New Research Report: The State of Consumer Payments in Travel 2017

Skift Take: Consumer adoption of new payment methods and devices for settling purchases is the main driver of adoption by companies. Yet travel companies can gain a valuable competitive advantage by predicting trends in payments and making payments as easy as possible for everyone.

— Dave Montali

Today we are publishing our latest report for our Research subscription service. This time we bring you The State of Consumer Payments in Travel 2017.

Payment methods continue to advance with technology.  This is especially important for industries dealing with foreign currencies and different payment infrastructures. By its very nature, the travel industry is exposed to, arguably, every currency in the world. Therefore, enabling seamless and easy-to-use payments for consumers can be vital for businesses’ bottom line.

Preview and Purchase

Mobile adaption has accelerated over time and travel companies are looking to increase conversion through portable devices. Today, global mobile penetration is at 67 percent with an estimated five billion unique mobile users. Mobile wallets have positioned themselves as a layer on mobile operating systems looking to improve the ease and speed of using mobile devices for online payments. However, the payment landscape today has expanded beyond closing the mobile gap.  New technologies such as contactless, P2P (peer-to-peer) wallets, and automated payment systems are looking to disrupt the payment sector.  These technologies have also allowed for new business models to be built around the improved speed and way of transacting.

Beyond the technological innovation in the western markets, the Chinese outbound travel market has been booming and more Chinese than ever are traveling the world. The Chinese payment infrastructure is entirely different to that of the U.S. and Europe.

This is partially due the government’s influence.  Nevertheless, millions of tourists from China struggle to pay with their preferred payment methods when traveling abroad. With total Chinese tourism expenditure of $292 billion in 2016 according to the World Bank, travel companies that are early adopters of payment technologies such as WeChat Pay and Alipay will hold a strong competitive position over those who don’t.

Preview and Purchase

Innovations in the payment sector revolve around making payments easier and quicker along with cutting transaction costs. The opportunities for travel companies to improve the consumer experience through payments are many. Early adopters of contactless technology in the transportation, events, and theme park sector have been able to cut cost operating costs.

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Google Slapped With Record $2.7 Billion EU Antitrust Fine for Biasing Search Results

The EU’s antitrust boss levied a $2.7 billion fine for anticompetitive search practices.

Skift Take: This is a big defeat for Google although with $90 billion in cash, the $2.7 billion fine won’t imperil the company. This ruling is about shopping and doesn’t impact Google’s travel services, although it gives Google’s travel critics a bit of momentum.

— Dennis Schaal

Google lost its biggest regulatory battle yet, getting a record 2.4 billion-euro ($2.7 billion) fine from European Union enforcers who say the search-engine giant skewed results in its favor to thwart smaller shopping search services.

Alphabet Inc.’s Google has 90 days to “stop its illegal conduct” and give equal treatment to rival price-comparison services, according to a binding order from the European Commission on Tuesday. It’s up to Google to choose how it does this and it must tell the EU within 60 days of its plans. Failure to comply brings a risk of fines of up to 5 percent of its daily revenue.

“Google’s strategy for its comparison-shopping service wasn’t just about attracting customers by making its product better than those of its rivals,” said Margrethe Vestager, the EU’s antitrust chief. “It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services.”

Shares of Mountain View, California-based Google fell 1.5 percent in premarket trading in New York. They’ve risen 23 percent so far this year.

Vestager’s decision marks the end of a lengthy seven-year probe fueled by complaints from small shopping websites as well as bigger names, including News Corp., Axel Springer SE and Microsoft Corp. European politicians have called on the EU to sanction Google or even break it up while U.S. critics claim regulators are targeting successful American firms.

“I expect the Commission now to swiftly conclude the other two ongoing investigations against Google,” Markus Ferber, a member of the European Parliament from Germany. “Unfortunately, the Google case also illustrates that competition cases tend to drag on for far too long before they are eventually resolved. In a fast-moving digital economy this means often enough that market abuse actually pays off and the abuser succeeds in eliminating the competition.”

Google has been pushing its own comparison shopping service since 2008, systematically giving it prominent placement when people search for an item, the EU said. Rival comparison sites usually only appear on page four of search results, effectively denying them a massive audience as the first page attracts 95 percent of all clicks.

“As a result of Google’s illegal practices, traffic to Google’s comparison-shopping service increased significantly, whilst rivals have suffered very substantial losses of traffic on a lasting basis,” the EU said, citing figures of a 45 percent increase in traffic for Google’s service.

Tuesday’s fines could just be the first in a series of EU antitrust penalties for Google, which is fighting on at least two other fronts, including its Android mobile-phone software and the AdSense online advertising service. The decision follows Russia’s $7.8 million antitrust fine and penalties from Italian, German and French privacy authorities. Europe has proved a tough jurisdiction for Google, which fell foul of the region’s top court, losing a high-profile right-to-be-forgotten case three years ago.

“Vestager is proving she means business,” said Thomas Vinje, a lawyer who represents FairSearch, a group of companies that complained to the EU. “This decision will mean that consumers receive comparison-shopping results that offer genuinely the best purchasing options.”

While the penalty is a record, it will do little to faze a company whose parent has more than $90 billion in cash. Of graver concern is the way regulators called on Google to change the way it handles online shopping searches, one of its biggest sources of sales growth and strongest weapons against rivals Facebook Inc. and Amazon.com Inc.

The EU says that Google doesn’t subject its own service to its algorithm, which ranks search results on quality and relevance to the user.

The EU’s allegations strike at the heart of a type of online advertising known as Product Listing Ads, or PLAs, that is growing at almost three times the rate of traditional text-based search ads, according to digital marketing firm Merkle Inc. The format lets a marketer place an ad for an item with large images and price information in the prime digital real estate at the top of search results.

Vestager doesn’t fear big numbers. She has ordered Apple Inc. to repay some 13 billion euros in tax advantages and hit truck makers with a record cartel fine of nearly 3 billion euros. The Google fine tops a 1.06 billion euro penalty eight years ago for Intel Corp., which is still waiting for the final outcome of a court appeal.

Her move against Google risks attracting further criticism that she’s unfairly singled out U.S. companies. While she’s said American firms are “under no specific fire because of their nationality,” transatlantic tensions are already on the rise after President Donald Trump’s decision to pull the U.S. out of the Paris climate accord, adding to concerns over global trade.

Even so, any backlash against the Google decision from American industry is likely to be reduced. U.S. companies played a big part in lobbying the EU to take action after U.S. regulators ended their investigation into Google search.

(©2017 Bloomberg L.P.

This article was written by Aoife White from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Don’t Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon

Hilton

Tapestry Collection by Hilton is one of two new soft-brand collections being launched by major hotel companies this year. Hilton

Skift Take: Why? They make money. And they’re easier to roll out than a “hard brand.” (Thus, why those are “hard.”)

— Deanna Ting

In 2017, we’ve already seen the debut of two new “soft brand” collections from major hotel companies: Tapestry Collection by Hilton was announced in January, and most recently, Wyndham announced the debut of Trademark Hotel Collection in June.

Unlike a “hard” hotel brand like a Wyndham Grand or a Hilton Hotel, a soft-brand collection like Trademark or Tapestry is meant to appeal to independent hotel owners who don’t want to be beholden to the same strict standards as a hard brand, but want to benefit from a big hotel company’s distribution network.

Soft brand collections aren’t a new invention. Other hotel soft brands include Choice Hotels’ Ascend Hotel Collection, Starwood’s The Luxury Collection, Marriott’s Autograph Collection, Hyatt’s Unbound Collection, and Hilton’s Curio Collection, to name a few.

But whereas the first crop of these collections tended to focus more on luxury to upscale hotel properties, the newest ones from Hilton and Wyndham are more geared toward the three- and four-star independent hotel. It’s an effort on the part of big hotel companies to try to consolidate even more of the very large and very fragmented global independent hotel market.

Skift spoke to hotel executives from various companies during the annual NYU Hospitality Industry Investment conference to ask them for their thoughts on soft brand collections, and why you can expect to see even more of them in the near future.

Marriott CEO Arne Sorenson

Marriott International has a total of three soft-brand collections: Autograph Collection, The Luxury Collection and Tribute Portfolio. The company acquired The Luxury Collection and Tribute Portfolio when it bought Starwood Hotels & Resorts in 2016.

“I think, increasingly, folks like to have the best of both worlds,” Sorenson said, when asked why soft brands continue to proliferate in the hospitality industry. “And so, in the past, one world was ‘Give me the power of the reservation platform, the power of the brand, the power of the financial performance I’m going to get by being associated with the brands’ or ‘Let me live in a place which I give up all of that, but I have true independence and I can create something which looks unique, and maybe reflects my personality as opposed to somebody else’s personality and I go forward with that.’ What happened with the Autograph Collection launch was that Marriott came out and said, ‘You can have an asset that has a unique personality and still live in this Marriott system where you’re going to get the immediate benefits: loyalty and reservations.”

The company’s first Autograph Collection launch was the Kessler Collection, a group of luxury properties, in 2010. Marriott determined that formerly independent hotels saw 15-20 points of improvement in topline performance while holding on to their unique characteristics.

“And I think there is a real attractiveness to franchisees and real estate and I think, similarly, customers are saying ‘OK, well I want to know somehow that Marriott’s behind it,’” Sorenson said.

Sorenson said that when it comes to positioning Marriott’s three soft-brand collections, he said keeping properties’ individual personalities is key. He also added that Tribute Portfolio’s hotels are more in line with the “three-and-a-half stars range” as opposed to being three stars and that Marriott doesn’t intend to dabble in the three-star soft-brand space anytime soon.

“We really don’t want to have a three-star platform,” Sorenson said. “The challenge, I think, is if you move down too far that’s inevitably what happens. You’re not getting a character or personality that comes through in that hotel, that causes a customer to say ‘You know, this is cool, I want to be part of it.’ I think the three-pack that we’ve got with Luxury Collection, Autograph, and Tribute does skew much higher in this space than any of our competitors do. And that’s deliberate.”

Choice Hotels CEO Stephen Joyce

Choice Hotels launched its Ascend Hotel Collection in 2008, and CEO Joyce says it’s been a success since.

“We were first by a long shot, and we’ve been the most successful by a long shot, and the reason for that is we have enormous excess demand,” he said. “If you look around at some of the other people who have launched these [soft] brands, and you look at how much inventory they have in these markets already, I think that’s why we’re so successful, because we take an independent hotel and we will generate somewhere in the neighborhood of 65 percent of their business. We will wean them off the OTAs [online travel agencies], and we will give them a much lower OTA rate than they’ll pay. In general, an owner that joins Ascend will save enough money in the cost side to pay our fee. Then, all the revenue we generate on top of that is all pure flow through for him. That’s why it’s been a remarkable success, but it’s the combination of enormous demand, and not much supply. That’s not the same for the others, and that’s why we’ve been so much more successful.”

When asked if he thinks that the soft brand collection needs to change or evolve, going forward, to remain successful, Joyce said: “No, because actually I think it’s going to go the other way. The reason being is I think people are generally moving away from cookie-cutter consistent formulas, and they want difference. It’s not just the experiential traveler. It’s that everybody wants it. People have learned about good design and interesting spaces, and that’s what they want. They don’t want sameness. The issue is for the independent and the hotel without a brand affiliation: you can’t compete in this marketplace.”

He added that the amount of investment necessary for technology solutions is also something that’s challenging for independents to keep up with. “We spent $400 million dollars a year on technology and e-business,” Joyce explained. “Your phone, which is the hottest thing now because more than half of our reservations come in on a mobile device … two years from now you’re not going to book on that. You’re going to say to Alexa, ‘I want rooms.’ We’re way ahead of that.” [So are Best Western, Marriott, and Wynn Resorts, too.]

Preferred Hotels & Resorts CEO Lindsey Ueberroth

Preferred Hotels & Resorts competes directly with the big brands’ soft-brand collections and Ueberroth said: “Obviously, it creates more competition for us because previously we didn’t used to compete with the chains because they didn’t have product like us.”

She did, however, say that even with new collections being launched all the time, Preferred’s portfolio continues to grow.

“On the flip side, I’d say it’s been a really positive thing for us as a company — the fact that we’ve been doing this for 50 years. We’ve grown our portfolio to 650 hotels. What the chains are doing is just sort of putting a magnifying glass on something that we’ve been doing and doing really, really well. For example at NYU, there were hotel developers or even lenders or management companies that now want to talk to us that previously might not have because it just wasn’t on their radar before.”

Ueberroth said that the scale of her portfolio is also an advantage. “There are now a lot of these new soft brands and nobody’s really been able to scale that dramatically. I mean, [Marriott’s] Autograph is probably the largest at this point in time, but when we look at it from a competitive standpoint, we’re by far the largest independent, versus if you compare it to some of the other ones. The competition’s there, but not on any massive scale.”

She said of the other soft-brand collections: “They sit in a different segment. Preferred Hotels & Resorts is the master brand, and we’ve got the five segments underneath. We go from a very casual, upper upscale, to ultra-luxury. Most of these soft brands that have been launched really sit in kind of that midscale to upper upscale [category]. We don’t compete with them on all levels when you look at the type of hotel product that they’re going after to put into their collections.”

When asked if Preferred would attempt to attract more midscale properties, Ueberroth said, “I think it’s important for companies to know their core. For us the core has always been full-service, independent luxury hotels. I think that we really want to stay focused on that and not create that brand stretch. I mean, it’s one of the core reasons why we actually rebranded two years ago and retired four brands; it was really to focus what our message was with, what the brands stand for, and the type of hotels that we feel that we can really celebrate and help. The answer is ‘never say never,’ but for the foreseeable future, I don’t think we’re going to get into the select-service or midscale market.”

What makes Preferred different from the chains’ soft-brand collection involves the contract length and financial model. “The chains still have their same business model in terms of the length of contracts, which are much longer — somewhere between 10 to 15 years is what theirs are. It’s still a percentage of total revenue,” she said. “Our average contract length is about five years and ours is based on rooms revenue only and business that comes through those channels. It’s a different financial model. For a hotel owner that doesn’t want to encumber their hotel asset with a lengthy contract, that might be one reason why they appeal to us. I think, also, the hotels in our collection, they truly are one-of-a-kind gems.”

Ueberroth added, “We work similar to the big chains. We act as their brand. Whether it’s going out and getting brand-level agreements with the big metasearch [companies], which we do. Let’s act as a brand with TripAdvisor, Trivago, all the Kayaks. We’ll do those sorts of things. Obviously, the loyalty program and launching a member rate program was also important for hotels. I tell them, ‘Listen. I am trying to shift share from the OTA.’ Being able to have a membership program we think is important.”

“The OTAs, we don’t look at them as the big bad wolf. We look at them as a distribution partner; it’s just how much business hotels are putting through them that I think is really what we’re trying to shift and say, ‘Listen, we can provide you other partnerships at the brand level, or rather the distribution channels that can kind of balance that out to counteract those that previously were putting a lot of business in the OTA channel.’ We try to do a lot of things as the brand to shift the more direct business, more loyalty business, more travel agent business. We work with the hotels very conservatively to figure out what that best strategy is but we would say the OTAs, they play an important piece there. I would never tell a hotel to completely do away with it.”

Best Western Hotels & Resorts CEO David Kong

“I think the soft brands are a win-win kind of approach to branding, in a sense that they allow an independent hotel to tap into powerful reservation engines like Best Western and Hilton and participate in a lot of their programs, also without the stringent requirement of the brand standards or the brand identity requirements like logo and signage,” Kong said. “The brand can also expand its distribution.”

Kong said Best Western’s BW Premier Collection is “doing very well.” He added, “I think we’re close to 100 now around the world and it hasn’t been that long. It’s only been a little over two years and to ramp up that fast shows that there’s tremendous demand, not just in North America but around the world.”

He thinks that the international hotel market poses even more opportunity for soft-brand collections. “I think the demand for soft brands is greater outside of the United States because I would estimate about 70 percent of hotels are unbranded outside of America. The potential of having to think about a universe of potential is huge. It’s absolutely huge, so I think we will continue to see great success with it. When we launched [new franchise model] SureStay, we, on purpose, included a soft brand also. There’s a SureStay Collection for that reason and our first SureStay Collection hotel is a 100-some-year-old historic hotel that’s also a convention hotel, of very high quality. I think it has a 4.5 rating on TripAdvisor, so it shows you the potential that’s out there and the caliber of the hotels that fall within the independent hotels; they’re great targets for soft brands.”

He continued, “Going forward, I think of all the questions hotel chains should be considering, it should be: How do you put soft brands on steroids? Right now, it’s one at a time, right? Some of the other brands might boast they have 100 some hotels in the soft brands but if you look a portfolio of 6,000 hotels, that’s not a lot, right? Hardly makes a dent. I think we all have to ask ourselves, how do we put soft brands on steroids? Which would mean that the hotel companies need to take a look at how they use their website and loyalty program as a distribution platform. It’s kind of like starting an adjacent business.”

Asked for his thoughts on AccorHotels’ Fastbooking platform, where independent hotels simply pay Accor to be listed on Accor’s website without officially joining a soft-brand collection, Kong said: “I think that’s the next generation of soft brands and I think they’re brilliant in doing that, but of course, it’s not without price. If you go on that path, you’re going to start alienating your owners and licensees, and you have to have that really good story to tell.”

Kimpton Hotels & Resorts CEO Mike DeFrino

Even though Kimpton’s collection of hotels is, to some industry insiders, very similar to a soft-brand collection, DeFrino said Kimpton is still different.

“People do love themselves some soft brands, don’t they?” DeFrino said. “They’re not a lot of work, I don’t think. I think that it’s pretty easy to launch a soft brand because there’s so many of them. You know, the soft brands do provide a relatively easy growth vehicle for the big brands because they aren’t heavily regulated. We are, and sometimes people say, ‘Well, isn’t Kimpton a soft brand?’ It’s like, ‘No, no, all of our hotels are managed, we actually think the Kimpton brand, the experience, the delivery, the people mean something to our travelers.’ We think there are people who are looking for not just some integrity in design and restaurant, but also integrity in service and delivery and a little bit of operational credibility. And while many of the individual hotels within the soft brands have that, you just don’t exactly know because although they might be part of this collection, there’s no assurance that they’ve met any level of criteria. So, they’re certainly here to stay and we compete with them for both customers and for development. People lay us up against those when they’re considering options if they’re building or converting a property. Although we aren’t one, we are in the mix, as you might imagine.”

Dream Hotel Group CEO Jay Stein

“We’ve talked about [launching a soft-brand collection] and, to some degree Unscripted could be one because we’ve looked at some opportunities where if someone may have a strong name already that they want to work on, we might do ‘So and So by Unscripted.’ So, we’re still kind of in the feeling-out stage of that. But I don’t think we bring enough to the table where someone’s going to get overly excited when they see, ‘by Dream Hotel Group.’ So, it’s hard to say, ‘X Unscripted Hotel, by Dream Hotel Group.’ How many things are you going to be? At some point, you’ve just got to be what you are.”

Bigger brands, however, are logical owners of soft-brand collections, he said.

“But I think for the brands, what Marriott did and what Hilton did, and now many other brands following suit, I think is brilliant. But you get charged a lot of money. You buy a soft brand, but you get charged for a hard brand. There’s no fee difference. And a lot of times, if they deliver, why should it be less? But we play in a different field. Our fee structures are significantly different. I think if, in Market Square, we do what we’re supposed to do, we will do as good numbers as those brand hotels will do, and that’s why developers find us as an exciting option to look at, to not go with a big brand but still be with a real management company that has brands that speak to some of our core guests.”

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Booking.com Is Expanding Beyond Hotels and Into Flights, Cars and Restaurants

Booking.com

Hotel-site Booking.com recently added flights, car rentals, and dining reservations to its homepage in an effort to capture more business across all of its parent company’s various brands. Booking.com

Skift Take: The Priceline Group has been looking at adding flights to its largest site, Booking.com, for years, but has hesitated for fear of detracting from its core hotels product. But in this case, taking a “stronger together” approach and leveraging the group’s other in-house brands could ultimately pay off.

— Dennis Schaal

Booking.com is renowned for its hotel-only focus but its homepage now features tabs for flights from Kayak, car rentals from RentalCars.com, and restaurant reservations from OpenTable, all sister companies owned by parent company Priceline Group.

The new tabs on the Booking.com homepage on desktop may not be visible to all users and they are a test to see how they perform, according to a spokesperson for Priceline Group.

Booking.com’s push to become more well-rounded in terms of the services offered on its platform is taking place at a particularly pivotal time, and it’s a sign that online travel agencies need to capture as much of the traveler journey as possible to compete in the online travel space. The online travel agency’s rival, Expedia Inc., touts itself as the globe’s largest full-service travel agency, Ctrip offers nearly every travel service imaginable, and TripAdvisor, likewise, is heavily invested in hotels, restaurants, flights, vacation rentals, tours, and more.

Users who click on Booking.com’s new flights tab on desktop land on a Booking.com-branded flights page at Booking.Kayak.com. The test wasn’t visible to us on mobile.

The flights search results page, which is branded as being powered by Kayak, features flights from various airlines. If users click on a flight, they can navigate metasearch-style to an airline website for booking. In a quick search, Skift didn’t see any online travel agencies, including Kayak sister site Priceline.com, handling any bookings.

Offering flights could be advantageous to Booking.com since many people start their trip-planning by booking an airline ticket before even considering a hotel. Ceding all of the flight, car rental, and restaurant reservations work to Booking.com’s sister companies within the Priceline Group portfolio also means that Booking.com wouldn’t have to divert too much focus away from its core hotel product for now, either.

The implementation of a Booking.com flights tab comes at a time when Kayak has changed the default on Kayak.com to flights; formerly, the site automatically defaulted to searching for hotels. That new default to flight search, which appears to be on most, if not all, of Kayak’s global sites, comes as the hotel metasearch space is becoming increasingly competitive, especially with Trivago making marketshare gains at the expense of profits. TripAdvisor, which is also hoping to build up its hotel booking business, has recently devoted some $70 million in its return to TV advertising for the first time in a couple of years.

Kayak co-founder and CEO Steve Hafner denied that Kayak is shifting from an emphasis on hotels toward flights. “There’s no pivot,” Hafner said. “Hotels is still our first tab [from the left on the Kayak homepage] but flights is now the default. Periodically, we change that around.”

An executive at one of Kayak’s competitors said Kayak would benefit from all of the Booking.com traffic that would be heading its way as consumers look for flights and get redirected from Booking.com to Kayak.

“I’m not sure of the click rate of this placement but, given the massive traffic volumes of Booking.com, I am sure it is nice incremental traffic,” the metasearch official told Skift.

“And one thing I am pretty sure: they must have A/B tested this change to death and the revenue per homepage visitor must have been positive for flights,” the source said. “So I wouldn’t see this as a major strategic shift for Kayak, but more of an ongoing effort to optimize revenue.”

Still, Kayak’s decision to place additional emphasis on flights could potentially mesh well with its parent company’s still pending of acquisition of the Momondo Group, including Momondo and Cheapflights, both of which are stronger in flights than hotels.

When users select the restaurants tab at the top of the Booking.com homepage on desktop, they are automatically directed to OpenTable, where they can research restaurants and make dining reservations. Selecting rental cars on the Booking.com homepage directs users to its RentalCars.com sister site.

The Priceline Group has been looking at adding flights to its largest site, Booking.com, for years. Currently, within the group, only Priceline.com and Kayak deal with flights. Adding cars and restaurant reservations would be an added step in Booking.com’s efforts to become more of a full-service travel booking site such as its biggest rival, Expedia.

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The Business of Loyalty: Carnival Cruise Line Wants to Win Over Customers Earlier

Brook Ward  / Flickr

Carnival Cruise Line plans to eventually link its loyalty program to partners’ programs. Carnival Vista, a new ship from the line, is shown in this photo. Brook Ward / Flickr

Skift Take: Cruise loyalty programs are different from airline and hotel offerings, but Carnival Cruise Line’s approach can still be instructive — especially as it evolves.

— Hannah Sampson

Editor’s Note: Skift’s Business Traveler newsletter is now the Business of Loyalty newsletter.

In this weekly missive, we’ll bring you the same insight into what matters most to the people who travel for a living, but now with an added focus on how airlines, hotels, and credit card programs battle for their attention and their business — a points geek with a Ph.D. of sorts. 

While we are still looking at how these moves impact the consumer, the focus is on what the industry is doing to win their loyalty. The newsletter is being written by Grant Martin, who you’ve come to know as the author of our Business Traveler newsletter over the last three years. He’ll be able to take advantage of contributions from Skift editors including Brian Sumers (airlines) and Deanna Ting (hotels) to better explain what’s happening with loyalty right now. We hope you’ll stick with it, and we promise to never devalue your reading experience.

For the first in a short series of guest-written Business of Loyalty dispatches, we’re dipping a toe in slightly different waters to look at the way one of the world’s largest cruise lines is considering loyalty — and how its program may evolve.

Carnival Cruise Line introduced its current “VIFP Club”  — that’s Very Important Fun Person Club, to go with the “Fun Ship” theme — in 2012, an overhaul of a previous loyalty program. It has five tiers starting with a cruiser’s first sailing, and the line awards points based on the number of days sailed. People at the top levels, of course, get the best perks: priority check-in and boarding, spa and restaurant reservations, free drinks, exclusive parties, and (importantly) free laundry service.

But chief marketing officer Kathy Tan Mayor, who joined the cruise line last spring from Las Vegas Sands Corp., wants to find ways to better encourage loyalty earlier on in a customer’s relationship with the brand “so they don’t feel like they’re waiting a lifetime to appreciate a benefit.”

“The third [sailing] is what we believe the tipping point is of when you’re considered a cruiser,” she said. “We should be designing the loyalty program to hand you more from the first cruise to the second and the second cruise to the third.”

That’s part of the task ahead for Scott Becher, who joined the company earlier this month in the new position of vice president of partnership and loyalty after a 30-year career outside the cruise industry in partnerships, marketing and media.

It made sense to combine partnerships and loyalty, Mayor said, because the two work hand in hand. And the idea is to eventually form links between Carnival’s VIFP Club and partners’ loyalty programs.

To start, Becher will concentrate on forging more partnerships in Carnival’s “passion points” around food, music, and sports to grow the appeal of the brand and make it top of mind for more vacationers. In addition to shared marketing efforts, Carnival wants to bring more of those partners onto its ships, either for short promotions or long-term relationships.

Reaching the next level — recognizing the top-tier members of other programs, for example — would require some investment in the current program’s infrastructure. But, Mayor said, “It’s something definitely we’re looking at.”

She said the eventual goal is to enhance the loyalty program to develop partnerships that allow for tier matching or enhancement benefits with partner programs.

And Mayor said the cruise line wants to cultivate passengers who are enthusiastic about the brand, not just driven by the promise of perks. She said behaviors that the company appreciates include booking early, engaging with the brand, and advocating Carnival to friends and family.

“When it comes to choice, we would rather it be attitudinal-based loyalty rather than just behavior-based,” she said. “So we’re not just bribing you with points.”

Becher said he sees a big opportunity in keeping that connection with members strong even when they aren’t sailing.

“Because it’s sometimes two years in between cruises for our guests, the biggest loyalty opportunity is maintaining an everyday relationship,” he said.

— Hannah Sampson, News Editor

Skift Stories and More Expert Insight

Exquisite Late-Night Room Service Is Alive and Well at These Luxury Hotels 

Inventive and indulgent room service is alive and well at these luxury hotels around the world. That’s one way to keep customers coming back.

Etihad To Let Passengers Bid for Adjacent Seats Among Series of Revenue Moves

Etihad may be able to squeeze some extra revenue by giving passengers the option of stretching out a bit more in the seats next to them but selling the seats would be a lot better.


Ritz-Carlton Enters the Luxury Cruise Business With 3 Custom Yachts

We’ve seen both luxury hotel and luxury cruise companies develop private jet products, but this is the first time a hotel brand has headed to sea. This is easily the most interesting thing the otherwise traditional Ritz-Carlton has ever done.

Qatar Airways Plans to Take Up To a 10 Percent Stake in Nemesis and Partner American Air

Qatar’s unsolicited move to take as much as a 10 percent stake in American is not a done deal. Anyone can buy American shares on the open market but the airline’s board and U.S. regulators would have to approve it. American doesn’t plan on changing its anti-Qatar strategy.

Marriott Joins Competitors in Extending Cancellation Deadline From 24 to 48 Hours

Travelers won’t be happy about Marriott’s new cancellation policy but investors and operators will.  

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German Hotel Booking Giant HRS Tilts Further Toward Corporate Travel

HRS

HRS chief executive Tobias Ragge is overseeing some tweaks to its three main lines of business, including consumer bookings, hotel tech services, and corporate hotel booking. HRS

Skift Take: We applaud Germany’s largest travel tech company for trying to help business travelers check in and check out of hotels more quickly by investing in app-connected sensors at hundreds of hotels.

— Sean O’Neill

This summer is a pivotal time for HRS, Germany’s largest home-grown online travel agency and corporate hotel booking specialist.

In July, the new HRS headquarters, next to Cologne’s main train station, is slated to be finished. The new building will enable the 1,500-employee company to increase its Cologne staff.

The fresh hiring will reflect a rebalanced set of priorities.

In the German-speaking world, HRS is best known as a consumer reservations brand — with one out of every three online hotel bookings in Germany made through its portals. But the online travel agency division is only a small part of the privately held company’s global operation.

It’s also a division that is under pressure, according to industry experts. The consumer business’ percentage contribution to company revenue is believed to shrinking each year as the brand faces a fierce marketing battle against Amsterdam-based Booking.com and U.S.-headquartered Expedia.

Reacting to rate parity bans

The backstory: For about a decade, both HRS and Booking.com benefited from contractual rate parity clauses that required hotels to offer the online travel agencies the hotels’ best rates that they were also offering on their own websites.

But German government rulings in 2015 banned such clauses.

Since November 2016, HRS has adapted to the new landscape by adding inventory from Expedia Affiliate Network (EAN) to its listings. It sees this as a way to plug some of the gaps in pricing and availability that hotels don’t offer straight to HRS.

The company plans to offer its users rates and availability from multiple sources, which signals a slight move away from a “pure” online travel agency model, where HRS sourced all the rooms straight from hotels.

Unlike metasearch brands like Trivago, HRS does not hand-off guests to third-parties to complete the bookings. Travelers instead continue to book on HRS sites as usual.

In the case of EAN-sourced bookings, though, Expedia Inc. gets a cut of each transaction. Plus, if any problems crop up with the transaction, HRS has to work with the third-party to help travelers resolve issues.

The privately held company doesn’t disclose figures. So it is unclear to what extent changes in regulations or Booking.com marketing spend is pressuring the company’s consumer model more. But the rate parity shifts are to blame for the shift to a new “multi-source model.”

Overall, strains in HRS’ consumer business appear to be spurring the company to diversify its income streams.

Globally, HRS is best-known as a corporate travel services giant, with more than 40,000 companies using its various services.

Its chief executive Tobias Ragge has been trying to scale up that hotel booking specialist business.

To learn more, Skift spoke with Ragge while he was recently visiting New York City.

A CEO shifts emphasis

Ragge, the company’s CEO since 2008, talks about his big picture goals.

He says his company is faring well enough against competitors in its consumer online travel sites. “Our consumer game is a marketing game confined mainly to German-speaking markets. It’s a game about providing better content and at being better at ‘loyalizing’ customers to create repeat business.”

But Ragge is much more eager to talk about the company’s other business lines. “Our core isn’t leisure travel,” he emphasizes. “Our core is corporate travel. We will sell leisure products when they want it, but it’s not our core focus.”

Given its core corporate focus, why doesn’t HRS sell off its consumer-facing brands?

Ragge laughs and says, “Well, why not? Yeah. We could. I mean, in business, a sale is always a possibility. But we usually have the perspective that we’re already running our leisure and corporate businesses as independent businesses. There is no real need to say we have to sell one to focus on the other because A is not distracting from B.”

Ragge adds: “In fact, our online travel agency business generates a majority of its bookings from corporate travelers at small- and medium-sized organizations. So there’s a huge spillover between these two business models because the knowledge we get by observing the traveler at small companies we can also use for building our business-to-business services for large corporations. They go hand-in-hand, complementing each other.”

Providing guest tech to hotels

In a separate effort, HRS also wants to grow its worldwide business in offering software services to independent- and medium-sized hotels and small chains.

In 2014, Ragge was attending a conference at the European Business School and got to talking with the founder of a Berlin-based startup called Conichi. This hotel smartphone app development firm believes that electronic sensors can help hotels identify guests more quickly to speed up and personalize check-in and checkout.

HRS soon made “a high seven-figure sum” investment. Conichi, founded three years ago, says its mobile app for hotels is in use at about 250 European hotels. To participate, hotels must install beacons (or Bluetooth-signal based receivers) to recognize guests as they arrive or depart from a property.

HRS is promoting the app, which has been downloaded “several hundred thousands of times,” Conichi says. Frequent travelers can use the app to create a profile with their preferences, such as preferred pillow size and type of room, and store personal and business credit cards — for use regardless of the hotel chain or reservation channel used to book the reservation.

When a guest arrives at a property, sensors recognize him or her and notify reception’s computers. Front desk workers will see some of the forms they need to fill out automatically populated with relevant guest information.

The Conichi app also enables guests to avoid visiting the front desk for check-out, allowing a guest to use the app instead to note any items consumed in the minibar or other expenses incurred and to request an receipt by email.

Corporate focus

In the past couple of years, HRS has ramped up its growth in North America. In 2015, HRS opened its first U.S. office. Last year, it tripled to 3,000 the number of corporations on whose behalf it is managing contracting processes. It says it helped corporations book 12 million room nights.

This May, it announced a deal with Altour to be one of its back-end providers of hotel inventory for its corporate clients.

The HRS offer is to enable companies to book rooms at more than 350,000 hotels — many of which don’t participate in traditional booking channels — at their own negotiated rates and HRS’ exclusive corporate discounted rates.

Trying to stand out

Ragge thinks HRS can differentiate itself by having the broadest inventory of independent hotel properties — an area that more chain-minded competitors have under-emphasized but that accounts for three-quarters of the global hotel supply. HRS says it has 210,000 independent properties available for booking, up from 180,000 a year ago.

More broadly, HRS faces a challenge in that content and booking technology has been increasingly commoditized in the travel management space — with everyone from small startups to billion-dollar corporations tackling parts of the problem.

There are rumors that HRS is trying to gain share through aggressive pricing. Is HRS going to travel management companies and offering to source their hotels for them for free?

Ragge says there are many misconceptions in the market. HRS works with travel management companies (TMCs) in different ways.

Some get access to its hotel content and exclusive rates for free, he says. “For some of the TMCs, we have strategic partnerships where the TMC says, basically, ‘Why don’t you become our hotel partner and take of this, because it’s way too complex for us or we don’t want to do it?’”

He explains: “In these cases, if a TMC says, ‘Well, I’m willing to outsource my entire process to you for a particular hotel that a client uses regularly,’ then we can also do the sourcing for them for free — but only in these cases. If that’s not the case, we don’t do this, and then we have just content agreements where they consume our content.”

Speaking broadly, Ragge says HRS stands out by offering “an end-to-end process, meaning, we will do the hotel searching, we’ll do the hotel negotiation, we’ll sure the rates are low automatically without the client having to act, and we’ll make that content bookable in all kinds of channels to appeal to how different types of travelers like to book, and, ultimately, we’ll generate the highest savings at the lowest possible costs for clients.”

Ragge says there is a clear market opportunity for HRS when it comes to global corporate travel.

“We work to make sure that no matter what process you need, be it sourcing, be it the payment process, etc., we can drive down the costs by automating your processes and by applying various industry-wide best practices to increase your employee’s participation in your company’s travel program.”

What is the hardest challenge that HRS faces in the coming years? Ragge says it’s tapping the Chinese market. “China is already our second biggest market,” he says, but notes the company has to do better.

Online bookings in Chinese business travel are becoming more important every year as travelers increasingly want to reserve their rooms via the booking tool of their company, and there’s a gap in the market that HRS can fill, he believes.

Worldwide, Ragge says the company’s “first and foremost” aspiration is to achieve its ambition of becoming “the global leading business service provider when it comes to booking hotels for corporate travel.”

It remains to be seen if this summer’s ribbon-cutting for its new headquarters will mark the start of a global growth spurt driven by corporate gains or the high water mark of a company that may be seeing the tide go out for its consumer business.

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Chefs+Tech: Food Leads the Way as Unused Spaces Morph into New Destinations

Shinya Suzuki  / Flickr

Brooklyn’s recently opened Dekalb Market Hall features 40 vendors in 60,000 square feet of space. Shinya Suzuki / Flickr

Skift Take: Restaurants and new restaurant concepts have a real opportunity as our usage of commercial space changes in both cities and suburbs.

— Kristen Hawley

Echefslogo_use-for-socialditor’s Note: In September we announced that Skift was expanding into food and drink with the addition of the Chefs+Tech newsletter. 

We see this as a natural expansion of the Skift umbrella, bringing the big-picture view on the future of dining out, being fanatically focused on the guest experience, and at the intersection of marketing and tech.

Bonus: We now publish C+T twice weekly.

Food Leads the Way as Traditional Malls Morph into New Destinations

The way Americans shop is changing, as evidenced by the closure of huge malls and big-box store shopping centers across the country. Casual sit-down restaurants, a one-time staple of these shopping centers, have distanced themselves from these developments as they, too, struggle for survival. Now, reimagined restaurant and entertainment concepts are taking back formerly unoccupied spaces. The New York Times profiles one such development in Texas, where developers are changing the concept of mall-as-shopping-center to mall-as-a-service, with shopping mixed in with entertainment, food, even health care and education. Instead of department stores, according to the piece, dining and entertainment are the anchors of these spaces, drawing consumers out the same way Sears or J.C.Penney’s did decades ago.

Suburbs aren’t alone in rethinking the use of large commercial spaces. Development in cities echoes this opportunity, too, as massive food halls open in densely populated cities like New York and San Francisco, where large, expansive spaces were previously more useful as retail outlets, not restaurants. And it’s definitely not about the traditional and recognizable restaurant brands; instead, food offerings become only one part of a larger concept.

While these developments may be a new idea, the underlying concept is the proven formula that restaurants are often a catalyst to breathe new life into distressed or even deserted neighborhoods. Restaurants carry with them a sense of community, serving locals, employing locals, and creating a naturally happy meeting place. Now, at a time when all commerce is shifting to accommodate e-commerce and digital sales, restaurants could be first to usher in a new way of thinking about the spaces where we choose to spend our time.

Food & Wine’s Relocation Illustrates Changing Restaurant Discovery

On Friday, Time, Inc. announced that Food & Wine magazine will move its editorial operations from New York to Birmingham, Alabama. The company already owns and operates a large, food-centric campus in Birmingham, including expansive test kitchens, where most food content for Time, Inc. publications  is produced. In a press release, Food & Wine’s new editor, Hunter Lewis, expresses his excitement at the move, noting that sophisticated restaurant consumers are everywhere, not just in New York or other large US cities.

Indeed, the move does illustrate the shift in both consumer restaurant culture and restaurant culture itself. City rents are prohibitively high for chefs and restaurateurs just getting started in the industry, so many are choosing to open in smaller markets instead. Social networks, digital marketing efforts, and review sites help surface quality restaurants outside of urban centers and high-traffic neighborhoods. Still, it seems like a real challenge for a brand that thrives on restaurant content and announcements to move editorial operations out of a city with one of the top food and drink scenes in the country.

Restaurants Avoiding Delivery Companies Get Creative on Instagram

One clear winner in the restaurant-without-a-dining-room trend is delivery services to whom these entrepreneurial chefs and restaurateurs are beholden. Delivery companies charge for their services — both the actual delivery but also marketing as they provide a platform for these restaurants to be discovered. LA Weekly profiles one Los Angeles operation that uses social media creatively to avoid interacting with delivery services all together. Compton’s Trap Kitchen uses only its free Instagram account as its delivery service. The restaurant uses Instagram to post daily menus and solicit orders, and after two years has amassed 230,000 followers. It has become so popular, owners plan to open a brick and mortar location “any day now,” according to chef Malachi Jenkins. In this way, social networks serve as an invaluable cost-saving marketing tool to lift new businesses to success.

“The Paradox of American Restaurants”

Food and restaurants have never been so popular — at least it seems that way to anyone with an Instagram account. One recent poll found Americans are spending more money on dining out than they are on groceries — for the first time ever. But to anyone who reads the business headlines, restaurants are in trouble. The Atlantic unpacks all of this, offering a few statistically-supported reasons why it’s both the best of times and the worst of times for restaurants in America. Briefly: while demand is high, supply is high, too. This means serious competition. Costs are increasing, but menu prices haven’t followed suit — at least not with the same urgency. Takeout is cutting into the market share, too (though at least one recent analysis says that’s not true). And tourism and big names and openings may work well in large cities, but this success isn’t translating across the board. The piece supports all of these claims with facts and information, and it’s a solid look at the state of the industry’s changing conditions.

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Google Picks Avis to Run Its Self-Driving Car Fleet Pilot Program

Waymo, the self-driving car unit of Alphabet Inc., has reached an agreement for Avis Budget Group Inc. to manage its fleet of autonomous vehicles.

Skift Take: Using car rentals to get consumers familiar with the technology is a smart move. Smart enough that Apple had the same idea today, too.

— Jason Clampet

Waymo, the self-driving car unit of Alphabet Inc., has reached an agreement for Avis Budget Group Inc. to manage its fleet of autonomous vehicles. It’s the first such deal in a field that’s still fledgling but exploding with partnerships. Avis shares surged.

The rental car firm will service and store Waymo’s Chrysler Pacifica minivans in Phoenix, where the parent of Google is testing a ride-hailing service with volunteer members of the public. Waymo will own the vehicles and pay Avis for its service, an arrangement that is set for multiple years but not exclusive. The companies would not share financial terms.

Avis gives Waymo a potential asset that rivals like the major automakers and Uber Technologies Inc already have: a sprawling network of traditional cars and customers that could be transformed into an autonomous transport service over time. Avis owns Zipcar, the on-demand rental service with over one million members, largely in urban centers. The new deal is limited to Waymo’s vehicles in Phoenix, where it started its first pilot service in April after nearly a decade of research.

Yet Waymo could spread its self-driving systems into other cars over time. Zipcar was part of Avis’ appeal, said Waymo Chief Executive Officer John Krafcik. “One of the wonderful things about partnerships like this is that they are open,” he said.

This partnership is the first major one involving oversight of driverless car fleets, a business opening that could help the technology spread. It’s a symbolic win for Avis, which now has the aide of Alphabet, a pioneer in the field that is willing to heave large sums into the unproven tech. Sales at the car rental company have slipped, facing pressure from dips in used vehicle prices, with first quarter revenue falling 2.2 percent to $1.84 billion.

[Editor’s Note: Apple announced a self-driving deal with Hertz today, too]

Like others across the auto industry, operators such as Avis and Hertz Global Holdings Inc. are bracing for the upheaval autonomy could bring. “It’s coming our way. So it’s important for us to get involved now,” Avis Chief Executive Officer Larry De Shon said. “This just demonstrates that we can extend our business into fleet-management-as-a-service.”

Shares of both rental car companies soared on the news. Avis rallied the most in five years, jumping 21 percent to as high as $29.32 in New York. Hertz rose as much as 13 percent to $10.76.

De Shon said Avis will retrofit select facilities in the Phoenix area to accommodate Waymo’s minivans, including adding tailored tents to protect them from rain, and doesn’t plan to buy additional real estate. Avis will handle cleaning, oil changes, tire rotations and other vehicle services but will not be responsible for upkeep on Waymo’s specialized hardware, such as its lidar sensors.

Cars that drive themselves will, in theory, need more care than those that don’t. Waymo expects its vehicles will be constantly driving from user to user, adding wear and tear faster than cars parked for stretches of time. Krafcik, a former car executive, estimates Waymo vehicles will log around six times more miles per year than average cars. The Alphabet company is exploring multiple commercial models, including ride-hailing, logistics and personal car sales, and Krafcik said the Avis deal can support all of them.

How lucrative the contract is for Avis remains to be seen. Waymo plans to deploy a bulk of its 600 vehicles from Fiat Chrysler Automobiles NV in Phoenix. The company has revealed talks with Honda Motor Co Ltd. and Lyft Inc., but it hasn’t said if those will spell more vehicles nor has Waymo given a timeline for commercial operations. Despite recent demonstrations of progress, Waymo must pass several technical and regulatory hurdles before bringing fully driverless cars to multiple cities and climates.

Waymo and Avis began formal discussions in January.

“Partnerships can come together very, very quickly when both parties have something to gain,” Krafcik said. Theirs comes amid a flurry of deals as companies rush to position themselves in the unsure industry. Uber has signed some with carmakers. Rival Lyft has too, including a deal with General Motors Co., which has a self-driving program and a car-sharing service, Maven, that competes with Zipcar.

Waymo and Avis said the Phoenix service arrangement will begin later this year.

©2017 Bloomberg L.P.

This article was written by Mark Bergen from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Amtrak’s New CEO Is Delta Air Lines’ Old CEO

Mark Lennihan  / Associated Press

Ex-Delta Air Lines CEO Richard Anderson speaks in 2013 in New York. On Monday, Amtrak said Anderson will serve as the railway’s new CEO. Mark Lennihan / Associated Press

Skift Take: Before Richard Anderson took over Delta, the airline was a mess. Now, it’s considered by many as the best-run airline in the United States. We’d love to think Anderson can do something similar here, but fixing Amtrak will be a much more challenging task.

— Brian Sumers

America’s railroad is turning to an airline industry veteran to lead it through a summer of reckoning for congested tracks and crumbling infrastructure.

Amtrak on Monday named former Delta Air Lines chairman Richard Anderson as its new president and CEO.

He’ll take charge of the government-owned railroad on July 12 as it rushes to address years of deferred maintenance at New York’s Penn Station.

The project, hastened by recent derailments and rush-hour snarls, will disrupt and delay millions of commuters at Amtrak’s busiest station.

Amtrak says Anderson and current president and CEO Charles “Wick” Moorman will be co-CEOs through the end of 2017.

That’s when Moorman will become an adviser to Amtrak.

Anderson was CEO of Northwest Airlines from 2001 to 2004 and CEO of Delta from 2007 to 2016.

This article was from The Associated Press and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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Hainan Air Adding Holding Co. To Its Name Signals Acquisition Strategy in Play

Qilai Shen  / Bloomberg

A Hainan Airlines aircraft with the Kung Fu Panda livery at the China International Aviation & Aerospace Exhibition in Zhuhai in 2016. Qilai Shen / Bloomberg

Skift Take: Hainan Air Holdings Co. doesn’t appear to be swayed at this point by Chinese regulators getting increasingly dismayed by domestic companies making huge foreign investments but that is something definitely to watch out for.

— Dennis Schaal

Like its acquisitive parent HNA Group, Hainan Airlines Holding Co. is looking to bolster growth by buying assets on its own outside China, undeterred by potential headwinds posed by regulatory scrutiny of the parent’s overseas deals.

The nation’s fourth-largest carrier is exploring airlines and companies along the industry’s “value chain,” President Sun Jianfeng said in an interview, without elaborating. As part of its growth strategy, Hainan Air will double down on international flights from the nation’s second-tier cities where a travel boom is under way as it takes on bigger state-owned rivals, he said.

“We’ve gone past challenging, following and imitating others,” Sun said June 23 in his office overlooking the carrier’s base at a terminal of Beijing Capital International Airport. “We now want to build a new order and set new standards.”

Hainan Air is no stranger to acquisitions, though they were all backed by HNA in the past. It has stakes in a Brazilian and Portuguese carrier, Tianjin Airlines and Changan Air. The string of deals pursued by the parent since last year — HNA announced more than $30 billion in asset purchases, becoming shareholder in companies including Hilton Worldwide Holdings Inc. and Deutsche Bank AG — has attracted attention worldwide. And, lately, official scrutiny.

Wanda, Fosun

The China Banking Regulatory Commission has asked some banks to provide information on overseas loans made to five conglomerates — HNA, Dalian Wanda Group Co., Anbang Insurance Group Co., Fosun International Inc. and the owner of Italian soccer team AC Milan. Sun, who took the top job at the carrier in November after a six-year stint as the deputy chief of Hong Kong Airlines, said he is not aware of any impact such scrutiny may have on Hainan Air’s business and future investment plans.

Founded by billionaire Chen Feng more than two decades ago with George Soros among its early investors, Hainan Air is seeking to build on HNA’s deals spanning Europe to South America as it expands in a market forecast to be the world’s biggest around 2024. Standing in its way are Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp., the nation’s big three that corner most of the lucrative air rights in major hubs by virtue of being government owned.

As airlines globally sell small stakes to each other, forming alliances that help acquire more slots and air rights in major hubs, Sun is under pressure to embark on a similar strategy. Air China owns 30 percent of Cathay Pacific Airways Ltd.; China Eastern sold a minority stake to Delta Air Lines Inc. and China Southern to American Airlines Group Inc., enhancing each others’ networks around the world.

Earlier this month, the carrier changed its name to Hainan Airlines Holding Co., from Hainan Airlines Co., signaling preparations for its expansion.

“The new name is a better reflection of what we are doing,” Sun said. “We have already had stakes in other carriers and with this name, investors will know we have the capabilities and can live out our name.”

Headquartered in Haikou, the capital of the Chinese tropical island Hainan, the eponymous carrier started its first international route at the start of the century from the province to Seoul, ferrying tourists. In the decade and a half since, air travel has exploded in the world’s most populous country. About 487 million people few to, from and within China in 2015, and that is set to almost double by 2025, according to forecasts by the International Air Transport Association.

Air Rights

Leading an aggressive expansion, Hainan Air recorded a 57 percent increase in international capacity — the highest among the top four — with most of the new flights departing from second-tier cities. That’s because air rights to start direct services from the hubs of Beijing, Shanghai and Guangzhou to the U.S., Europe and Japan are running out as the airports operate close to capacity. Besides, the three state-owned carriers own most of those rights.

Still, smaller cities present great potential for non-stop flights to popular overseas destinations, backed by subsidies offered by local governments for the services, Sun said. Demand is “enormous” by international standards from what he calls “quasi-top-tier” cities such as Chengdu in Sichuan province and Kunming in Yunnan.

“Travelers prefer direct flights and we have concluded that it is worth exploring the market for direct flights from these cities,” Sun said.

Passenger traffic has grown as much as 20 percent annually in such places, while statistics from China’s aviation regulator show that around 70 percent of China’s newly added international flights in 2016 depart from second-tier cities.

Supporting Sun’s strategy is a 184-aircraft fleet that includes 21 Boeing 787 Dreamliners. The widebody jet, capable of seating up to 290 passengers, has been instrumental in executing Hainan Air’s global expansion, Sun said.

The carrier expects to take 14 more through 2018 and aims to increase widebodies to about 85 and expand the total fleet to about 285 by the end of this decade. Sun ruled out purchase of twin-engine widebodies such as Airbus SE’s A380, adding Hainan Air would be closely following China’s home-made C919 single-aisle jet. No decision would be taken before 2020.

Hainan Air is phasing out planes aged around 12 to 16 years to avoid maintenance costs, he said.

Sun sees an opportunity to grab more slots in Beijing vacated by China Eastern and China Southern, when they move to the new airport due to start in 2019. That will allow him to ramp up the frequency of some of the high-yielding flights and add more outbound services to western Asia and Europe from Beijing, he said.

“We are here to stay and we will surely get more slots,” Sun said.

 

©2017 Bloomberg L.P.

This article was written by Bloomberg News from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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