For leisure, Francisco (Paco) Pérez-Lozao Rüter, president, hospitality, Amadeus IT Group, goes on hikes across the Arctic, above the Circle. He’s trudged through thick layers of snow, scaled mountains with deep crevasses and has encountered real dangers including being caught in an avalanche which he thankfully survived.
What keeps him going is that moment when he stands on top of a peak and looks out at all that pure white and blue. “You’re all alone amid this blinding beauty,” said the man, who joined Amadeus in 1993, “a year after the first ticket was issued”.
Paco Rüter goes on hikes across the Arctic, above the Circle.
For all the challenges of Arctic hiking, he said his current quest of transforming the hospitality business in Amadeus, which he took on a year ago after the acquisition of Travelclick, and building it into a business similar to what it has done in the airline sector is way harder and more complex.
While the Arctic is one defined entity, albeit one that is forever changing with nature, hospitality is fragmented and complex with different stakeholders from asset owners to management companies to operators, and the IT landscape is dotted with more types of systems than there are probably crevasses in the Arctic.
In Singapore on what he said was a long overdue visit to Asia – “we have tended to be more North American-centric”, Rüter said that what it wants to do in hospitality is recreate the model it has built around airlines.
“In air, we distribute and we do airline IT – there are synergies and use cases of how the two work together. Beyond that, we have gone into airports and airports are tech silos, very airport-centric. How can you connect the dots between airlines and airports?”
Connecting the dots from demand to recognition to service delivery
Similarly, how can you connect the dots for hotels, from demand to customer recognition to service delivery?
“The hospitality landscape is terribly complex and fragmented – not only that, but with all the changes in digital, everything is moving so fast, the complexity of what you are facing as a hotelier is multiplied. Recognising the customer, serving them, differentiating the brand, all real time – that’s a super daunting task, especially when you have to stitch the IT ecosystem from the outside.
“Airlines were better off, they had to interconnect from the beginning, but hotels don’t have the base and each of the brands have to recreate connectivity. They have to stitch it all together themselves and there must be a possibility for us to add value.”
With that question in mind, it then picked specific areas it wanted to invest in and looked for M&A opportunities to get it there. One of its most significant acquisitions was Newmarket, with its specialisation in meetings and events, for $500m in 2013 and of course, Travelclick last year for $1.5 billion, which Rüter calls “the stamp that shows how really serious we are about it”.
As he sees it, complexity in hospitality comes from several areas – “fragmentation (400,000 hotels), the rise of alternative accommodation, tremendously heterogenous customer segmentaton and the way they use IT is very different, from a houseboat on the Thames to the Marriott.
“There are multi layered economic interests – brands, management, owners; how they purchase IT is very different. We did an inventory and we have up to 1,000 partners actively engaging with us in one way or another. A lot of technology is locally-installed, not even in the cloud. Guest demand to recognition – how do you move from vision to execution?”
It is this recognition piece that is most challenging. “We can fix demand, we are used to that but guest recognition is more complex.”
Not only is the hotel industry littered with so many PMSes but as he sees it, PMSes have to move from operations-centric to guest-centric. “It’s not about bringing in a new PMS but inserting PMS use cases into different themes.”
Its partnership with Intercontinental Hotels Group is a step in that direction. The two companies are working to develop a next-generation Guest Reservation System (GRS) that they say will revolutionise the technological foundations of the global hospitality industry. Amadeus will use a new cloud-based community model, a first in the hotel sector, similar to the model it developed for the global airline industry.
Rüter said one aspect is to “create a new concept of inventory, not by types of rooms but by attributes”.
“Do you know why we have three to four classifications of rooms – it started with the GDS and it was what the tech enabled us to do. That’s not good enough now and we have to break through that. Now we have to “decompose” a room – high floor, sea view, garden view – and “recompose” according to demand. So in the direct channel, you pick the attributes, then you pick the price.”
The programme is in pilot stage and Rüter said the expectation is a six percent in revenue uplift. “Attributes allow you to be more sophisticated in your offer and to match that with demand. We can then adapt this to guest complexity and guest recognition.”
New research released this year by Amadeus and IHG identified “The Beginning of the End For Room Types” as a key trend. “It will see guests able to swap desks for yoga mats, stream their own content through the in-room TV, or ask for that third-floor room with the view they’ve always loved.”
Said the research, “This will see the emergence of attribute-based booking, where guests pick and choose the individual components of their room, marking the end of traditional room types. New selling models will become more mainstream too, with guests able to book a room for a length that suits their needs rather than a traditional overnight stay.”
Said Rüter, “Travelclick allows us to transform the system from the inside. We have much more presence and know-how in the community. We have 45,000 properties using one of our IT (non-distribution) services.”
The quest is to build a single view of the customer. “We need a single instance of what the truth is and each piece of the ecosystem has to be able to talk in 100 milli-seconds to other pieces. For this, you need cloud tech to stitch it all together.
“We need to do it or else Google will do it anyway.”
In the next two years, Amadeus will work on customer recognition through integrating the CRS, website, call centre and digital media, and somehow tie that back into service optimization through housekeeping and service delivery.
And then there’s payments. “So far, hotels have adapted to the payments world, not the other way round. We have to Insert the payments world in a much smarter way, and not give away too much to the intermediaries who charge a ton of money. Can we do for hotels what we have done with airlines – create one layer of interface of all the payment providers, a one-stop shop?”
Marriott-Expedia partnership: “We may miss opportunities but it’s a long game”
Amadeus knows it cannot solve all these problems overnight. “We are longterm thinkers, which is what makes us successful. We have invested about 1 billion Euros in R&D. What we want to achieve is difficult and ambitious.”
He does admit that in playing the long game, one can miss opportunities – for example, the Marriott and Expedia partnership on wholesale rates. “It is true that in the hotel industry, a big challenge is rate consistency and there are a lot of opportunities for third parties to arbitrage and take value from the hotels, and abuse it. Expedia became very sophisticated in how they dealt with it and it was incredible Marriott turned to Expedia for help.
“Amadeus should have solved it, but we weren’t focused on it. We do it for airlines. Would we have considered going in that direction? Yes, when we get out of the weeds, we will.”
Is there a possibility that other companies, which are built for speed, will get there faster than Amadeus can, I asked, referring to OYO, now the largest hotel chain in Asia Pacific, according to STR Global.
“It’s amazing how fast they have acquired scale. We are more focused on the higher end, and yes, they could potentially disrupt us. We always have these moments – to me, the largest transformation is Booking.com which now has the largest market cap in the business.
“I think OTAs will do it with their own customer recognition but not for all customers. Yes, there are people moving way faster than us and they may be faster today but what about tomorrow?”
And the only time you get Rüter riled up is when you challenge him by saying there are some critics who say the GDSes have held back progress?
“That’s an over-simplified self-serving statement. Who else can run the amount of transactions in real time – 75,000 transactions per second (its peak in 2018)? That’s as much as Google does. To have the infrastructure and scale is a phenomenally daunting task. Who else is doing that?”
He’s also surprised by the amount of private equity funds that are coming into hospitality tech, as fragmented as it is. As for further acquisitions in 2020, he said, “We probably have what we need to take the business to the next stage – unless something interesting comes along that can complement that. Besides, valuations are going through the roof.”
Asked if Amadeus would consider buying a hotel company and use that as an incubator to test its IT strategy, he said, “It would be a conflict of interest. We did it in the past when we created one of the largest OTAs in Europe (Viaggi, Opodo), but we were in permanent conflict. We already have hotel partners using our whole tech stack and we work as partners to drive their business, so we are in constant experimental mode.”
He sees his current quest as a 10-year journey and requires similar skills as that on an Arctic hike – endurance, preparation team work. “More important is mental endurance. The satisfaction is immense when you reach the peak.”