Welcome Events

About 20 attendees joined an airboat swamp tour on the arrival day for a tour of the Louisiana bayou. Everyone returned, despite the captain’s best efforts to feed one or two to the alligators. The evening welcome reception featured an icebreaker where each attendee received a card with a recipe ingredient and had to find others with the necessary ingredients to make various Cajun dishes. Vocal arguments broke out about whether cilantro was required or taboo in jambalaya.

Digital Disruption

Rich Siegel kicked off the conference the next morning and introduced Cindy Estis Green of Kalibri Labs, who spoke about “Operating Hotels in the Age of Digital Disruption.” Whereas Global Distribution Systems (GDSs) dominated in the 90s, and Online Travel Agencies (OTAs), Travel Management Companies and Metasearch companies in the early 2000s, Estis Green said that the 2020s would see the rise of big tech companies such as Google, Facebook, Alibaba, Apple, Amazon and even Uber.

She noted that 85% to 90% of hotel business goes through one of these companies as gatekeepers today, and that any one of them could lay claim to bookings if they choose to do so. The combined market capitalization of Marriott, Hilton, and IHG combined is in the same range as that of Booking or Airbnb alone, and a small fraction of the tech giants. More and more hotel marketing budgets are being diverted to intermediaries for either advertising or commissions. And whereas historically travelers booked directly with “stay brands” that operate hotels, now “booking brands” such as Booking, Expedia, Google, Kayak, and TripAdvisor dominate the consumer point of entry. Hotels retain the advantage primarily in services that they control and that are delivered within the hotel; many are moving to add functionality to capitalize on these captive capabilities.

Estis Green noted that fintech companies are also moving into travel. CapitalOne invested $96 million in Hopper and is introducing products to de-risk travel for consumers. With 65 million cardholders and their own loyalty program, they are starting to pose a significant threat to hotel programs. JP Morgan Chase also recently acquired Frosch Travel Group, the third largest US travel agency and Chase executives believe it could become the third-biggest
travel agent in the country in two years. Banks are more motivated by interest and interchange fees than by commissions, potentially changing the competitive landscape.

Meanwhile, Airbnb and Kayak are moving to build up their corporate business, posing yet additional threats to hotels. Uber is seeking to become a one-stop shop for travel, adding air, rail, and hotel bookings to its ground transportation and food delivery services. Finally, the emergence of AI-based chat engines such as ChatGPT may change the way hotels and other booking sites will compete to be in the “top 5 hotels” returned in a conversational search.

Estis Green provided a detailed analysis of shifting customer acquisition costs, noting that they are now generally in the range
of 15% to 25% of guest-paid revenue. The percentage of guest-paid revenue that is retained by hotels after acquisition costs has continued to decline even as RevPAR has grown. She concluded with predictions that the economics will continue to change, including that large brand growth will be led by soft brands, given that top-line revenue potentially may no longer be sufficient to support hard- brand chain fees. She also predicted that third parties will dominate the top of the marketing funnel for hotels.

Mergers and Acquisitions

Next up was Matt Goche, CEO of Uniguest, talking about the mergers and acquisitions landscape. In his current and former roles at Uniguest, Goche performed 12 acquisitions. He listed things to consider when you are buying or selling companies. Buying can bring you new products, customers, global markets, diversification, and financial performance. Selling can generate a liquidity event for shareholders, provide access to growth capital, build a competitive moat, or increase scale to facilitate growth. Whether buying or selling, it is critical to ask the question which of these (or other) benefits a particular opportunity could bring you. He also noted the importance of timing, including whether the organization is ready for an acquisition and the state of the market.

Goche then presented various metrics used to value businesses, including revenue growth, the percentage of recurring revenue, the mix and type of revenue, gross margins, EBITDA metrics, cash flow, and customer retention. Financial buyers and strategic buyers will use different valuation methods and multiples based on strategic fit, growth rate, and key business metrics. He also outlined the different approaches to finding a company to buy or to sell to, including networking, direct approach, and third parties.

He concluded with a discussion of what happens during and after acquisition, and the importance for founders
of finding a fit within the new organization if they plan to stay. He described the M&A process as a lot of work – “like working two jobs” – and noted that change will be inevitable despite the best laid plans. The acquired company’s leaders and team members should be prepared to embrace change. Among his lessons learned, he reminded the audience that while an acquisition may be a transaction, there is a human element and significant impact on many people and their families. Acquisitive companies who are thoughtful about this generally get better results.

Legal Aspects of Outsourcing

Next up was Erin Snodgrass, a seasoned travel and hospitality attorney who recently joined the Travel and Tourism team at the Foster Garvey law firm. Snodgrass’s career has included significant engagements with numerous blue-chip companies in both hospitality and among the technology providers that serve it.

Snodgrass spent some time examining outsourcing, especially related to app development, with different models including offshoring, nearshoring, and onshoring. Eastern Europe has emerged as a strong offshoring option because of the talent pool, greater compatibility of time zones, similar cultural and business etiquettes, and good intellectual property laws. Costs in Eastern Europe are about 1/3 of comparable talent in the U.S. and 60-75% of Western Europe. She did note, however, that Eastern Europe has confusing tax laws, political disruptions, and some communications breakdowns and data leaks, and that time zones posed somewhat of a challenge.

Outsourcing can involve deliverables-based projects, a dedicated team handling a service like call centers, or staff augmentation to get temporary or specialized skills without full-time hires. For deliverables-based projects, clear scoping and a statement of work is key, as well as ownership; acceptance criteria; definition of which party provides what (including contingencies); responsibility for clearances, malware, and performance; and milestone payments. For service functions, performance standards, control over personnel, training standards, and service level agreements are critical to negotiate. For staff augmentation, she noted there can be significant pitfalls that can lead to staff being re-categorized as employees, which can in some countries lead to unexpected transfer of employee obligations between the outsourcing company and the service provider. She emphasized the need to engage local legal counsel familiar with the laws of the countries involved.

Snodgrass closed with a discussion of key issues in contracting. She highlighted issues with master agreements with brands (who do not want to take on liability for deals with their hotels) and the property agreement. She also discussed service level agreements, indemnification (which she says should be limited to third-party claims and ideally only to infringement), data claims, and limitation of liability.
 

Planning for the Worst

Next on deck was Tony Espinosa, CEO of the event’s sponsor, Calltek, talking about mitigating risk in emergency situations. Calltek’s largest offices are located along the “ring of fire” and have seen a lot of natural disasters. He spoke about the need to prepare for disasters, whether environmental
or technical ones (such as data breaches or being suddenly de-platformed by your cloud provider) and to consider the potential duration and the potential that backup systems can be wiped out by hackers (an argument for immutable backup storage).

He described a harrowing episode where Calltek’s head office on Cebu, an isolated island in the Philippines, was struck by a poorly forecasted Category 5 hurricane that wiped out airports, seaplane bases, and communications. The call center there employed 600 staff, and the entire area was suddenly without communications, electricity, water, or external help. The immediate priority, given the suddenness of the storm, was drinking water for staff and their families; creativity and ingenuity were required to solve that problem. At the same time, network design ensured that toll-free calls that could not get through to the Cebu office could be routed to other Calltek centers around the world.
 

The Ukraine War

Andrew Sanders from DataArt, a company that had 3,068 staff based in Ukraine (60% of its workforce) prior to the Russian invasion, provided a moving presentation on the impact of the war on the country and its people. Ukraine ranks eighth or ninth globally as an IT powerhouse, and IT represented about 5% of the economy before the war. The IT portion has grown as the economy shrunk during the war, and today accounts for about 8.5%. DataArt’s office in Kherson was itself damaged by a Russian missile.

The company started planning before the invasion, including for relocation of team members to safer areas and greater use of work-from- home; some staff were able to exit Ukraine. They also confirmed escalation and communication paths outside Ukraine, confirmed the security of client data and code, started emergency knowledge transfer, and planned on ways to accommodate staff in some of their safer office locations. On the day of the invasion, their global emergency response team met every three hours, and they invoked business continuity processes, which triggered evacuation for locations close to military danger. They also provided salary advances salary and other financial assistance due to worries about the banking system.

On the second, third, and fourth day after the invasion, DataArt shut its offices in the eastern part of the company, started a staff safety daily logging process, made satellite phones available to key local personnel, and published relocation guides. After that, they dealt with customers who wished to disengage (about 10% did so because of risk), arranged logistical support for families, created a psychological help line for staff, started to close their Russian business, created a charity, and arranged connectivity and power generators. In total, about 900 staff and 400 family members were moved. Many project discussions with staff were held in bunkers and subway stations.

Much later, they were able to travel to their offices. Ultimately, they spent $17.5 million on support, relocation, emergency help and more. Ukraine is now down to 40% of DataArt’s worldwide presence, but productivity is more than 95% of pre-war levels, and nearly all staff have access to generators, satellite communications, and co-working space.

Round Table Sound-Off

The first day’s final session was a vendor roundtable moderated by Gregg Hopkins and Rich Siegel. The first topic was “where we are today” vs. early 2020. There was some agreement that the work environment had been changed by work-from-home and hybrid environments and will never fully return to its pre-pandemic state. There was also discussion about the number of people who turned over within key accounts, and the difficulty of keeping track of the constant change. The sales process was seen as improved by greater acceptance of remote meetings. However, it was more challenging to organize meetings at hotel companies where multiple people were needed; vendors can no longer simply go to the corporate office and expect them all to show up in an agreed meeting room, but must solicit attendance individually and even arrange venues.