Subject:international business

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.
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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
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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.
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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
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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.
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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.

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