Shifting Distribution Dynamics Among Issues On ACTE Stage

Munich - Direct connectivity "is the answer to shifting distribution costs," according to two-thirds of the Association of Corporate Travel Executives' members polled at the association's global conference here last month. Fifty-eight percent of ACTE's buyer and supplier members expect global distribution systems to change their business model, while one-quarter expects them to reduce supplier fees.

Attendees identified the shifting costs of distribution for travel products and services as the most important issue among a field of choices. Others included, in order of importance, low-cost carriers, travel suppliers' financial health, the European Commission's policies on Open Skies, Web fare access, the EC's data protection regulations and the International Air Transport Association's position on cross-border ticketing.

Anticipating the buyer's market will last another 18 months, keynote speaker and president of American Express Global Travel Services Charles Petruccelli was "cautiously optimistic about a return to growth" by 2004. He also commented on three recent trends: "I'm not sure airline alliances have brought clear benefits to corporate customers," Amex's Petruccelli said. Referring to some airlines' mandated use of Prism for contract management, he said, "This proposed practice is clearly unacceptable." Finally, on the Airlines Reporting Corp.'s Corporate Travel Department accreditation, he said buyers "should avoid being lured by CTDs. It only replaces fixed cost."

A survey of 106 travel buyers, mostly from the United States and Europe, conducted by e-mail three weeks before the ACTE conference, showed some real differences between the two regional groups, particularly when it comes to deploying self-booking systems and using a single corporate card. Bernd Fehl, managing director of TMC Consulting Group, presented the findings in a session ostensibly about benchmarking. Average annual air volume for participants was $21 million. More than 80 percent of respondents said the wording of their travel policy is moderate to very strong. Of the 56 companies with a single card program, two-thirds are U.S.-based. Only 20 percent are not considering self-booking, but almost all 36 companies with a system in place and the 13 companies currently implementing one are U.S.-based.

With one buyer in the audience "dreaming of" 40 percent adoption, panelists in the The Multi-National Self-Booking Toolkit session challenged participants on issues familiar with buyers west of the North Atlantic. A couple of U.S. buyers in the audience even lent a hand at shooting down a handful of barbs against self-booking, which first took hold in the United States in the 1990s. While many lessons can be shared across the water, it's clear the technology itself must be more flexible. "The tools were U.S.-centric. Even in the U.K., we had to do a lot of work. It took a year to be ready," said Mike Perkin, EMEA project manager for San Jose, Calif.-based Cisco Systems. He concluded that "online booking works and it works in Europe." Perkin highlighted Cisco's 75 percent adoption rate among 700 Dutch employees and a 50 percent rate in Belgium—all stepping off of a U.S. deployment in September 1999.

For the Danish Travel Pool, a purchasing group and European corporate self-booking pioneer, the exercise has proven "an expensive learning process," said Sören Schöedt, CEO. The organization is on its fourth online booking tool, he said, noting the "biggest cost is internal time and resources."

Related costs already could be climbing, as TQ3 Travel Solutions' Toby Joseph, COO for EMEA and Asia/Pacific, warned that the travel agency business is facing a ticking "demographic time bomb." As people leave the business or fail to enter it amid a lack of investment and training, "Turnover is horrific," he said, noting that labor represents 40 percent of a typical agency's costs.

Meanwhile, "people are becoming more serious about consolidating on a pan-European basis," said Liliana Frigerio, executive vice president of EMEA for Carlson Wagonlit Travel. "We've been doing those deals since 1990, but now people are really following up on their RFPs."

Travel Analytics' Scott Gillespie presented a free tool, available on his Web site, to help buyers rate their own travel programs using a slew of data points in a customizable matrix. "Not meant to be definitive or an industry standard," Gillespie said, the tool "could be adapted by agencies or consultants." He guessed that perhaps 75 percent of travel programs are fair at best, while just one-quarter could be called "good" or "great," adding that, "For most companies, there's a lot of room for improvement."

Travel managers have had the ear of senior management to an unprecedented degree since Sept. 11, but have failed to seize the opportunity to gain a more strategic role within their organizations. That was the main finding of a white paper presented by an advisory group of ACTE members to the final session in Munich. ACTE president-elect Mark Williams said senior management still rates travel managers principally for their abilities in cost containment. Travel managers, he said, are at a crossroads. The path of least resistance is as a cost manager, offering short-term rewards but possible obsolescence. The path of greater reward is as a "value architect," offering a more integrated role in strategic planning that links travel to corporate objectives. For the latter role, the critical skill set includes the ability to view travel as an investment in enterprise growth and to drive strategy alignment, understanding and application of financial valuation models and excellent communication techniques. "The good news is that both senior management and travel managers agree there is a higher and more strategic role for travel managers," Williams said. "The bad news is that they are still entrenched in traditional practices. Business as usual will not sustain success."

A survey carried out for the white paper found that 67 percent of senior managers said travel managers could play a more strategic role, but, when asked to identify these, they named such familiar duties as negotiating better deals. Although 95 percent of travel managers are aligned with their organizations' goals, around half are involved only with one department. The survey also discovered that 92 percent of travel managers saw their role change in the past year. Their principal new responsibilities included online booking and other technological innovations, crisis management and seeking alternatives to travel.

In a session about The Link Between Corporate Security and Corporate Travel, PwC director of global security Don Hubbard said three people who work at the firm are alive today because the company uses an international medical service, International SOS. The PwC intranet site pulls information from the global distribution system, International SOS, Transecure, Control Risk Group and government agencies worldwide. The next version of its traveler tracking system will show which employees are in which destination. The Traveller Locator Service enables authorized PwC personnel instantly to determine the location of each employee at a cost of less than $1 per booking. The global security department provides risk assessment for particular business trips, as well as general recommendations for ensuring safety and security in airports, airplanes, hotels and restaurants. The department also seeks to build on its relationships with individual airline security heads.

A session on reverse online auctions produced arguably the most heated debate of the entire conference. Siemens vice president of shared services Hanna Murphy expressed deep skepticism about selecting travel suppliers in this manner. "I would rather keep my relationships going," she said. "You also have to ask why, if you are getting a good price this way this year, you weren't getting a good price before now."

Starwood vice president of global corporate travel David Ogilvie said e-auctions commoditize a service that never can be conformed sufficiently to make decisions based purely on price. Nor are the bargains there anymore. "During the first auctions a couple of years ago, hoteliers panicked and drove the prices down dramatically. Now they are doing a much better job at pricing," he said. Ogilvie said there have been 18 hotel e-auctions in the United States this year.

Also on the panel was Peter Schmid, managing director of travel management consulting firm Impax, which helped Swiss pharmaceuticals company Novartis select its travel management company through an online auction earlier this year. Schmid told the audience that the lowest-price bidder did not win, but that conducting the tendering online had brought down the prices registered by all bidders. Hertz and National Car Rental officials said they would not participate in online auctions. Carol Ann Salcito of Management Alternatives said, "a couple of dozen" clients had sounded her out about using the technique, but she remained skeptical. "It's quite costly, so you have to ask whether it is worth it," she said.

"The drought warning is absolutely accurate. The trends toward it are absolutely undeniable." That was the assessment from Stephen Humphreys, general manager of corporate sales in the United Kingdom for British Airways. In a session examining a potential revenue drought in the travel industry by 2005, Humphreys suggested several factors—beyond the drop in travel demand—that would bring about change. Among them were procurement professionals increasingly getting involved in travel, more upfront point-of-sale airline deals, rather than traditional deals, and "an almost insatiable appetite for more transparency in the ebbs and flows of processes and transactions."

Willy Schnyder, vice president of business development for BTI in central Europe, said airline transaction costs should be itemized separately and that "corporations should be able to pick and choose exactly what they want" in terms of agency services. He said corporations need to define travel agency value and determine exactly what they want from their agency partners or "tailor-made service offerings." Jeremy Broadgate, strategic sales director for Carlson Wagonlit Travel EMEA, said the new trend is that "we are being looked at as a commodity, but it is more complex than that. The fulfillment side arguably is the least important of what we do."

"Life moves on, but we didn't realize life had moved on and we were exposed." Such was the state of affairs at British Airways a few years back in regard to low-cost competition, according to the carrier's head of field sales Ian Heywood. "Now reality has started to bite. The tide has turned and people are understanding the different components." In addition to explaining BA's low-fare intra-European strategy, Heywood pointed out several pitfalls of using low-cost carriers, including secondary airport locations farther from cities, a lack of kiosk checkin and seat assignments, and no airport lounges. "People in the U.K. got to a point of just thinking about airfare and not total cost of travel," he said. "You are not buying the same product." He added that "there is no such thing as off-peak flights" because load factors routinely exceed 80 percent.

Colleen Guhin, global travel manager for On Semiconductor in Phoenix, Ariz., countered, "We can't spend the money for comfort. Low-cost carriers give us alternatives." On Semiconductor selected Sabre as its GDS primarily because it is the only one that accesses Southwest Airlines' inventory. "Look at what the low-cost carriers have forced the full-service carriers to do," she added. "If they go away, guess where the prices will go."

A few other buyers attending the session said their companies still do not work with low-cost carriers because negotiated rates from the major carriers generally still come in cheaper.

Ryanair was scheduled to participate on the panel, but was booted when moderator Derek Jewson, executive director of the Appointment Group U.K., decided its presentation was "blatant" marketing hype unrelated to the topic of corporate travel management.

BP global travel manager John Guarneri has been elected to the vacant board member position with ACTE. The association also announced the appointment of two future principal officers. President-elect for 2003 is Garth Jopling, PricewaterhouseCoopers travel manager for Canada. Treasurer-elect for 2003 is Clive Armitage, AstraZeneca director of travel, meetings and fleet purchasing.

ACTE gave its global vision award to Ralph Colunga, global travel manager for Cisco Systems Inc., for contributing to the globalization of travel management. With online adoption rates running at more than 65 percent in the United States and 70 percent in the United Kingdom and a cost avoidance of $6.4 million and a 13 percent lower average ticket price for tickets booked online, Cisco is leading the industry by example. "Ralph Colunga is the model of a forward-thinking travel management professional, with a firm command of best practices and global managerial techniques," said Cheryl Hutchinson, ACTE president, as she presented the award.

Next year, ACTE's conferences will be in Las Vegas, April 27-29, and Dublin, Oct. 12-14.