Lessons to be learnt from recent events concerning LeisureLink
It is disheartening to hear and unfortunate, the failure of LeisureLink will leave some consumers and suppliers in a very difficult situation. Hopefully they will be able to recover some if not all of the funds still owed to them.
NB This is a viewpoint by Frank Putman, CFO of NextPax.
This is a highly competitive mostly unregulated industry where channel managers, OTA’s all claim to be top dog. Where property managers need to filter through the ever increasing myriad of distribution options to decide how and through whom to market their properties.
The facts that companies raise millions in funding, have top industry professionals on their boards ultimately do not guarantee the bookings of your guests and the survival of their businesses. To start with the funding you read about. These almost always have milestones attached to them, which if not reached could leave the company without any or only with reduced funding. With regards to the Board of Directors it can be comforting to read about these industry heavy weights on the boards. But to what extent do they actually offer support/advice to the management of the company and what guarantee are they to the ultimate survival of the company.
Ultimately you the property manager has to decide how to distribute your properties. A channel manager can be of great service here, getting you connected to a multitude of channels (GDS , OTA’s) through a single connection (more on this can be read here). But as recent events around LeisureLink have painfully shown there can be risks involved as well. The LeisureLink failure foremost centers around credit risk and business continuity risk. Credit risk because the model under which LeisureLink used to operate was such that they were merchant of records. They were collecting the booking amounts from the guest/OTA and would only transfer that to you within 10 days after departure of the guest at the property. If we assume a lead time of 60 days between the booking and the departure of the guest at the property it means that if the channel manager fails within those 70 days you run the risk of not getting paid. How is this to be avoided, this can be either by choosing a channel manager using a similar merchant model but who receives the booking amounts on a escrow (third party) account, ring fenced from its daily operations. Through this model you will still be faced with a delay in payments though if the party falters.
Alternatively a channel manager can be chosen where you the property manager acts as merchant of records and receives the payments directly from the guest or OTA. (Be aware though if the OTA is merchant you potentially still face credit risk on the OTA). As you the property manager receives the payment directly from the guest you do not run any credit risk on the channel manager. For exactly this reason NextPax has chosen for this model. The channel manager will often accommodate the passing of the payment details of the guest through its (PCI compliant) platform directly to you or your payment provider.
Even though the financial consequences of the above credit risk can have direct severe consequences on your own business the operational risk of your properties being off the market for a certain period of time can be just as devastating to your business. Diversification can offer some risk mitigation here but has its drawbacks as well. A different approach can be to check with the channel manager if and what precautions have been taken to secure the operational continuation in case of a failure of the company. There are ways this can indeed be achieved, feel free to contact us to learn more about how NextPax has accomplished this.
Finally we wish all who have been affected by the failure of LeisureLink all the best, please do reach out if you have questions regarding the above or would be interested to learn more about NextPax.
Published On: September 30th, 2016 / Categories: News /