CHAPTER 4

Global Reservations Technologies

Objectives and Student Goals:

Student Objectives for this chapter are:
• Develop an understanding of the breadth and flow of the global distribution system,
including some history of the GDS and the role that airline reservations systems
played in its initial development and ongoing success.
• Create a working knowledge of switch technology and last room availability
technology and the ability to explain how they fit together to create seamless
connectivity.
• Develop a sense of the vast and changing electronic reservations environment,
including the growth of on-line reservations bookings.
• Create a practical working model of a yield management system. Including an
understanding of the definition of yield, which customer types are rate- and which are
date-sensitive, and how airline reservation systems impacted the way in which the
hotel industry sells its rooms.

At the conclusion of this chapter, the student should be able to…

• Identify at least three major advantages to the hospitality industry from the
introduction of last room availability, switch technology, and seamless connectivity. 
• Detail the history of the global distribution system including the historical roles played
by each of its major components. 
• Explain and calculate yield for a given hotel.

Chapter Summary:
Chapter 4 begins a new unit entitled "The Reservations Process." Guest reservations are
created through a wide-range of possibilities. A reservation may be handled by a travel
agent, in-house by the hotel's internal reservations department, it may be accepted on
behalf of the hotel by the chain's central reservations office, a hotel representative may be
involved, or an independent reservation service may generate the business.
There are also a myriad of available options with regard to how the reservation is
communicated to the property. Buzzwords like last room availability, electronic switch
technology, and seamless connectivity have brought lodging reservations into the 21st
century. Last room availability allows central reservations systems (CRS) to access an
individual hotel's reservations data on-line. The in-house reservations department is now
competing real-time with the CRS to sell each room. Electronic switches (e.g. THISCO)
have erased the barriers to communication between once-proprietary central reservations
systems. One standardized reservation code can now be used for all systems on the
network (Hilton, Choice, and Marriott for example). Voice recognition and personal

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computer subscription services (e.g. Rogers or Sympatico) are playing an ever-expanding
role in the reservations landscape.

Setting rates and accepting reservations for a specific date is a complex matter of dollars
and sense (common sense that is). The reservations department cannot merely look to
maximizing occupancy while disregarding the rate the customer is paying. Almost any
hotel can fill its rooms if the rate is low enough. Yield management is the science of
maximizing both occupancy and rate to obtain the best possible "yield" under a given set
of circumstances. We calculate yield by multiplying number of rooms sold times average
daily rate.

The theory behind yield management suggests that certain customers are rate-sensitive
(leisure guests and tour groups) while others are date-sensitive (corporate guests and
conventions). The lead-time with which a reservation is created tells a great deal about
the customer making the reservation and the specific motivation for travel. A more
through discussion of who makes reservations and the role of group travel is available in
Chapter 5.

Key Concepts of the Chapter:

Global Distribution. The Global Distribution System (GDS) refers to all electronic
reservations channels that connect to a hotel’s reservations system. To be part of the
GDS, the hotel must first be interfaced to a chain’s central reservations system (or they
could subscribe to an independent reservations system). Connected to the CRS through
switch technology are the world’s major airline reservations systems. And then connected
to the airline systems are travel agents and on-line subscription services.
Last Room Availability. Hotels that are on-line, real-time with their chain’s central
reservations system are said to have last room availability technology. This technology
got its name because the chain’s central reservations office can literally sell the last
available room at a given property. In other words, reservations taken through the CRO
(or any other channel along the GDS) are directly entered into the individual hotel’s
reservations system.
Switch Technology. Because all hotel and airline reservations systems were originally
developed with their own proprietary software language and code, the various systems
did not communicate well with each other. This presented problems for travel agents and
others who found the different codes confusing when moving between systems. The
various switch companies (e.g. THISCO) developed technology that can interpret codes
from different systems into one universal code.
Yield Management in Theory. The theory behind revenue management suggests that
rate-sensitive guests book their rooms far in advance (even a year ahead) to take
advantage of limited packages and advanced purchase discounts. Date-sensitive guests
make reservations just days (even hours) in advance as business needs dictate immediate
travel. Because they book at the last minute, corporate guests generally pay top dollar for
rooms while leisure guests--who reserve far in advance--receive sizable early purchase
price incentives.

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Yield Management in Practice. In large, fully automated properties, literally every
room sold is examined through a revenue management system before price and
availability is quoted. Although any hotel regardless of the availability of sophisticated
technology can make manual yield management decisions, expert computer systems are
proven moneymakers. Once programmed with a predetermined set of rules and triggers,
an expert computer system can be expected to enhance a hotel's average room rate by
several dollars annually. In addition, an expert system releases the reservations manager
to perform other tasks and then merely alerts the manager when a given rate on a given
date is reaching a critical decision point (rule or trigger).

Professional Vocabulary:
Boxed Dates. A sales tool used by the reservations department to regulate the flow of
reservations through the hotel. Reservations on either side of the boxed day are not
allowed to spill into that date. For example, if the hotel were expecting a big arrival on
Saturday, June 27th, they might box that date. Reservations for Friday, June 26th would
have to be one-night only reservations.

Central Reservations Office. The central reservations office (CRO) and the central
reservations system (CRS) are practically interchangeable in today's jargon. In reality,
the CRS is the entire chain’s reservations computer system, including all of the link-ups,
software, switches, and locations. The CRO is the physical office or site at which the
chain's reservationists operate.

Electronic Switch. Through switch technology, travel agents are able to book airlines,
hotels, and rental cars directly through one single terminal. The terminal is interfaced
with a switch that has the ability to translate the information from one basic set of codes
into each of the distinct languages found throughout the various central reservations
systems in the hospitality industry. There are four major vendors of switches in the
marketplace including: Pegasus Thisco, REZsolutions, and WizCom.

Fenced Rates. Fenced rates are a reservations department sales tool, which provides a
series of options to the guest. Guests are not forced to accept these restrictions but their
rate is determined by which (if any) fences they accept. Examples of fenced rate options
include: non-refundable and noncancellable reservations, advanced purchase
reservations, and staying over a weekend. The airline industry has used fenced
restrictions for years.

Last Room Availability. Last room availability technology allows real-time access to a
hotel's reservation data base. The chain's central reservations system is able to access and
book rooms online, real-time with a given hotel.

Yield Management. In its most basic form, yield management works because rate-
sensitive guests book their rooms far in advance to take advantage of limited packages
and advanced purchase discounts. On the flip side, date-sensitive guests make

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reservations just days (even hours) in advance and pay full rate because their business
needs dictate immediate travel.

Answers to End-of-Chapter Questions:

1. Yes. Given the capability of present-day last room availability or full-duplex systems,
the need to hold on to some rooms becomes unnecessary since the CROs offer an on-line,
two-way communication with all affiliated hotels in the chain and can literally sell the
very last room of the hotel. A manager who “fakes” the system by pretending to sell
rooms may find himself holding several unsold rooms at the end of the night even as the
CRO is turning guests away.
2. CRSs have changed the hotel industry in many ways. The ease of the 1-800 toll-free
number has enabled millions of travellers to make reservations for any hotel at which
they plan to stay. Channelling all these calls through a central location has allowed the
individual hotel not only to save money by having less reservationists at the property, but
also to reach their markets easier. New technology, however, extends this reach further
allowing travellers to utilize computerized communications and make reservations from
their homes or offices right to the individual hotel property. Smaller and start-up chains
are now faced with significant investment to be able to compete with major players in the
global distribution system. Smaller chains must either merge with larger chains,
subscribe to an independent reservations system, partner with other small chains to share
the large required reservations investment, or create a new and unique manner for
reaching customers.

3. Hotels that sell through third parties need to recover the costs of the distribution
system. Travel agents are the most costly (standard commission is 10% of room
revenue). In some cases, the hotel may quote travel agents a higher rate-class in order to
recover the costs of the commissions. Even the hotel’s own central reservation centre
charges the property several dollars per room night sold. This is one reason that different
rates may be quoted for the exact same accommodation. However, with the introduction
of last room availability technology, most rate and availability errors (for example, where
a travel agent shows a certain class of rooms as closed even as the property continues
selling them) have been drastically reduced.

4. Budget properties mean low rates, so they need high occupancies in order to generate
the total income required to meet fixed charges and basic operating costs. At the other
end is the upscale resort. It must charge rates high enough to ensure a particular niche in
the marketplace and to cover higher variable operating costs. It is unable to improve
occupancy through deep discounting, because doing so would destroy the very market
segment to which it appeals. Commercial/convention properties juggle many different
elements of market and rate to maximize income, which includes public facilities as well
as room revenue. With its varied markets, the commercial/convention hotel will use the
yield-management system the most effectively of the three.

5. Reservation systems need to have a foundation of early sales to most successfully

manipulate the rate in subsequent sales. Deeply discounting early reservations but with

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costly cancellation penalties, allows the hotel to set up a basic occupancy on which it can
depend. Yield-management decisions can then be made with a higher degree of
certainty. Similarly, with the high perishability of unsold rooms (an unsold room is lost
forever), discounted rates at the last minute can be used as an incentive to fill up. In
between the two discount periods, rooms would be sold at standard rates to convention
and business groups for whom the certainty of the room on a given date is more
important than a few dollars of rate discount.

6. A list of fenced rate restrictions possibilities might include; a pre-paid, non-refundable

stay at an especially low rate; low-priced weekend rates when prepaid at least one month
in advance; lower-rates on weekends (Saturday night stays) especially for downtown
hotels with low weekend occupancies; or other such devices designed to maximize
occupancies during shoulder periods through lower rates and attractive packaging.

Answers to Case Study Questions:

1. You could invite a front office manager or two from other hotels who are successfully
using Yield Management Software to discuss how the adoption of the software has
worked to increase their profitability. Possibly someone from the company selling the
Yield Management Software should be invited to attend this meeting. They can discuss
the costs vs. return of the software in other hotels. Lastly someone from the local or
national hotel association could be invited who may have statistics on increases in
profitability by hotels who have adopted Yield Management.

2. You may want to suggest to Mr. Slomka that he is correct; however hotel guests are
now used to that happening. Ask Mr. Slomka who flies regularly to Vancouver if he pays
the same price each time he flies and suggest to him that airlines developed the yield
management practice. Having a specialist from another hotel and from the yield
management software provider will help to answer any questions Mr. Slomka and his
CFO may have. Money talks and if you explain to Mr. Slomka that his favourite hotel in
Vancouver the Pan Pacific practices yield management and increased top line revenues
by over $2 million over a 15 month period.

3. The suggestion here would be to have the software company that you have settled on
after doing your research to provide a real demonstration of the software and also provide
Mr. Slomka with a range of expected revenue increases and cost/benefit analysis.

Note: Strategic hotel revenue management is selling the right room to the right customer
at the right time for the right price and for the right length of stay. It is a business process
designed to maximize revenue at all levels of demand and allow you to strategically
manage that demand throughout the year.
Excellent information can be found at the REVolution website
http://www.buckhiester.com/.

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This software is used in Canada by Fairmont, Delta, Intrawest, Tourism B.C., Coast
Hotels & Resorts, Whistler Lodging Company, Westin, Marriott, Pan Pacific and many
other hotel chains in Canada.
One success story: Pan Pacific Hotels and Resorts Pte. Ltd.
The Pan Pacific Hotel, Vancouver
Over a fifteen month period, increased top line room revenues by $2 million for a large,
five diamond, city center hotel. The property experienced RevPAR growth that was well
above market performance.

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