The man who founded Pegasus is a man on top of the world. And this is a man who knows what he wants and where he’s going, in between the laughs, of course. Yeoh Siew Hoon catches up with John Davis.
It’s the first anniversary of his company going private from public, giving him the freedom to fulfil his vision. And his company has just made two major acquisitions in the space of one week.
Plus, he’s back in Asia for the first time in six years.
John F Davis III, CEO, president and chairman of the board of Pegasus Solutions Inc, is a man on top of the world. These are things that would not have been possible had the company still been publicly-listed.
“I’d be too busy in the office, submitting reports every 90 days to Wall Street,” he laughs. “You spend so much time dealing with investors and bankers and not dealing with your customers.”
Plus, it would not have been able to make the two acquisitions it did, in such rapid succession. Last week, Pegasus announced its purchase of Wiz.com from Travelport, followed by the acquisition of GuestClick, a provider of Web-based software and services for the hospitality industry. Wiz.com’s products include GDS and GDS-related products, Internet Distribution Systems Connectivity and Data Management Solutions.
“As a public company, we would never have been able to do the GuestClick deal because it has no additional increments to Pegasus in 2007. It will show great savings in 2008/2009 but Wall Street looks at 90-day increments.
“We’ve signed more contracts, brought in new customers and more revenues in the past 12 months than the past three years combined.”
With a grin, he says, “This is like, freedom back to the old days. We are investing in where Pegasus will be in three years.”
Davis should know the “old days”. He is the man who started “the whole Pegasus thing”.
Believing that we learn more from our failures than from successes, Davis recalls the time when, in 1979, he set up a business called 1-800-FLOWERS.
“I put every dollar in it. I borrowed more money from the bank that I (thought at the time) I could possibly earn in 100 years. I borrowed from my father-in-law – never borrow from relatives, whatever you do, that’s lesson No 1,” he chuckles.
“Well, everything went upside down. Expenses exceeded revenues – that’s when you know you are in trouble. I had a one-year-old and a six-month pregnant wife. I was everything but bankrupt.”
Saddled with a huge telemarketing facility, he decided to set up a telemarketing company called ATC Communications. “It was the only thing I could do, I had all these equipment. I started knocking on doors. The idea was, you had to keep the seat pool warm. That was the name of the game, renting out seats.
“During the evenings, we had no problems filling seats. That’s when you call people, interrupting their dinners. Everyone was home then.
“But we had problems during the day, and I wondered what people did during the day and thought, that’s when they make hotel reservations.”
He wrote a business plan in 1983 to set up a “worldwide central reservation system” for hotels. Soon, his centre was taking reservations for Holiday Inn, Sheraton, Days Inn and Hyatt. “It didn’t happen like my business plan said it should, but it worked. I think the hoteliers liked me and felt sorry for me.”
He later sold the company, repaid his debts and went on to launch the Pegasus Electronic Distribution “switch” technology. He subsequently launched Pegasus Commission Processing, TravelWeb.com and acquired REZsolutions (which included Utell) and UniREZ.
Pegasus now has about 1,000 employees, achieved US$170 million revenues last year and represents more than 1 million rooms in more than 7,000 hotels around the world.
It is rare in the rapidly-changing world of technology to find a CEO that has lasted as long as he has, especially a company like Pegasus that has seen its share of corporate restructures over the years.
“Yes, there are not that many of me’s around,” he says.
The day before, he had just been interviewed by a rookie reporter who did not know Pegasus from a “flying horse” – which is what Pegasus symbolizes. While his executives cringed, Davis smiled and graciously spent an hour with the reporter.
“I felt sorry for her. She could have been my daughter.”
There’s another story too of how Davis who, when he had to lay off 240 employees the first week of last December, refused even though it would cost $250,000 to keep them on until January.
Said an article in Smart Business, Dallas: “He wanted to do the right thing and not let people go right before the holidays, so despite arguments from his staff, he kept the employees on. As word spread at Pegasus Solutions Inc. of what he had done, the affected employees took the impending layoffs much better when they saw how Davis cared about and fought for them.”
Q: So how does a nice guy like you survive in the cut-throat corporate world?
I laugh a lot. It’s the only way. It’s not that much of a cut-throat business. It is as much fun as you make it. And when it’s not, you might as well give up. I know many CEOs who will die on the last deal.
Q: But it can’t have all been fun the last 20 years?
No. It’s kind of like my marriage. We’ve enjoyed 24 wonderful years but officially, we’ve been married 28.
Q: What was the most difficult time?
In 2003/2004 when a pet project, the Pegasus Central Property Management System, failed. We spent two years building a Web-based property management system. We had the vision and strategy correct but we didn’t execute as a company. The people whom I trusted to deliver let me down.
I have always been lucky to surround myself with the right, competent people. I don’t understand technology, I don’t run hotels, I don’t write software – otherwise, I am very qualified to run the company.
But I do have the ability to have a vision of where the world is going to be.
Q: So while you may have all the fancy ideas and great technology, it always comes down to people?
Always. It is the most difficult, yet the most rewarding, aspect of any CEO’s job.
Q: What did you learn from this “enormous personal disappointment”?
It was my fault. I did not pay enough attention to the people. Sometimes, when you’ve had a lot of successes, you get lulled into a sense of comfort. So lesson? Never assume it’s being taken care of. You have to focus on the details, you have to stay on top. Just because it looks logical on paper doesn’t mean it’s so.
Q: What will you be staying focused on this year?
We will be spending US$45 million on our new acquisitions and integrating them into Pegasus. That means migrating more than 12,000 hotels to a new platform in the next 18 months. I have to be completely focused on that. When you bet this kind of money, you’d better.
With Wiz.com, we have to move 102 chain codes to our platform. And with GuestClick, we have to migrate 9,000 plus independent hotels.
Buying something is only the start, the hard part is the integration.
We have two other projects. One, we are overhauling our database. Companies such as Expedia and Orbitz rely on us for information on the hotels and images. Consumers are becoming more sophisticated in their searches. It’s no longer, I want a 3-star hotel in Singapore, now it’s I want a 3-star hotel with a view of the river where I can take my dog to a restaurant nearby.
None of the CRSs are built for such searches. Major hotel companies have their own databases to manage – some are managing 40 different databases. That’s stupid for the industry.
So we are redesigning our database so that everytime a consumer searches, he is guaranteed the best information from every hotel. That means 42,000 hotels to update and it will cost us $5 million to rebuild.
Two, we are redesigning our financial services to meet the requirements of hotels who want to set up different rules and different fee structures. We need a collection engine that is rules-based which will be able to handle customized payment systems for clients. We collect from 38,000 hotels and pay 20,000 travel agents. Rebuilding this will cost US$2 million.
And before you ask it, no, the hotel industry has no intention of stopping commissions but they are reviewing incentives and how to do it automatically.
Q: There will always be room for the travel agent?
Travel agents are not going to go away. In 1999, I stood in front of 4,000 travel agents – goes to show how stupid I was – and said if you had the word “agent” in your name card, you’re at the wrong end of the food chain. I was wrong. I can miss too …
They provide a genuine service, they are able to negotiate better rates, they help lower costs.
My kids will not use travel agents for leisure, but I think corporations will continue to do so.
Q: Long live the middleman then?
I am the ultimate middleman. The value of a middleman is to eliminate the many-to-many connection and make it one-to-many.
Q: Where do you see the future of technology going for the hotel industry?
We will see more and more automated tools to lower administrative costs and make it easier for guests to access the room product and service.
My assistant runs my whole life through the Internet, no phone calls. So hotels have to adapt to that – you’ve got to give customers customized menus so they can view and book seamlessly and on the Internet. Customers have to be able to say, I want to book a table at the restaurant or book a spa. They’re not going to pick up the telephone or call the concierge – that’s yesterday.
How do I check in? How do I get to my room? I don’t want to stand in line. The days when you sat down and talked to the hotel staff when you check in – I don’t care, where’s my room?
When I started the commission payment system, the general manager always wanted to write a little note to say thanks. Who has time for that today?
Q: Goodbye to personal touches then?
Some is required but not a dog and pony show.
Q: What about mobile technology? You yourself said you are addicted to your mobile.
Yes, we are all addicts. Sad but true. We’re investing $250,000 this year to make it happen but limitations of screen size are still a challenge. We are working with some GPRS companies in the US to load hotel content so that we can tell drivers where the next hotel is and at which exit so they can send an e-message to the hotel and get an instant booking, “because the guest will be there in a minute-and-a-half”.
Q: I guess that won’t be so necessary in a place like Beijing with its traffic jams.
Yes, I don’t see the full need for the ability to book a hotel on the run. Sure, if there is a flight cancellation or bad weather, but I don’t see a plan-ahead travelling doing it.
Q: What about your kids though?
Our kids will be the most demanding group of travellers ever for the industry. They are adjusted to buying whatever they want online. Kids are going to demand it of us.
Our industry is good, but not great, at instant response. Hotels still don’t respond to emails instantly – they think because it’s email or text, it can wait. But today, email or text equals phone call.
Q: Pegasus’ whole future depends on you staying ahead of the curve and bringing your customers along into the light, as it were. But it also means you can only be as good as your customers.
In 1994 – just to prove how old I am – I saw the demonstration of the Internet. I thought, this is the coolest thing I’d ever seen – with this, people could book a room without making a telephone call.
In 1994, databases were built in code for the GDSs. Travel agents went to school for six months to train on them. A1K – Grade A, One Person, Kingsize bed. Every hotel group used it. Those codes weren’t going to work for mum and dad.
So I set up a meeting with the CEOs of Marriott, Hilton and Starwood and said, this is where the world is going and this is how we have to respond. Rack rates? What, do I want to rent a room with a rack?
We changed the entire mentality of the industry and spent literally millions of dollars to deal with the changing consumer needs.
The challenge is here again. We have to change the data to reflect the demands of the customers of the future, real time, online.
Yes, I am only as good as our customers. But we’ve come a long way. We are not done yet. The consumer is changing. We have to be cognizant of that.
Q: What’s next for Pegasus? Any more acquisitions planned? Such as a third party travel website, perhaps?
We have our own hotelbook.com for independent hotels. I am not sure we need another site. If you believe what the chains are saying – in the US, Hilton and Marriott say 80% of online reservations come through their own website – then how much money do you want to spend on the other 20%.
In Europe and Asia, it’s different – there is still room for the merchant model because of the large numbers of independent hotels.
As for acquisitions, because of what’s going on the industry – public companies going private – a number of companies will be put up for sale this year. This is how we got to acquire Wiz.com; Travelport saw it as a non-core asset.
What’s happening in the GDS sphere is interesting – I wouldn’t be surprised if Sabre and Amadeus merged. I am not saying they will, just that it wouldn’t surprise me.
Q: First the Internet, then the mobile phone, what’s the next thing that’s going to change our lives?
The level of sophistication and technology, and the amount of data that can be compiled and condensed into one device, whatever that is. We will see consolidation of content and data in a small format. The challenge is to make that useful and easy to use for the consumer.
