Op-Ed: Size Does Matter For Travel Management Firm Service
Over the past several years, changes in the travel industry, including the emergence of new technologies, have created more choices than ever before for business travelers. Leading corporate travel management firms are now moving toward addressing the entire business travel experience and seeking opportunities to capture a larger share of the market. So how are they doing this? Through consolidations, of course.
Travel industry mergers—or at least talk of them—are in the news almost every day, affecting all areas of the corporate travel industry. And many industry experts agree that being bigger offers these merged providers great advantages, including heightened market presence, increased economies of scale, increased brand awareness and enhanced marketing strength.
Mergers and acquisitions over the past year or so, including American Express-Rosenbluth, Carlson Wagonlit-Maritz and the acquisition of Northwestern Travel Service by Navigant, provide many proof points. While some worry that fewer providers will lead to higher prices and weaker service, the opposite seems to be on the minds of the companies involved in the consolidation.
First of all, there's still plenty of competition left among mega agencies, innovative middle-market corporate travel providers and online services. Secondly, the new size of these firms isn't about market share as much as it is about increased purchasing strength and the ability to provide a strategic, end-to-end set of services. As the investment banking firm that worked with Navigant, Goldsmith Agio Helms was tasked with more than finding the largest available agency, but rather one that had size and a complementary set of services and alliances.
Goldsmith Agio Helms was not involved in the American Express deal or the Carlson transaction, but we've been able to see from industry reports that all these deals have a lot in common. American Express, along with its name change and full integration with Rosenbluth, is promoting a set of comprehensive services to small businesses, as well as larger corporations, its traditional market. Similarly, Carlson has said it will offer a broader range of products and services at competitive prices.
For Navigant and others over the years, the ability to offer a broader array of services has not only been a benefit, but a necessity in the wake of competitors' acquisitions. In response to recent acquisitions by its competitors, Navigant, the second-largest player in the corporate travel management industry, acquired Northwestern Travel to expand its playing field in the North Central region of the United States. From the acquiree's perspective, joining forces with a larger firm that has similar aspirations provides an exit strategy while ensuring the continued success of the business. Maritz, Rosenbluth and Northwestern were all family-owned businesses that recognized the advent of the expanded-service corporate travel agency model and realized the quickest way to get there was with a partner.
Northwestern Travel chairman and CEO John Noble wished to hand over the reins of this family-owned business to an entity that could effectively manage Northwestern's continued growth. To feel good about parting with a family business—or a piece of it in Maritz' case—senior management needs to believe in the complementary nature of the integrated company well beyond the economies of scale the merged companies will produce.
No one within the corporate travel industry needs to be reminded that the competition for corporate travel dollars continues to intensify, particularly as more industry players consolidate, sometimes on a global scale, in an effort to keep and grow market share.
Although critical cost efficiencies and market share are drivers of consolidation, customer loyalty through better travel management and value-added service will be a key factor as consolidations move forward. For all of the corporate-speak that appears in news releases regarding synergies and services, corporate customers will have the final say. Considering that many firms are moving toward the expanded-services model, consolidators such as Navigant will need to do more than just offer these services. They should be able to—and in fact need to—attract the best managers in the industry in order to continually recreate "best practices" that differentiate their firms from the pack.
The acquiring firms may not exactly agree with the old adage that innovation is more likely to come from smaller, more nimble firms, but they are expecting a shot in the arm when it comes to intellectual capacity. Northwestern was attractive to Navigant because it brought not only a solid client base to the table, but also a distinctive style of service. Ideally, all the newly merged providers are hoping to attain a selection of services and styles that offers a perfect option for both the large and small clients they serve.
Recent challenges in the travel industry, such as the airlines eliminating travel agency ticket commissions, have made consolidations more common over the past several years. At Goldsmith Agio Helms, we've seen that size does matter, particularly in an industry that is inherently dependent on market share.
By recognizing how the industry is changing and what products and services are likely to capture the most value in the future, corporate travel firms are moving beyond simply reacting to change. Rather, more and more firms are joining forces to create the next generation of innovative and profitable corporate travel business solutions.