GDS vs. channel manager: what’s better for small hotels?

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. But which solution will work best for their business?

Let’s discuss the two.

Option 1: GDS

In the distribution landscape, GDSs are just one of the many players involved in selling your rooms to a world of travellers.

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.

What is a global distribution system?

In simple terms, a 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 travellers), and any bookings made are automatic.

A GDS doesn’t work exclusively for accommodation providers – it does the same for airlines, activities, and car rental companies.

The biggest players in the industry are: Amadeus, SABRE, and Travelport.

How can small accommodation providers work with a GDS?

You can work with a GDS in three ways.

Retail model

This is the traditional model, i.e. how you would work with a retail or traditional travel agent.

• 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.

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.

In this model, you would work with online travel agents (OTAs) like 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.

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).

• You strike merchant agreements with each OTA you want to sell through.
• You give the OTA your net rate (best available rate, or rack rate less the agreed upon commission).
• When the OTA sells a room on your behalf, they take the payment, and you invoice them – or you take your cut when the guest arrives and you charge their credit card. Usually, you get limited information about your guest (only their name).

It’s important to note that you don’t necessarily need to have a merchant agreement to get your rooms sold on the OTAs through the third party service provider’s GDS connection.

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).

When you do create an agreement with them, the OTAs improve your listing, pay you directly (removing the hassle of credit card transactions), give you the guest’s contact information, and give you the option to run promotions with them.

Opaque model

In this model, your guests don’t know they’re staying at your specific property until after they’ve made the booking.

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.

Which GDS model works best for small hotels?

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.

Option 2: channel manager

GDSs are great for tapping into the corporate travel market – however, it is being used more for other types of travel than for accommodation.

In fact, in Q1 2015, only 15.4% of all hotel bookings were from GDS (Travelclick), and almost 90% of Amadeus’ revenues come from air travel (Tnooz).

With that in mind, we strongly recommend that you connect to your OTAs directly, instead of via a third-party service provider.

Small hotels, bed & breakfasts, guest houses and inns don’t have big budgets to play with (or not as big as your larger counterparts). Why pay commission twice?

On average, small hotels can cut the commissions they pay in half by using an all-in-one solution (including a channel manager component) like Little Hotelier that connects you directly with hundreds of OTAs.

“With OTAs like and Expedia… We’ve found that it’s better to connect with them directly instead of through a third party service provider, because we’re only paying 15% commission. Before, the commission was anywhere from 20% to 35% because of the third party’s global distribution system (GDS) connection fees. We used to pay $35 for a $100 reservation, but with a direct OTA connection it’s down to 15%, so that’s a win-win situation for us.”
– Ivan Drechsler, Tubac Country Inn

In this kind of business relationship, it’s much better to retain full control of your rates and inventory, and cut out the middle-man by using an integrated channel manager to sell rooms through your OTAs. Plus, you don’t want to be penalised for having high occupancy rates!

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