American Express partnered with TUI's First Business Travel in Germany to target small and medium clients, a particularly large and well-traveled group. The arrangement is atypical in that Amex is partnering with a traditional competitor to provide travel management services to some clients while still running its own proprietary large-market services for customers in Germany.
American Express executives in the past said that local-market ownership helps to standardize technology platforms, unify policies and processes, maintain stability and cultivate customer confidence. In the past 12 months, though, the company strayed from that strategy in Brazil and New Zealand, and has said it would opt for ownership, joint ventures, franchising arrangements or other partnerships depending on the specifics of each market.
In Germany, the partnership between two travel industry titans establishes the country's second-largest business travel agency by volume, according to Marc Hildebrand, a veteran travel executive who knows both companies well. Previously with TUI and then TQ3 Travel Solutions (where, in 2004, he worked out a co-branded corporate card deal with Amex), Hildebrand now serves as vice president and general manager for Central Europe at American Express Business Travel. BCD Holdings, which agreed to buy TQ3's German operations from TUIin Jan 2006, holds the top spot among German travel management companies through its BCD Travel operation.
In 2005, small and medium enterprises (SMEs) accounted for 84 percent of 150 million German business trips, according to German travel management association VDR. "A huge chunk of the gross domestic product is produced not by the large German and multinational companies, but actually by the SMEs," Hildebrand said. "They have a very strong export-orientation and therefore are travelling internationally."
After consolidating into seven large business travel centers serving large multinational clients, American Express lost its presence in many secondary and tertiary cities and therefore cannot effectively serve that market on its own, Hildebrand explained, because "the economics of business travel" prevent companies from profitably operating many smaller local offices throughout Germany. After selling TQ3, he continued, TUI still was equipped to handle business travel through its 600-office leisure travel network, and specifically through 80 business-heavy locations under the First Business Travel brand.
"Many of our SME customers have international affiliations and require harmonized solutions in order for their procurement and cost management to be effective," according to a statement by Peter Wittmann, head of First Business Travel.
As a result, "First Business Travel is now docking into the global American Express network," Hildebrand added. That means access to Amex's Trackpoint system for traveler tracking, its global hotel program and other offerings. Such products and services "can be shared on the global distribution system platform, which is Amadeus," Hildebrand explained. He also suggested that First, with €450 million in volume, would benefit from Amex's purchasing power, which in 2006 amounted to $21.8 billion in global travel spend.
This arrangement is "financially more attractive" for Amex than competing on its own, Hildebrand noted. "We get a license fee and we can sell other products and solutions into customer base of First Business Travel, including the [American Express corporate] card."
Hildebrand's take differed when he led TQ3. "There is the whole question of stability and continuity in a global network, and we recognize that is an important factor for customers and for the organization," he told The Beatin late 2004. "Then there is the other component which is key from a financial or economic point of view, and that is you can achieve and maximize synergies in countries where you have full ownership."
The new Amex-First Business Travel marketing partnership--which Hildebrand said excludes all existing customers of either company--will pursue clients with annual turnover ranging up to €1 million. Elsewhere in the German market, "We are well-positioned with multinational customers in the large segment," he said.
Such positioning has helped Amex capitalize on the outsourcing trend in the German market, which Hildebrand said has never been stronger. "Travel management, while very important and very high on [companies'] agendas, is not part of their core competence," he said. "They look for someone who can provide on an outsource basis, which also means the travel manager itself is moving to our payroll." Hildebrand said Amex currently is involved in such discussions with more than 10 German customers.
For large-market clients, Germany is one of 28 countries in which Amex owns travel management operations. Activities in six additional markets are managed through joint ventures. "In addition, Business Travel also serves customers in other relevant markets through franchise partnerships," according to the American Express 2006 annual report. "In 2006, Business Travel sold and franchised operations in Brazil and New Zealand."
In Brazil, the agreement with Banco Bradesco S.A. "essentially is a card deal," said American Express Business Travel global president Charles Petruccelli in an interview last year with The Beat. "It allows American Express to penetrate some segments on the card side faster and better than we had been doing on our own." In New Zealand, Amex merged its business with the business travel division of Gullivers Travel Group, forming Atlantic Pacific American Express.