Anaemic growth prospects and greater competition from the likes of Airbnb means hotels must target increasing profits by taking intermediaries out of their supply chain.
Thomas Magnuson, chief executive and co-founder of the Magnuson Worldwide hotel group, warned delegates at the Triptease Direct Booking Summit of instability in the sector.
“I do not think there has been a more important time to maximise the direct strategy for your business,” he said.
“We are in times of instability in the hotel industry and slow growth. Controlling profits is one way you can get stability.
“And when you own your own pipeline between buyer and supplier you get speed to market.
“It’s going to be a slow growth market – we are looking at a 1% global growth rate when you take out inflation.”
Magnuson said hotels were also feeling the heat on the supply side with Airbnb now the equivalent of 1% of the UK’s hotel inventory and 10% in New York.
He said there is set to be a 12.5% increase in supply across the US driven by the big hospitality brands.
“Profits are going to come from you taking intermediaries out of your distribution path,” Magnuson told delegates.
“There are far more intermediaries that just the OTAs that sit between buyer and supplier. Many are needed but it’s got very complex.
“This hotel industry is very slow to change. Sometimes we’ve got to look outside of the industry to see how we can improve our supply chain.”
Magnuson used examples like how Rockedfeller simplified the global oil supply chain, and how Gazprom has done likewise today with pipelines laid to supply Europe direct.
He also cited computer manufacturer Dell’s direct sell model and how China is growing its international position power generation by investing in high speed networks.
Magnuson said he has grown the firm by using “off the shelf Service as a Software” systems because it could not afford to become vertically integrated.
He said the traditional approach involves too many transaction fees and requires so many integrations with third parties it slows everything down and stifles innovation.
“There are too many parties involved it slows things down. We needed to do something new and direct.”
Magnuson Worldwide was established in 2003, initially in the US and then in the UK and now in China.
It has formed an alliance with Louvre Hotel Group in Europe and Jin Jiang Hotels in China taking it to 9,000 properties globally.
Magnuson said its approach was to use the best technology already being used by its partners to help independents compete with the mega-brands.
He said it as been able to help hotels gain access to new markets and introduce a standardised approach to areas like yield management across the portfolio.