Gathering After War Begins, Buyers Share World View

New York - Wall Street's leading airline analyst UBS Warburg's Sam Buttrick here late last month kicked off the fifth annual Corporate Travel 100 Benchmarking Summit during Corporate Travel World/Travel Technology World with his industry forecast.

"This year for the airlines will be full of surprises, some good and some bad," he said. Only four items truly matter to industry survival, Buttrick said, supply, oil, business travel and labor. To fix itself, the industry would need to reduce supply by as much as 20 percent, he said. "Chipping away 2 percent here and 3 percent there won't save the industry," he continued, noting that fuel prices, while significantly down after the onset of hostilities in Iraq, won't decline enough to save the industry.

Buttrick also quickly crossed off business travel—saying a huge rebound simply will not occur in the foreseeable future—which leaves labor cost reductions as the most likely means of saving the industry. "But I can't say labor costs will be ratcheted down soon enough to avoid additional bankruptcies, considering the uncertainty of the Iraq war," he concluded.

As to the prospect of airfare reform, Buttrick told buyers, "we are moving erratically toward a lower business fare environment." Nevertheless, he said, some carriers have not embraced lower business fares, and "the industry still clings tenaciously to the notion that it is acceptable behavior to charge their best customers six or seven times more" than leisure passengers.

Regarding reduced airline schedules, Buttrick assured travel managers that "the level of disruption to your program would likely be substantially less than the fear of such disruption. Where there is an economic opportunity, a resource will move to that opportunity."



Meanwhile, companies with air volumes under $2 million and between $2 million to $12 million were voicing their demand for the same negotiating opportunities as larger companies.

"The aggregate volume of the midmarket cannot be overlooked anymore," Taro Pharmaceuticals corporate travel manager Robin Buzzeo said in a panel on amplifying midmarket volume.

Panelists said such hotel vendors as Marriott only have negotiated with smaller companies on a property-by-property basis, which has made it difficult for smaller companies to leverage consistent rates and get better deals.

Courtney Linley, contracts administrator of the Firemans Fund, said she is facilitating stronger negotiations by leveraging volume across sister companies. "We're trying to make supplier relationships enterprisewide so that all segments can benefit more," she said. Although the volume of the respective companies remains small, reciprocal piggybacking on contracts of related organizations has been a critical tactic in delivering volume to national vendors.

Winnie Romanoff from C.E. Unterberg, Towbin told the small volume session her company selected a smaller agency so that it would be "the big fish in a small pond." Romanoff said this strategy has given the company the highest level of travel management company attention and service and has led to stronger relationships with suppliers. Other panelists stressed that giving suppliers accurate volume predictions and strong loyalty helps foster good relationships, stronger negotiations and better contracts. Paul Hoffman, Tzell Travel Group vice president of business development, agreed, noting that many smaller companies have not yet taken advantage of reporting technology, which is fundamental for solid negotiations.



Buyers' first priority when it comes to a successful online corporate self-booking program is getting travelers to use it. After that, some are pursuing so-called touchless fulfillment. In other words, as the point-of-sale tool replaces the booking agent, businesses are seeking to further automate the support of reservations records to save on their agency fees. A big part of the corporate buyer's job is to monitor agency costs by understanding why touches occur. In doing so, buyers can be subject to finger pointing by their agencies and technology providers. Agencies often blame touches on how well the booking tool prepares the PNR. "We need a smarter point of sale," said Keith Jackson, vice president of finance and business operations with Rosenbluth International's Upstream. "So, moving policy management into the booking tool is the next evolution, and the mid-office is a component of it."

"The booking engines are still dealing with GDS pricing," said WorldTravel BTI vice president of corporate fulfillment services Mark Johnson. "We need well-loaded corporate contracts and a better setup for traveler profiles."

Yet, "a travel manager has to be sure they have touches when they need them," said Tom Wilkinson, senior director of business travel solutions for Sabre's GetThere subsidiary.

Noting that her agency reviews each reservation for such functions as hotel bookings and pre-trip authorizations, Thomson Electronics manager of corporate travel worldwide Cindy Heston said her booking system enjoys 75 percent adoption but zero touchless transactions. "The agencies are putting a lot of parameters on whether it's touchless or not," Heston said. "If it goes online, that's one price, and if it's by phone, that's another. But if your agency is proactive in moving to touchless, maybe a tiered structure works."

"The past six months have seen a tremendous reduction in fees," Wilkinson added. "A year ago, $20 was a good benchmark. Now we've seen a number of vendors cut that because of price pressure and achieving scale. I think we're seeing more like $10 to $15 to process a fully automated transaction, and we're all staring down the barrel of a gun: the Orbitz $5 fee."

Steve Reynolds, executive vice president and general manager of TRX Technology Services, said the mid-office tools TRX sells to most mega agencies alone will not provide agencies with a profit. "I would think moving labor offshore is the next wave of savings," he said.



"We could talk about Web fares until we are blue in the face," said one moderator in an effort to prevent repetition of the Web fares debate. Nevertheless, the broader challenge of fragmented content driven by Web-only fares or vendors declining to participate in the GDS, is one every buyer is facing. "My head is spinning," said Terry Sullo, manager of travel and meeting services at Akamai Technologies in Cambridge, Mass.

"I think booking systems barely meet our needs today," said Cyndi Perper, director of corporate travel services at Invensys. "We need to see all inventory; our travelers are demanding it. It doesn't make any sense anymore, not that it really did before." Many agreed with Thomson's Heston when she said: "It's up to us to push the airlines and say we don't want a multi-tier solution. We need to explain through contract discussions that it's not acceptable."

No one would say buyers should not talk to their suppliers about such issues, but CTW's tech visionaries suggested that there's no turning back now for the vendors. "Fragmentation will get worse," said Eastman Group's Richard Eastman. "As that happens, the buyer has to manage the repackaging of information. You need solutions that allow you to go across multiple channels."

Eastman predicted that the GDSs won't be here much in 10 years and probably will be much smaller in five years.

"Long term, it's probably true, but I don't think mainframes will go away that quickly," said IBM Business Innovation Services principal Declan Boland.