Gilligan: Follow The Service

Having moved to London at the start of the year to pursue a more global approach to the American Express commercial card and travel business, group president Ed Gilligan was back in New York last month as a visitor. BTN editor David Meyer took the opportunity to meet with him to discuss the development of the online channel, the company's focus on its largest customers and its prospects for future growth.

BTN: Now that there are businesses willing to use offshore agents, such as those based in India, are you seeing a rise in demand from companies to adopt a "follow the sun" approach?

Ed Gilligan: The question is, can you get consistent quality in service by going that route. We've had a call center in India serving international clients for four or five years, but even though they have a talented workforce of well-educated, cheaper labor, it takes time to build the local management talent to handle a great deal of volume.

The question is, will the growth of online cause us to close down call centers? Going online may be better than following the sun, although we do have several clients pursuing it. In the last quarter, the percentage of our transactions that are online reached 10 percent in the United Kingdom. That's a real milestone and establishes the United Kingdom as a European early adopter. Right now in Europe, call center prices and online prices are not far from each other. Two years from now, as usage goes up, the costs will come down for online transactions.

Meanwhile, an independent study, which will come out soon, shows that our fares, on average, are 15 percent lower than the online competition.

Expedia and the others are really going to have to raise their game. They underestimated how much work goes into servicing commercial accounts. We have a lot of experience. Early on, we realized that we were not going to fight online, but accelerate it. We embraced it. Microsoft did not. This is not Expedia's core business.

BTN: What about Sabre? Travel is certainly their core business, and you partner with them in many ways, but then they also are competing with you with Travelocity Business.

Gilligan: Yes, we have areas of cooperation and competition. The competition is good and makes us sharper. The GDS companies still have business model issues. They want to push online and establish direct ties with corporations. So sometimes we are uneasy bedfellows, but we have learned to live with it. Whether it's Travelocity, Orbitz or Expedia, American Express must show more value.

In the end, it's about servicing the customer. We've shown consistently that we're into it for the long term. I have a lot of confidence that we can demonstrate more value. Head to head with them, we will win. Our win/loss rates against the online agencies are better than against our traditional competitors. The question is, are the online agencies going to commit themselves to corporate travel and make the kind of investment that is necessary?

BTN: What are you investing in these days? I know you are still investing in TravelBahn, Amex's MIS architecture.

Gilligan: In TravelBahn, and in call centers, a common database, a desktop tool…

BTN: I understand that by 2005 you will have enough of the TravelBahn infrastructure in place to be truly GDS agnostic, is that right?

Gilligan: We are well along with our U.S. strategy. Being GDS agnostic was not the prime reason for creating TravelBahn, but it is an outcome. Now the question is how to roll out TravelBahn around the world. That's a large part of the investment we are making now. Another area we are looking at is online, touchless fulfillment. We've made rapid progress here. In the past 12 to 18 months, the majority of our U.S. transactions are touchless. We're trying to duplicate that in Europe, Australia and Asia. Now U.S. and multinational companies are doing online transactions, but little of it is touchless. 2005 will be a building year. Historically, this business was attractive because of the relatively low cost of entry, and profits covered the things you wanted to invest in. It is no longer self-funding. Our investments in this business, including investments in TravelBahn and online and global growth are in the $50 million-plus range per year. We expect a return on that of course, but we can wait two or three years before it pays off.

BTN: We've spoken to several people lately who are part of your Global Business Partners group. Please tell us about that group.

Gilligan: At the end of 2001, we set up a business unit for our top 50 accounts, which represent 20 percent of our travel and 20 percent of our card volume and includes companies with headquarters outside of the United States. We always had met with our top customers before to get feedback, but at the end of 2001 we formalized it and began meeting with them as a group on a quarterly basis, as well as giving them forums to meet with each other.

BTN: Are there specific things that they asked for on which you have acted?

Gilligan: MIS is very important to them. They have been telling us what more we need to do to deliver global data. A year and a half ago, they said they need a benchmarking tool that lets them slice and dice the data. We already gave them such a tool for travel data earlier this year, and a similar tool for card data will be coming in the third quarter of this year. This group has been so successful that in the past couple of months we have established a group for the next 100 global customers. Globalization is a critical advantage for American Express as is having both the card and travel. Travel data is getting better around the world, but the competitive advantage for American Express is the corporate card data, for which we are not dependent on anyone. By the way, there is not an added consulting fee for this benchmarking service, just a minimal hookup charge.

BTN: We had been seeing quite a lot of activity a while back among companies that were seeking to provide outsourced travel procurement services, although that seems to have died down somewhat. Some of these companies also are your clients. How do you perceive this nascent yet dormant trend?

Gilligan: I think you're right. About 12 to 18 months ago, several of the consulting companies were focused on business process outsourcing. They were looking at the whole realm of indirect procurement, of which travel is only one part. For the most part, these are the same players in IT outsourcing: IBM, Accenture, EDS and CSC. They are seeking to aggregate processing for all of these indirect purchases onto one platform. Our core business is payment systems, travel and financial services and doesn't lend itself to business process outsourcing. While the trend has quieted down, it still could happen.

BTN: How is the Rosenbluth integration going, and what specifically is happening with Eclipse Advisors these days?

Gilligan: It is going well. Eclipse Advisors is a division that reports to Charles Petrocelli and is expanding its scope globally. Overall, the integration of best practices really is working, which has been furthered by landing their key people in jobs. We have retained the vast majority of customers, with one or two disappointments, but we are on track with our integration plan. The most complex parts of the integration will be done by year-end.

BTN: What is your forecast for the industry for the rest of 2004 and 2005?

Gilligan: Business travel is growing again, particularly in the United States and Asia, and even in South America. Europe is sluggish, with less than 2 percent growth. While travel is coming back, it is coming back differently. Low fares are here to stay and have had a massive transformational impact. Airfares in Canada are down 20 percent this year. For the airlines, it's still not clear which is going to survive.

In the United States, there has to be consolidation. In the next two years, there has to be some kind of merger or acquisition. There also is more to come in Europe beyond the Air France-KLM merger. Also during the next two years, we'll see the growth of online transactions in Europe, Australia and some parts of Asia by 20 percent to 30 percent. There also will be more consolidation to come in the agency arena.

BTN: Is there another acquisition in your near future?

Gilligan: We're not looking at doing another acquisition until the Rosenbluth integration is done. If we see the right fit, of course, we'll do it, but we're not planning on that at this point. Travel management companies have to find more creative ways to lower the cost of doing business. We are not looking for an exit strategy, we are looking for how to make the business better. Our customers seem to be with us. Our new competitors only are going to sharpen our business and cause us to accelerate through this.