CASE STUDY Web Reservations International:

Subject：international business Question and Requirement： Read this case study  and use SWOT model to analysis this case。 Case： CASE STUDY Web Reservations International: challenging industry norms James A. Cunningham and William Golden This case describes the market growth of Web Reservations International, an Irish SME company, which is a market leader in the budget, youth and independent travel (BYIT) market through its online reservation system and business model. The case covers the development of the company from inception through organic growth and its recent acquisitions which have enabled it to adapt and extend the business model and enter new international markets. ● The world of independent travelling offers great expectations, new life experiences and opportunities to make new friends. For the independent traveller hostels provide low cost accommodation and are used as key staging bases to explore new countries and continents. In addition to accommodation hostels can provide a range of services including bar, bike hire, common room, free airport pick-up, guest kitchens, internal access, luggage storage and travel information desk. Tom Kennedy owned the Avalon House Hostel in Dublin, Ireland. In the mid-1990s, in an effort to make the business more efficient, he contracted Ray Nolan, an IT specialist, a self-taught computer programmer and owner of Raven Computing, to develop a software program which would allow his hostel to manage the check-in and checkout process. Following the successful installation of the software at Avalon House Hostel Nolan resold the reservations management system as Backpack to a number of hostels. In 1999 Ray Nolan and Tom Kennedy founded privately owned Web Reservations International (WRI) and created an online reservation site for hostel bookings – www. hostelworld.com. The company’s revenue grew by 1436 per cent from 2000 to 2002 compared to the industry average of 269 per cent for the top 50 technology companies in Ireland. By 2010 WRI employed over 100 people and was the biggest global provider of confirmed online reservations for the budget accommodation sector. Through its hostelworld.com division WRI offers confirmed online reservations for over 24,000 hostels and budget hotels ● ● in over 180 countries. WRI provides online confirmed reservations to over 24,000 accommodation providers, directly and through more than 3500 global affiliate partners. Turnover in 2003 was x7 million (£6.34m or $9.55m), with a profit of x1.8 million (£1.63m or $2.46m) on the basis of having handled bookings worth about x70 million (£63.39m or $95.54m).1 By 2005, turnover reached x28.5 million (£25.82m or $38.86m) and pre-tax profit rose to x12.5 million (£11.32m or $17.05m). Budget youth and independent travel (BYIT) market Increasingly, the trend among travellers is to bypass traditional channels to organise holiday and business travel. According to the UNWTO worldwide receipts from international tourism reached $944 billion in 2008 up $87 billion on 2007 receipts. The first four months of 2009 showed a decline of 22 million tourist arrivals (247 million) in comparison to the same time period in 2008. This decline in tourism arrivals lead to revised forecasts ranging from −6 per cent to −4 per cent for 2009. However, long term forecasts suggest that international arrivals will reach 1.6 billion by 2020, with the three most prominent receiving regions being Europe, East Asia and the Pacific 1 Exchange rates used in the case study are £1 = x1.106 and £1 = $1.513. This case was prepared by James A. Cunningham and Dr William Golden at the J.E. Cairnes School of Business and Economics, National University of Ireland, Galway. It is intended as a basis for class discussion and not as an illustration of good or bad practice. © James A. Cunningham and William Golden 2010. Not to be reproduced or quoted without permission. 596 WEB RESERVATIONS INTERNATIONAL and the Americas. Over 51 per cent of visits in 2007 were for leisure, recreation and holidays, the purpose of 27 per cent visits was for visiting friends and family and 15 per cent of travel was for business and professional reasons, with air accounting for 47 per cent of the means of travel and road accounting for 42 per cent.i The proportion of international tourists who are young travellers (15–24 year olds) grew from 14.6 per cent in 1980 to 20 per cent in 2001 and now represents over 20 per cent of all international visitors.ii The BYIT market comprises of students, youths, backpackers and independent travellers. They are typically web savvy, value conscious and tend to take extended vacations and set the travel trends for the business travellers of the future. These travellers’ spend per trip has increased by 40 per cent since 2002, with 80 per cent using the internet to search for information to research their trip before travelling, and online bookings have increased to 50 per cent in 2007 from 10 per cent in 2002.iii Despite the deepening international economic crisis, only 16 per cent of budget travellers changed their plans. User rating and reviews were deemed the most important factors in choosing their accommodation.iv Within the independent accommodation category, a new segment has opened up, termed ‘flashpackers’, who are travellers in their thirties who previously backpacked and have caught the ‘travel bug’ again. Online travel companies, because of the low prices, low commission and margins and the high cost of traditional booking systems, had neglected the BYIT sector. These traditional booking systems, called Global Distribution Systems (GDS), provide pre-internet travel booking systems. However, the high cost of installing and using GDS systems makes them unsuitable for both BYIT product providers and travel companies. In comparison, WRI’s online booking system provides a web only, low-cost booking system, effectively becoming the GDS of the BYIT sector. Traditionally, the value of the market was vastly underestimated as the value of hostel bookings ranged from x10 to x20 with a number of people sharing a room. The entire market has changed in many ways, making the internet an obvious tool for reaching this global market. No longer does the BYIT market consist of poor students checking out the cheapest possible holidays. Nowadays, hostellers and budget travellers are often older people or families, with hostels now offering single and family rooms to cater to this market, in addition to multi-bed dormitories. Hostellers and backpackers carry credit cards and typically go online daily in internet cafes, avail themselves of WiFi facilities or use their mobile phones, making online booking easy. Moreover, they demand a more structured travel experience, seeking outdoor adventure or cultural activities and tours. WRI’s online reservation system and websites cater for this demand. In addition, they spend plenty of money in restaurants rather than cooking in a communal hostel kitchen. Reflecting on these market changes, Kennedy, a co-founder of WRI, notes A few years ago, a hostel would have been full of people cooking their pasta or lentils, and they would all arrive by bike. Now everyone arrives by taxi from the ferry or airport and they all head into town for dinner. The changes in the BYIT market coupled with the successful redevelopment of the Backpack Online software and the hostelworld.com and other related websites afforded WRI a dominant position in this market. Both Nolan and Kennedy realised that, while it was timeconsuming and labour-intensive for an individual hostel to deal with e-mails and booking software, an automated booking service for hundreds or thousands of hostels could be the basis of a solid business. As Nolan states: ‘Budget tourism was totally bypassed by technology until we came along . . . It was not serviced online before we existed. We created the industry.’ In the early 1990s hostels generally ran their own individual websites, with no credit card booking facilities. By 2003, WRI had built relationships with 5000 hostels and was selling rooms on their behalf through an integrated internet reservation system. This grew to over 12,000 hostels by 2006 and to 24,000 hostels and budget hotels, guest houses, apartments and campsites by 2010. The product and websites A core product offered to hostels is Backpack Online (BPO) – a management system for youth hostels and budget accommodation. BPO is the first comprehensive browser based on a property management system (PMS) developed specifically for the hostel and budget accomodation sector. It integrates fully with WRI websites which allows hostel owners to upload availability and download bookings. In addition, the software provides a complete bed management system, with functionality which includes the ability to browse for availability, search for guests, review pending arrivals and set room accommodation allocations. Financial functionality is also included, which allows the viewing and printing of invoices, letters and vouchers and the generation of over 40 different reports that assist in the management of the property centre. These reports include end of shift payment analysis, bookings by booking source, income analysis and stock analysis. WRI’s main site – www.hostelworld.com – allows visitors to choose a destination or hostel, select an arrival date and the duration of their stay and quotes prices in WEB RESERVATIONS INTERNATIONAL Figure 1 Hostelworld.com reservation details Source: http://www.hostelworld.com. whichever currency they wish to use, making the booking procedure extremely straightforward. Once a hostel has been selected, detailed information is available on the hostel’s location, photographs of the exterior and interior, currency converter, room reviews, videos (as available) and all other relevant information for the chosen accommodation (see Figure 1). As well as the booking facility, WRI provides downloadable guides, podcasts and videos to the various continents, countries and cities where hostels are located. City guides provide lists of pubs, clubs and attractions with an interactive map to locate each one, and contain information on transport, weather, opening hours, public holidays, tourist offices etc. In essence, WRI websites provide all the information travellers need to know before booking accommodation. Since 2006 WRI has continued to improve the information content offered to users and the site content is available in 23 different languages. Information includes travel videos, podcasts, customised city guides and travel features. One of the significant developments on the web since 2006 has been the growth of social networking sites. WRI has responded to this significant trend by creating ‘myworld’, which allows users to connect with other travellers, upload travel photos, view bookings, change and cancel bookings, review hostels and store key personal data such as their credit card details. It has built an active community on relevant social networks, including Facebook and Twitter. Hostelworld.com is aimed at the backpacker and student market. However, this is not the company’s only site. WRI has several other key brands – hostels.com, trav.com and a newly launched bedandbreakfastworld.com. 597 Hostels.com has a listing of over 31,000 hostels worldwide and provides backpackers with all the resources they need in planning and booking a trip. In addition to booking hostels, backpackers can purchase activities, tours, transport tickets and travel insurance, and the website provides comprehensive information about travelling, destinations and activities. Trav.com is targeted at value accommodation for the independent traveller and features 20,000 properties ranging from hotels, bed and breakfasts and holiday apartments to campsites. The customer promise of trav.com is no hidden taxes and service charges, guaranteed low prices and independent properties that are not available on other websites in addition to half a million reviews of properties. The company developed and launched bedandbreakfastworld.com in 2010 with the largest inventory of online bookable B&B and guesthouse properties in Europe. WRI owns individual domains in order to ensure that anybody searching for a hostel will ultimately land on a WRI site. The success of this strategy can be seen in the fact that sites controlled by WRI dominate any Google search for hostel accommodation in any major town or city in the world. WRI uses search engine optimisation and presents the same information in different formats depending on the website. Since 2006 WRI has developed content and social networking capabilities as a means to ensuring continued web dominance. User Generated Content (UGC) is a core component of its online marketing strategy. It has developed its own ratings system for hostels and has the largest database of reviews for budget accomodation with over 3 million reviews. In pursing its dominance of the BYIT market WRI licenses its reservation technology to a wide range of affiliate travel websites (see Table 1). The number of affiliates using WRI’s online booking technology reached 3500 in 2010. Table 1 Sample of WRI websites and affiliate licences Flagship websites Affiliate licences www.hostelworld.com www.hostels.com www.trav.com www.bedandbreakfastworld.com www.aerolineas.com.ar www.busabout.com www.lonelyplanet.com www.routard.com www.ryanair.com www.travellerspoint.com www.travelportleisure.com www.tripadvisor.com www.visitbritain.com www.wizzair.com 598 WEB RESERVATIONS INTERNATIONAL WRI also provides a facility for tour/activity providers which allows them to advertise their offerings and allows customers to book them online. The WRI reservation system is being used by customers to book not just their hostel rooms, but also other elements of their holiday. Such activities may include city tours, bungee jumping, rafting, abseiling, or skydiving. These operate on the same model as its hotel booking model. The company has extended its travel services by concluding partnerships with other service providers such as travel insurance, flight booking, travel guides that offer exclusive promotions and special offers to their customers. The revenue model WRI’s model is simple: it handles hostel bookings through a huge network of websites, and makes its money by holding onto the deposit paid for the accommodation (Nolan, 2004). When using WRI’s websites travellers are told immediately if a hostel has availability, available beds can then be booked and reserved right away by paying a 10 per cent deposit and small booking fee by credit card, debit card, paypal, etc. WRI offers the rooms at the lowest available price that the hostel charges, making its money by keeping the 10 per cent charge and the fee. The margins may be very small on a typical x10 hostel bed, but with 24,000 hostels in over 180 countries WRI operates on volume. Together with international coverage, as Nolan (2003) describes: ‘Because we have hostels in both the southern and the northern hemispheres, we don’t have a slow season.’ Central to this is WRI’s ability to keep the cost base low. The business is entirely web based, including customer service. This has enabled the company to reduce the cost of making x1 revenue from x2.56 to x0.45. The revenue model that WRI has developed is designed to ensure that all parties – end customer, property owner and the partner – in the distribution chain gain from their interactions with WRI. The global scale WRI has reached, coupled with the revenue and business model, means that budget property operators have a greater audience reach through WRI’s affiliate programme while keeping complete control over their own operations. The WRI business model offers greater choice, products, increases in booking and revenue and WRI provides a dedicated account manager for each property supported by a multilingual customer services team. The core business model focus of WRI ‘is that WRI allow properties and partners the opportunity to grow their business with lower cost and more transparency.’ Competition We see Travelocity and Expedia as our peers. We are not afraid of them. They are huge billion dollar companies but our technology is every bit as good as theirs. In fact, our booking process is probably simpler (Nolan, April 2003). The competition for WRI breaks into two segments: competitors that compete in the accommodation booking market and online reservation competitors that offer hostel and budget accommodation. General accommodation booking companies Expedia, Travelocity and Orbitz were the three top ranked online travel agencies by US visitors in April 2005 (Nielsen/NetRatings Netview and MegaView Travel, 2005) and continue to be the leading players in the US market. Expedia (www.expedia.com) is a wholly owned subsidiary of IAC/InterActiveCorp listed on the NASDAQ and its focus is to be: one of the world’s leading online travel companies with the mission of becoming the largest and most profitable seller of travel in the world, by helping everyone everywhere plan and purchase everything in travel. Expedia’s brands and businesses work together to share best practices and leverage geographic reach, scalable business models, and customer-related synergies.vi Expedia continues to develop its Expert Searching and Pricing (ESP) technology which provides one of the most comprehensive flight options available online. ESP also allows customers to dynamically build complete trips that combine flights, special rate accommodation, transportation, and destination activities. Expedia operates Classic Custom Vacations, a leading distributor of premier vacation packages to destinations such as Hawaii, Mexico, Europe and the Caribbean. In addition, it operates a corporate travel agency and, through other subsidiaries such as Travelscape, it crosssells to third parties on a private label basis. Its other well known international brands include Hotels.com, Hotwire.com, TripAdvisor and Egencia. Expedia’s directory has more than 80,000 hotel properties and 4 million rooms, in addition to discounted fares on over 450 airlines. The gross bookings for Expedia in the second quarter of 2009 were $5623 million, a revenue margin of 13.69 per cent and a 26 per cent room/night growth despite a gross booking decrease of 5 per cent for the quarter. The company has won many industry awards for its quality and user experiences, marketing materials, PR, WEB RESERVATIONS INTERNATIONAL technology (an average transaction speed of 19.54 seconds), superior offers, service, and security. In 2009 the US Travel Association named TripAdvisor the Innovator of the Year. Hostel accommodation booking companies Websites that compete directly with WRI include hostelbookers, hostelsclub and hostelmania.com. Hostelbookers (www.hostelbookers.com) is privately owned and based in the UK. Hostelmania (www.hostelmania.com), founded by three backpackers in 2004, operates from offices in Spain, Gibraltar and the UK. Its marketing focus is centred on making worldwide hostel reservations easy. It operates a revenue model similar to WRI’s. The core of hostelmania is ‘to provide a simple way to book decent quality, inexpensive accommodation online, to minimise the hassles of travelling for you, and leave you with more time to enjoy yourself when you arrive at your destination’.vii Market expansion and growth Half of this is in the technology, and half of it is in the unbelievable brand we have put behind it. It is outrageous what we have done. (Nolan, 2006) Nolan and Kennedy since the foundation of the business were keen to become a dominant player in the BYIT market through organic growth and acquisitions. Hostels.com has been in operation since 1994 and had a well-established brand name in the market, listing over 6000 hostels worldwide at the time. Hostels.com received numerous industry awards (Yahoo Internet Life, CNET EZ Connect) and had over 10 million page requests per month for a variety of services including hostel accommodation, rail and airline tickets, car hire and travel guidebooks. In a bold strategic move WRI acquired hostels.com in January 2003. It was a key player in the BIYT market and was a good fit with WRI in relation to market and product fit. Further acquisitions followed, which included WRI acquiring Hostels of Europe which provided marketing support and operated a website featuring 450 hostels throughout Europe in early 2004. In March 2005 it acquired WorldRes, a US hotel booking business which provided the company with access to independent and chain hotel contacts. In tandem with these acquisitions, Summit Partners (www.summitpartners.com), a leading private equity and venture capital firm, bought an equity stake in WRI for an undisclosed figure. In February 2008 WRI announced that its Chief Operations Officer Feargal Mooney was taking over from 599 Ray Nolan. Mooney previously held positions in operational finance with internet security company Baltimore Technologies and as a financial analyst with pharmaceutical firm Pfizer Inc. in New York. In addition the company announced the appointment of Fintan Drury as its new non-executive Chairman. He succeeded Paddy Holahan who had been Chairman of WRI since 2002. The company divested worldres to focus its efforts on the independent, budget accommodation segment of the market. In November 2009, the company announced that it had been acquired by the private equity firm Hellman and Friedman LLC for an undisclosed amount. Future challenge The main challenge is how can WRI maintain its dominant position in the BYIT market and broaden its global footprint while maintaning its unparalleled level of operating efficiency. The economic global crisis has impacted on the global travel industry and has put pressure on operating margins within the industry. On the technology front, backpackers are more technologically savvy according to a WRI survey, with 95 per cent carrying a combination of laptops, mobile phones, iPods and digital cameras. WRI going live on the Apple iPhone in March 2008 illustrates the need for the continual investment at the customer interface. This is further evidenced by the launch of its hostelworld i-phone app in January 2010 which has been a resounding success with over 100,000 downloads in its first 6 months and is showcased on Apple’s iPhone backpacker advert. Leveraging the knowledge and experience of travellers is another important aspect of maintaining and developing WRI, particularly as travellers are demanding more information about properties before making bookings. In response to this, WRI has developed video footage for the top 200 properties and has also enabled properties to upload their own property videos. Allowing travellers to do so will follow. This will enhance the social networking capability built into their websites and will become a significant factor in driving traffic in addition to developing the brands of WRI. Despite the economic difficulties Mooney sees opportunities for future growth for WRI: Of course the economy is one the minds of hostel owners throughout the world . . . the hostel industry is well suited to thrive in this kind of climate. We collectively offer value when it is needed most. WRI is focused on being the fastest growing online provider of great value accomodation and we will continue to develop and use innovative technology to inspire independent travellers wherever they come from and are travelling to. 600 WEB RESERVATIONS INTERNATIONAL References: i World Tourism Organisation, Tourism Highlights 2008 Edition, www.unwto.org. ii See WYSE Travel Confederation, www.wysetc.org/Docs/PR_UNWTOPartnership.pdf. iii See WYSE Travel Confederation, www.wysetc.org/Docs/New_HorizonsII_Press_Release.pdf. iv WRI Press Release, 6 March 2009. v http://investors.expediainc.com/phoenix.zhtml?c=190013&p=irol-irhome. vi www.hostelmania.com/Application/about-us.aspx. PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT :)