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THE FRIDAY INTERVIEW:  David Roche, chief executive, Hotels.com

IT’S NOT the most obvious career path for would-be business leaders. In the early 1990s, David Roche began playing jazz piano in upmarket bars and restaurants around Dublin while studying for a degree in English and maths at Trinity College. “I was playing downstairs in a restaurant in Dublin. Upstairs, there was another guy playing piano. We got to know each other, and within a year we had set up a music agency and event management company based out of an office in Merrion Row, providing entertainment services to corporate clients and incoming tour operators.”

Today, 41-year-old Roche is head of internet travel company Hotels.com, a multimillion-dollar business headquartered in London. Hotels.com is owned by Expedia, the Nasdaq-listed internet travel giant, which owns tripadvisor.com and Italian company Venere.com.

Roche joined Hotels.com in 2003, having been headhunted to set up the company’s fledgling European operations. Before this he had been involved in various start-ups in the technology and marketing fields.

In the late 1990s he sold his shareholding in his music company, and moved to London. Following a stint in advertising with Foote, Cone Belding and an MBA in French business school Insead, Roche began looking for venture capital investments.

Like most entrepreneurs, not all projects were successful. One of his earliest ventures failed to make it to market. “The idea was for a retail television station which would advertise through in-store screens. We had done the research and knew it would yield the returns.”

After securing investors, the project was piloted in convenience stores in the southwest of England, but the project failed to get the investment to go to market. “The Nasdaq crashed and confidence in advertising-backed businesses in particular evaporated,” he says. “Yes, it was frustrating. It’s always frustrating when a business doesn’t work but the concept has since taken off. I suppose I made a note to self – timing is everything.”

Nonetheless, this was a heady time to be an entrepreneur in London. “It was an extraordinary time. There was a huge culture of investment during the dotcom boom. This was a time when I would meet someone for lunch, just looking for investment advice, and I would leave with a cheque. That landscape has now changed completely. The venture capital market in Europe is shrinking. Look at 3i – it was Europe’s largest venture capital business. Last year it got out of the business.”

It was while working for a financial webcasting company that Roche was recruited by hotels.com. At the time, the firm had only a handful of employees and was looking to build a position in Europe. Roche oversaw its expansion, overhauling the hotels.com site, concentrating heavily on marketing and eyeing up new markets. Over the next five years it expanded 40-fold, opening localised sites in more than 70 countries. Today, hotels.com has 120,000 hotels and guesthouses in its database, which are sourced through local offices.

Hotels.com’s parent company, Expedia, is coy about its financial performance – it does not disclose figures for its constituent businesses. Overall, Expedia, which is the largest online travel company in the world, netted revenue of just under $3 billion last year. Results for the second quarter of this year show the company posted revenue of $834 million – an 8 per cent gain – during the second quarter, beating analysts’ expectations.

However, the company did note the potential threat of Google in its last set of financials. The looming presence of the internet search engine, which last month bought ITA Software for $700 million, is undoubtedly a very real concern for Expedia.

Hotels.com has had to deal with its own market issues. The collapse last month of online hotel reservation company 1800hotels.ie, for example, has focused attention on the industry. Like other online travel firms, Hotels.com was quick to capitalise, offering discounts to stranded 1800hotels customers. Roche says hotels.com is fundamentally different from its now-bankrupt rival. “We’re a primary broker. We have direct contact with the hotel, so we don’t source inventory from bed banks, as is the case with other companies. This makes a fundamental difference to our economics and our stability.”

Roche also argues that the scale of the company differentiates hotels.com from other, smaller competitors. “Ultimately we’re part of a multibillion dollar profit-making business and to that extent we’re 100 per cent trust-worthy. We promote our telephone number, we don’t try to hide it – we actively encourage customers to contact us, and we make a considerable investment in that.”

For this reason Roche strongly rejects the call from some travel agents that the current bonding system – which requires travel agents to enter into a bond in order to protect consumers in the event of insolvency – be extended to online companies. “It would be a retrograde step,” says Roche. “Bonds were introduced in a different era. The travel industry has radically changed since then. It is simply unnecessary for consumers, and should not be applicable to a 100 per cent secure hotel brokerage business such as ours.”

Not surprisingly, the global recession has also affected business. Corporate travel has taken the biggest hit, with volumes down 30-35 per cent. But leisure travel has remained impressively resilient, says Roche. “In terms of holiday travellers, customers have responded well to discounts. This means we’re down in terms of unit sales, but our market share has actually climbed considerably as a result of the recession.” Expanding this market share is a key challenge. “There was a once-in-a-generation shift in the way travel was distributed over the last 10 years, and we have been riding that wave. This is beginning to come to an end, particularly in mature markets such as the US. In emerging markets like Asia Pacific or Brazil, it’s happening all over again. That’s where the focus is.”

On the subject of Ireland’s own hotel industry, Roche sounds a cautionary note. Hotels.com’s latest Hotel Price Index, which analyses prices paid by Hotels.com customers in all major cities, found that the price of hotel rooms in Ireland fell by 21 per cent in the year compared to the global average of 15 per cent – one of the steepest falls in western Europe. “There was a certain amount of market correction at play, but ultimately the prices we’re seeing currently are unsustainable. A three- star hotel just off Stephen’s Green charging €50 a night is just not viable. Something has to happen in the supply area.”

The oversupply of hotel rooms is a serious concern. “Customers are being failed in the long term. There are a lot of non-viable businesses still in existence, threatening the existence of what would ordinarily be well-run businesses, who cannot compete with hotels who are pricing themselves to mitigate a margin call from banks.”

Roche is reluctant to advocate market intervention. However, he does suggest one, potentially radical initiative that could be considered by the Government: the possible introduction of a tourism subsidy, to encourage inbound tourism to the country.

“One thing people in the tourism industry don’t realise is that there is a strong interplay between air fares and hotel prices. If you have €1,000 to spend on a holiday, and the air fare goes up, people’s hotel spend will go down. One thing people often assume about Ryanair customers is that they were taking the cheap flight and the cheap hotel. In fact they were very often going to the more expensive hotel.”

Roche points out that the airline industry was much better placed to react to the economic slowdown. “The airlines were able to take out capacity. They did that and at the same time brought the fares up. Hotels couldn’t. Once you have a hotel with 100 rooms, how do you take capacity out?”

He believes that a tourism subsidy could work. “A €10 subsidy which would encourage a visitor to spend €100 is a possibility.”

Inbound tourism is vital to Ireland inc, he says. “Ireland has much better value than it is given credit for, but Ireland’s reputation which has been garnered over the past few years, as an expensive place to come and stay, will take some time to be re-established. Even if hotel prices halve, or food and transport, it will take some years until the external market will take account of this.” Cautionary words.

ON THE RECORD

Name: David Roche.

Age: 41.

Position: Chief executive, Hotels.com.

Lives: London, but originally from Booterstown, Co Dublin.

Family: Married, two sons.

Something you might expect: His father is Prof Frank Roche, director of the UCD Michael Smurfit Business School and a leading expert in the field of entrepreneurship.

Something you might not expect: He edited college magazine Trinity Miscellanywhile a student at TCD. His first big interview was with U2 manager Paul Mc Guinness, former editor of the magazine.

Favourite holiday destination:"I always end up in Greece, summer after summer, for the very good reason that my wife is Greek."