Interview With John F. Davis, III, Chariman & CEO, Pegasus Solutions, Inc - Introduction To Pegasus' New Merchant Model Hotel Payment System (HITEC 2002 Video)

About PegsPay
The first of its kind, PegsPay automates the exchange of funds and incentives between travel distributors such as tour operators, online net rate providers, consolidators and wholesalers, and any type of travel supplier, including hotels, rental cars, airlines, railways and cruise lines. PegsPay is designed for travel distributors that employ the merchant model. PegsPay eases the process for both the travel distributor and the travel supplier, providing confidence that the financial transactions supporting their relationship will be complete, dependable and supported by quality service and information.

"The net rate merchant model is a very successful business model, but its current methods of operation are highly labor intensive, with little or no automation," said John F. Davis III, chairman and chief executive officer of Pegasus Solutions. "With the recent proliferation and success of online net rate providers, such as Travelweb LLC (formerly HDS LLC) and Priceline, it became clear that the administrative problems surrounding quick, accurate and efficient payments to travel suppliers for travel inventory has grown to become an industry-wide issue. It's an issue that traditional tour operators have faced for many years, but it has now escalated due to the growth of travel purchasing over the Internet."

"Once again, we saw an opportunity to bring our unique payment clearing expertise to help solve an industry problem," Davis continued. "After studying the problem and speaking with travel distributors, we realized how similar their issues were to those previously faced by hoteliers prior to the launch of our Pegasus Commission Processing service. In the same way that Pegasus Commission Processing collects and pays commissions to travel agents from hoteliers, PegsPay similarly collects and clears the net rate payments from the travel distributor or merchant (online discount travel seller) to the travel supplier. We created PegsPay by leveraging the technology and infrastructure of the highly successful Pegasus Commission Processing service we launched more than 10 years ago."

Under the merchant model, travel distributors such as tour operators and online net rate providers, obtain travel inventory (hotel rooms, rental cars, airline tickets, other package components, etc.) from travel suppliers at a negotiated rate, mark it up, and re-sell it to consumers either directly or through an affiliate. The travel distributor is then obligated to pay the travel supplier that provided the inventory. Without PegsPay, the travel supplier must manually track the inventory that has been sold by various distributors on their behalf and must try to collect the revenues due to them from the distributor in a timely manner. Today, the travel supplier typically either invoices the travel distributor, which is administratively burdensome and expensive, or charges a credit card provided by the distributor, which incurs additional costs for the supplier due to credit card fees.

According to Jeff Bzdawka, senior vice president of Pegasus Financial Services, "As a result of existing processes, the travel merchant typically receives thousands of individual invoices and credit card bills from its suppliers. One online travel merchant reported that by month end, its invoices and bills typically create stacks several feet high. Another online discount travel site reported that it recently had to increase its accounting department by eight people to handle the huge accounts receivables and payables burden that the growth in Internet bookings has created."

Another payment transaction generated by many merchants that will also benefit from an automated solution occurs when a net rate travel distributor sells travel products or inventory through agents or online affiliate sites. For example, the new online hotel merchant Travelweb distributes its net rate hotel rooms through the Orbitz travel Web site. In this case, the travel distributor must also compensate its affiliate for securing the reservation. PegsPay also automates this time-consuming payment transaction.

"PegsPay automates each of these labor intensive processes, while providing additional value to both sides in the form of customer service assistance, reconciliation support, and valuable management information," Bzdawka said.

While PegsPay definitely benefits the distributor's travel suppliers and affiliates, the travel distributor pays for the service via a transaction fee. The new service allows the travel distributor to pay each travel supplier via one consolidated payment in the travel supplier's choice of currency and in the manner in which the supplier wishes to get paid (e.g., check or direct deposit). Additionally, the travel supplier receives detailed reservation reporting that allows them to better manage their net rate distribution programs.

The service is being marketed to travel merchants and distributors worldwide. "With the abundance of tour operators and packagers in Europe, we see a huge potential there for PegsPay," Bzdawka said. "As a testament to the great industry need for this type of solution, we've already received numerous inquiries about the service since announcing our agreement with Travelweb last week."

BIO
John F. Davis, III, Chariman & CEO
Pegasus Solutions, Inc
The Perennial Entrepreneur

John F. Davis III is well familiar with start-ups, having launched several earlier in his career. Most notably was 800-Flowers, which he eventually sold and it became known as the very popular 1-800 Flowers. He then founded a telemarketing company, ATC, which by 1988 grew to become one of the nation's largest providers of outbound and inbound telemarketing services.

His most successful start-up to date is now the world's largest provider of reservations-related technology services to the hotel industry. When Davis was approached in 1988 to launch Pegasus, his only related experience was that he had stayed in a couple of hotels and had used a computer a couple of times. Today, Davis is one of the hotel industry's most well-known and respected visionaries and has been recognized several times over for his contribution to the hotel industry. When he launched Pegasus in 1989, he had one employee and 800 square feet of office space - today Pegasus has 1,500 employees in 22 offices in 16 countries, and just last week took over 90,000 square feet of office space at the Campbell Centre in Dallas, with Pegasus logos visibly posted on the office tower for all to see as they drive up and down Central Expressway.

Through his entrepreneurial drive and goal to create a new product or business every three years, Davis led Pegasus to launch several of its own start-ups - companies that ultimately became businesses within Pegasus Solutions. In every instance, he created an "industry first" - a product or service that had never before been available in the hotel industry. Davis has several more ideas brewing, and intends to continue down the successful entrepreneurial path he started many years ago.

Kevin Heilbronner is the US Editor for hsyndicate.com, wiredhotelier.com and hospitalitynet.org, providing content for these websites in the form of articles and both audio and video interviews. Based outside of Washington DC, Heilbronner has worked with Hospitality Net to conduct interviews at several hospitality trade shows in the US and Europe over the last year. A familiar voice in Washington, DC, Heilbronner is the stadium announcer for the NBA's Washington Wizards, WNBA's Washington Mystics, WUSA's Washington Freedom and DC United of MLS. He resides in Centreville, VA and can be reached via [email protected].