying power versus the more and more consolidated market structure? Convergence of also transient, small meetings, and groups, trying to drive that together and getting a little bit more strategic with the buying community because of different seasonality patterns of these different product segments. Different margin profiles is something that we see more and more, and I think that is a great opportunity also for travel managers to step up their profile to say we’re going to expand our coverage from just travel into the event space as such and become a strategic partner. That is really something that we have seen is really shifting.
Going forward, Mike and Ed, I think we will have a discussion in the future about also cyber security and security of data. I think we are always talking about AI as the enabler and it’s an amazing enabler, don’t get me wrong, I’m a big believer of the potential, but on the other hand, we need to understand that AI will also leverage a lot of cyber security threats. Protecting personal data and protecting company data—where they’re traveling to, who are they meeting—I think that will become more important to protect. I think also we will have more discussions in the future about how good the security and the data infrastructure security of suppliers is in order to protect the vested interest of the corporates and their clients.
You think we share a lot of data through Google searches and Amazon searches today; wait till tomorrow when you’re sharing all your itineraries because you want to find out what you want to do online through these AI tools and it’s learning from all of that. You’re spot on to make sure you’re focused on it as a company and try to get travelers to understand the value of that data.
If I may add, let’s also think further. We’re talking now about travel IDs and how can we maybe also move away from physical passports into more digital personality traveling the globe and all the information associated with it when we talk about our personal information that’s being used. I think we will all need in this industry to step up our technology capabilities and investments into these spaces. I think also from a total cost of ownership perspective of corporations, that will drive also a push for more towards integrated ecosystems rather than a lot of very small, tiny feature solutions, because it’s also about how many interfaces your corporate ecosystem is accepting to work with and collaborate with. I think the technology element will also have a big impact on our industry in this regard.
I was going to hit on that a little bit from a competitive standpoint. What does HRS do? You’re in a good position because you’re big enough and you have the resources to be able to make those kinds of investments over time. But my concern for a lot of our industry, in certainly the travel agency community etc., is you have this long tail of providers in the industry that don’t have the resources to make those kinds of investments and where is that going to take the industry? I think it’s always the best thing when you have a lot of consolidated market power in a handful of providers. That’s just not the history of our industry. Where does this go, and where does HRS come out in all this in terms of the type of company you are and how you’re going to compete versus your competition? Does it change your outlook in that way?
Hopefully we come out on top. A half-glass full is always there. A good entrepreneur is paranoid on the one hand side and he’s an optimist by profession, so I think these are the two characteristics that you need to bring along. Jokes aside, I think you’re spot on, Mike, and I would share your perspective to say: okay, the progression on the technology front and the fact that basically the human servicing component will be most likely replaced more and more by machines will lead to the fact that obviously the companies who are capable of building technology at scale are the ones who are most likely going to be the winners in the future. Unless you go into very high-end ultra-luxury niches where there’s always a niche for a very high personal touch, but I would say industry at scale is all going to be about technology.
The ones who are capable of using technology and building it are definitely from my point of view going to be the winners. Is it going to be “the winner takes it all”? I don’t think so because this industry is too global; the markets are sometimes too different and the verticals by themselves are so bespoke. For example, people have asked me why don’t you do what you do on lodging or meetings in the airspace, and I always kept saying: listen, we have still so many problems to solve in our core domain and we want to keep our heads down and be the best in this domain rather than being average everywhere and spreading too thin. I think this is also what we will be seeing. We have on the one hand side a process layer and on the other hand side I think we have vertical categories.
From my point of view, we’ll see more of a best-of-breed scenario in the future for very large programs where very specialized players will need to use the power of technology and APIs in real-time data exchange and need a collaboration mindset to bring a complete new level of experience for the travel and the corporations to the plate. Yes, this will probably leave the non-technology players behind, or the non-proprietary technology owning players, because technology is the differentiation factor if you ask me in the future capability to work with data. On the other hand, when you think about the mid-market, most likely small and medium businesses, it might not be worth it to pursue right now a best-of-breed approach and you’re great off doing it with an all-in-one approach.
My point is just if you’re not in technology, it will be challenging. I think you need to be very clear about where to define your niche. To ask me where do I see us, we are fully focused on building technology and making use of our data. When we look at our workforce today, 60% of the workforce are all in building technology; that’s all who we are. Then there’s a third that’s go-to-market dealing with the customers and the supplier community, but at the end we’re building technology. How can we come out on top in our domain as being laser focused in our domain, solving problems for the customers and at the end being able to collaborate with the ecosystem? I think we’re entering an age of ecosystems where ecosystems need to collaborate via APIs. We’re building a niche ecosystem and we need to collaborate with other ecosystem providers. We’re now coming into this understanding that certain people are great at certain things but not a one-size-fits-all approach will win. That’s my take on this.
I would agree. I still see my glass-half-full part of this for a lot of the industry is that I think you’re right: if you really focus in… Travel Again Advisory, we work with a number of clients around the space and a lot of what we do ultimately, in whatever role we were working on with the company, ends up being with that as the backdrop—trying to really hone in on what you do well, how you fit into the ecosystem, and where you see that going in terms of how it plays out for you as a company. To your point, the days of being a jack-of-all-trades where you do a bit of everything… it didn’t kind of sort of work in the past but now it definitely won’t because there’s just no way. The resource that’s required to be good at something or a few things and just really hone in on that is required. That’s not just travel; I think that’s business in general anymore. Things are moving too fast, the capital requirements are too high. You’ve got to find your niche.
But the other part too, which I still stay optimistic about despite all the tools and technology, is the face-to-face, the customer relationship, the business-building part of it is still very much a human element and the companies that do that well can still win, even if they’re basically renting and leasing all of the technology behind them and partnering for it. You don’t have to build something to also be a successful business, but you have to decide what you’re going to be. You can’t be all those things.
I totally agree with you, Mike, on this. At the end, yes, we are social animals and we need each other. You could argue do you need the travel industry because we just sit in our home office and have our virtual identity. All of that is not needed anymore, but at the end, we’re social animals and we need the personal touch, that’s for sure. Also, the projection and the statements I’m making are obviously very far forward-looking. In the long run, yes, technology will be a huge driver in the age of AI and that’s what’s needed. Nonetheless, I think if you’re clear on your value proposition and you’re offering personal service, that is it too. I could not agree more with your statement of it’s all about focus.
Switching gears a little bit, you work all the time clearly with all the hotel brands out there in all different ways. You’ve got this huge global database of hotels, rates, information, and relationship information that’s fundamental to your business. What do you see as changed if you compare now to pre-pandemic? Just looking over the last five years or so, before and after, with the hotel brands and properties, what’s different? What’s their mindset these days? What are the priorities from a hotel brand perspective when they’re working with you?
I think the first question a hotel brand is trying to answer is: who do we need to be for our owners, investors, and the people who are basically signing up to become a franchisee of the brand? First and foremost, I think the industry has been hard hit with loss of talent. Brain drain has been immense and quite frankly, in order to get people back after the pandemic, rates and cost of labor went through the roof. That is why there’s a big demand for: how can you help us as a property owner to digitize and automate part of the guest experience, because we just don’t have the hands anymore that did a lot of the jobs in the past.
When it’s the question of why you as a franchise partner are joining a brand, you want to join a brand because of the distribution and branding capabilities. Also, you’re hoping for them to bring, through their loyalty programs, a guest into your rooms and that’s why you’re paying the royalties and the distribution fees. A lot is about your branding power and the distribution reach and that’s why there’s huge investment also on the group side in rebuilding their technology infrastructure. This is also an industry, like the airline industry, where the backend systems have been built in the 70s. If you think about the large chains, these are super huge systems but systems that have been built 50 years ago.
All these big players have made or are making huge investments to rebuild the entire backend infrastructure, to reduce the complexity of the different versions of PMSs in order to also enable better insights into data, less complexity, lower costs, and leveraging that personalization and merchandising capabilities. We will see that a lot of this attribute-based selling, as we call it in the industry… you could call it NDC of hotel distribution.
Don’t call it that! Think of something else.
No, I’m just thinking about the people listening to us who might not be familiar with the term ABS and what it stands for, but it’s exactly this. It’s about personalization capabilities, merchandising capabilities, and ultimately also monetization capabilities for the supplier community. Massive investments are going into this; next generation systems are being deployed across all these large brands. We can expect much more out of that capability, which will mean also more automation. That’s really what’s at the core of their thought process.
Yes, if you talk to them, they’re also thinking about how they can reduce distribution costs. It’s a big chunk of the P&L of the owner community and that’s where they also get a lot of interest from the owner community. If you can do a better job on distribution costs, that’s why massive investments are seen there. I think also we’re seeing not just on the transient side but also the meeting side getting quite a lot of investment on the backend side of things because this has been also a super offline topic. It’s a huge market with little consolidation so far, so it’s a big business opportunity. We see now massive online push there and next three years we’ll see a completely different ecosystem there.
But will those investments at the hotel level trickle down to distribution systems like yours, or will they be kept locked in for the direct dot com, which we’ve sort of seen the battle on the air side? That’s why we react negatively to NDC—much of that functionality has not made it through the distribution channels yet. Do you believe you’ll get the benefit of it?
Yes, I strongly believe so, and the reason is the market structure. When you think about now a US brand just operating in the consumer segment or small-medium business market, you could argue that it is something you can keep for the brand dot com because that market is a domestic market and I can clearly work throughout the US with one of these large brands if I want because of their just liquidity of the offering. If I now go outside of the US market, let’s say Latin Europe, APAC, I need a much bigger distribution reach because of the fragmentation of this market. We’re not talking about an industry that… the airline industry has 200 airlines as 95% of global supply movements. The lodging industry is 600,000 units of which only 25% are affiliated with brands.
It’s a completely different marketplace. When you now think about large corporations—and that is our target audience where we operate—they’re going global, they’re going all over the place, and they want a wide choice. They’re not just happy with one or two or three brands; they need everything. I think the brands on the other hand side are saying: listen, we are acknowledging your capabilities are more than just distribution and travel booking. You guys are offering a procure-to-pay end-to-end value offering that we can operate across all of the suppliers. As long as we as the partners are good partners, which means we provide volume at good cost and we’re sharing data which is basically enabling everybody to create that experience, that is when you’re creating harmony. So that’s why I’m saying I would 100% agree if we were an OTA, then it would be definitely so like in the airline space, but because we’re not, I think no, we will work in harmony well together.
It’s kind of a glass-half-empty and half-full comment at the same time, but certainly in the airline space and even what we’re describing, the hotel equivalent, the customer really hasn’t seen anything yet—any real benefit at all. In the industry, we’ve talked and talked and talked about investment, but in terms of seeing tangible results, we’re still a good bit off. It’s a long road to get there, seemingly a lot longer than I think everybody thought.
One of my worries is a little like you get there and the customer ultimately—the traveler, the corporation—ends up having kind of a lukewarm or negative reaction, meaning that all this personalization and fragmentation makes it harder to compare. I’m getting stuff thrown at me all too much; I can’t sort through all of it and I have too many options. It’s almost like I think we might take a while to find that right lane where it works. Ed, you said it multiple times, we’ll find that out after literally a lot of capital investment—millions and millions and millions and hundreds of millions of dollars and more spent to get there. It’ll be interesting to see; I don’t know that there’s been much actual customer testing to see what people really want. I think it’s just an assumption that everybody’s going to want all this choice, but that’s a very supplier-driven focus.
I think it’s a really noteworthy comment you’re making and makes me want to respond quickly. I agree with you first and foremost: why is that being built? Because obviously people want to sell more business. More choice means more upselling opportunity, more monetization capabilities on the one hand. On the other hand, the choice paradox of too much choice—you can unbundle fares to the utmost degree and have all kinds of options, but it is something that is putting a consumer and a client definitely off.
I think the power will be: how are you able to identify and understand the cohort of the customers and their personal behavior to just spoon-feed them the stuff that’s interesting for them and figure out from all the choice that might be offered how to do this? I think that is also where from a corporate perspective there’s a big opportunity. There’s a big concern and threat in the industry as I know from the corporate buyers, but I always say: guys, it’s a huge opportunity. When you think about it, you have travelers who are heavy travelers, they are in the loyalty program anyway, they get certain benefits for free. If you were able to understand this and you don’t need to buy as a corporation these freebies anymore, but they are part of the corporate distribution mix, you can add value by cutting costs by getting benefits that they already have access to anyway. On the other hand, for also the supplier community, if we or others as bringing the customers can tell them what these individuals want and can help them to construct fares that are really towards that need, I think that would serve a huge value because you could reduce the choice paradox to the utmost degree. But yes, you’re right, to get there that is the hard part and that is still a journey.
In other parts of retail, this is proven out a bit where it’s: don’t show me 300 pairs of yoga pants, only show me the three that fit my tush the best. In other areas it has worked; in travel, I think you’re right, it’s still to be seen.
Well, we put you to the test and you still stayed with a glass-half-full, so you did pretty well. Now we’re going to do our season two wrap-up question. This is an easy one: what’s your guilty pleasure when you’re on the road? I know you travel extensively all over the world obviously to run your business. What do you do? What’s your guilty pleasure when you’re out there?
One thing I do is connected to exploring the city. I like to stroll through a city at night to just explore it, walk around. I like the big city lights on the one hand side, but being by yourself exploring it and getting a grasp for how the city behaves a little bit. On the other hand, I’m a foodie. I have to admit I just came from a trip from Japan and it’s actually a country of amazing cuisine and culture. So I really have to say my guilty pleasure is I’m a gourmet when it comes to eating food. I tend to go to the more expensive restaurants and spend my money on stuff like this. It’s a little hobby of mine and I have to say, yeah, I need to then make sure the workout the next morning is happening.
Well thanks for joining us, really appreciate your time and your insights. Thank you. So, thank you Tobias Ragge. Tobias is CEO of HRS Group. It is wonderful to spend time with you. Best to you and your family. Thank you very much Mike, thank you very much Ed. It was a pleasure.
Mike, we will be right back with headwinds and tailwinds. Yeah, so I wanted to take a minute and talk about a new product we have here at Travel Again called Travel Again Spotlight. We did our first spotlight with Guyapan over the summer; it was kind of an introductory one and the response was really terrific, immediate, and strong. It came back with not only great response to the content, which happened to be all about AI, which we just talked about a good bit woven in through our interview here at start of season one, but also it received media coverage, meaning we had media accessing, using the content, quoting the content, which I thought was terrific.
Given George Roukas, our longtime friend and partner, he’s done a terrific job. For those that don’t know, he went off for literally a year and went on a deep-dive study off the grid to really understand a lot that he’s now helping customers and helping the industry better understand around AI. For a Travel Again Spotlight, it’s basically a 7- to 10-minute interview format where we focus on the company or the brand or the leadership in terms of their product, their offering, and what they do. We produce it and it gives us a great chance to dig deep with a company specifically, and then we put it out through our influencer network, which is growing every day. It’s a great product and a nice one complementary to our podcast. If you’re interested, just reach out to us. Contact info is pretty simple, it’s just traveladvisory.com. You can go, you can email us, and just be in touch and we can sort something out for you to have an opportunity to do it. Terrific product, something we’re really proud of and I think will also help create great content, more content for the industry which is always needed.
All right, Mike, thank you. And now we will wrap with headwinds and tailwinds where we identify what we think is adding value to travel or taking it away. Mike, I’m up first today with my tailwind. I saw that Hotel Engine has raised $140 million more in funding and they are moving from the name Hotel Engine to Engine. That means that they are now valued at 2.1 billion, and I just love action. If you know me, I love action in the space. This is tremendous action. 2.1 billion valuation, great for a startup out of Europe and just great for the team there to raise more money. They’ll spend it on technology; they’re going to move from primarily hotel to Engine where they will drive travel across the board. I love to see it. I love to see a startup winning in the space. So I wish them the best of luck and just love to see the action in the space. 2.1 billion valuation, congrats to them.
So if they go public or do another round, will they change their name to just E? I don’t know. I like Ed, I think Engine is a pretty cool name. It’s actually cool because it’s counter to the more complex, and it’s hard to find a name, but they actually went the other way which was… I just thought it was just really… yeah, that’s my win, that’s my tailwind. Great to see investment always in travel, right? Anytime valuations are high and money’s coming in, that’s good for everybody, honestly.
All right. My tailwind is just again this issue that keeps coming up, rears its ugly head occasionally, and I think is coming up again. It seems to be getting more momentum, which is disturbing—the attempt to try to change the way credit cards in fact charge their merchant fees back to merchants and to the way… it’s basically the money that any merchant pays for the credit card processing with the banks and the large providers. The attempt in Congress—and it’s a bill that’s kind of surfaced a few times, few different iterations, it’s still hanging out there—is an attempt to regulate that and in doing so will really change the whole economic formula for banks and then ultimately for what you get back for all these points and miles that we earn as customers. In turn, that fuels so much of the travel industry, and it’s a whole economic formula that works for everyone.
It works for the customers for the travelers, it works for ultimately the merchants, it works for the economy. It’s the key driver, and it’s like one of those “if it ain’t broke, don’t fix it” things. And here it is, here we are in a situation where this legislation keeps coming up and it’s one that we really need to keep an eye on as an industry. It could be absolutely devastating. So I put it out there as not maybe it’s not a headwind that is here, but it’s out on the horizon enough that I think it’s one we’ve got to keep an eye on and pay attention to. As with everything, right? There are always new threats and new challenges for our industry but we keep weathering them and it’s what makes our industry great.
All right, thank you, Mike for that and that is our show. Thanks again to our sponsor Safe Travel RX. Reach out if interested in the Spotlight and we will see you back here again in two weeks. Thanks, Mike, it’s good to see you. Great to be back for season two. Season two. Thanks, everybody.