Three years after the first multinational pioneers began channeling all of their European travel reservations through a single pan-European service center, only a handful of others have followed this lead. Instead, according to Richard Lovell, Carlson Wagonlit Travel executive vice president for Europe, the Middle East and Africa, a strategy called clustering is "the way a lot of us are thinking now."
Clustering is a halfway house between servicing travelers country by country and having just one center for the entire continent. This is usually done through forming language clusters: one center to serve English speakers, one to serve French speakers, one German speakers and so on. Travelers call a single telephone number and can be routed to the office that speaks their language.
So far, each of the big four travel management companies has a blue-chip client that has taken the single-center approach: General Electric is served by a Carlson Wagonlit Travel center in Warsaw, IBM by American Express in Nice, ExxonMobil by BCD Travel in Mechelen, near Brussels and, most recently, Hewlett-Packard by HRG in Budapest. Yet, travel management company executives expected more.
"We expected the drive to reduce transaction costs would see more consolidations," said CWT's Lovell. "The concept of a single European center was overhyped to start with."
Suzan Kereere, senior vice president for business travel service delivery in Europe for Amex, said: "Single European centers may have value to a few, but it is not the way the majority of our customers are doing business."
There are several reasons why consolidating to a single center has proved less popular than anticipated. One is that it involves significant work on the part of the customer as well as the TMC. Another is that the task only has proven manageable for companies with a highly centralized, supra-national culture and unified processes. The recent growth of online booking in Europe also may play a role, making the question of where offline bookings are routed less critical. Single European centers have failed to take off despite of some notable successes, including GE, whose European travel manager Keith Mullineux was recognized by BTN as one of the top 25 most influential executives in business travel in 2005 for his work on the Warsaw center
(BTN, Jan. 23). Asked if he was surprised that only a handful of other clients have moved into the center with GE, Mullineux said, "We are surprised. We have had plenty looking around and asking questions."
A further irony is that the logistical challenges of consolidating pan-European operations have eased considerably over the past three years. One reason is the near-ubiquitousness today of electronic ticketing. Changes to the rules and structures governing published International Air Transport Association fares, agency net fares and negotiated corporate fares also have worked in favor of the multinational client.
This is one reason why it could yet be that, rather than superseding single European centers, clusters will prove an interim measure that helps corporate clients prepare for complete consolidation. This has been the case with HP, which was operating language clusters, but took the next step in March this year by consolidating almost all its offline reservations through HRG's newly opened center in Budapest.
HP director for travel and meeting services Lea McLeod is hopeful the move will help the company to reduce operational costs of travel in Europe by 20 percent. She compared the model extremely favorably with country-by-country operations. "That needs a lot of communications and facilitation of process at the local level," she said. "It is very expensive, especially as significant resources are needed at the next level up to ensure all 24 countries are doing things the same way."
McLeod said clustering removes cost by reducing the number of locations to be managed, and, by the same logic, additional consolidation to a single center eliminates still more cost. It also increases the level of control over policy and business processes. The move to Budapest, she said, has given HP economies of scale and lower labor costs too.
By moving to a single center this year, HP will encounter fewer problems with sourcing fares than the likes of GE experienced earlier in the decade. Following a series of rule changes introduced by IATA in January 2005
(BTN, March 7, 2005), restrictions on where published fares should be sold and ticketed have been lifted. "Before, we could find ways to make a reservation outside the country where the journey originated, but frequently we had to queue it back to that country to ticket it through the local billing and settlement plan," said David Coppens, senior engineer for EMEA operations at BCD Travel. "The rule change has made our operations much easier."
Coppens pointed to two further improvements. First, larger carriers have eliminated most net fares to travel agents by converting them into publicly available fares as part of their drive to push up direct sales. This has benefitted the single European centers because agency net fares were country-specific.
The other improvement is a greater willingness by airlines to allow negotiated corporate fares to be booked across borders. Carriers previously encountered internal resistance at a national level because the fare, in the case of BCD's Mechelen center, is paid to the airline in Belgium, not where the journey originates. Coppens said some airlines have sorted out their internal accounting to compensate for the consequent loss of profit elsewhere.
According to Coppens, BCD's Mechelen center has every seat occupied. The agents are taking reservations on behalf of seven different multinational clients and he considers this a success. "It was never intended as a mainstream solution," he said.
Coppens said the main benefit of a pan-European center is neither a reduction in TMC costs nor a client's own operating costs, but in attacking direct travel costs through better policy compliance. "It is a misconception that consolidation is cheaper than in-country servicing," he said. "Compliance is better because it is easier to steer travelers in a particular direction if you are talking to one group of travel agents. Policy changes are also easier to implement and so too is the application of corporate deals."
Yet, despite of the benefits cited by the likes of Coppens and McLeod, each multinational TMC has only a handful of clients that have taken the pan-European option. GE's Mullineux thinks the reason is that the task is too daunting for most companies. "The problem is the complexity of Europe," he said. "You have to deal with 20 countries, each with cultural and technical differences. It takes a lot of work to do a consolidation. It took us three years to get 17 countries bedded down in Warsaw, which is double what we would have expected. The model works and there are plenty of people interested, but it requires a considerable investment of time and resources that you can't leave to a third party."
For Mullineux, one key task that must be managed internally is changing traveler behavior to accept the pan-European model. Coppens agreed this issue is a major hurdle that cannot always be surmounted. "If you change your TMC, you may encounter resistance in some countries, but it is not nearly as much as when you try moving reservations to a different country," he said.
Perhaps the stiffest resistance is put up when travelers and administrative staff no longer are allowed to make bookings in their native language. Feedback from companies that have consolidated is that economies of scale only really kick in if the number of languages in a single European center is restricted to an absolute minimum—preferably one.
Peter Kite, recently promoted to managing director of HRG UK, said it is no coincidence that U.S. companies have led pan-European consolidation. They are accustomed to working in one language and one currency. "When companies are very international in their approach, they can get their message across," said Kite. "They need to understand there is a difference, but then work with that difference. We are not saying you can't do it, but you have to recognize the complexities."
In any case, the complexities may not prove as great a problem as they appear. This has been the experience of HP, which is offering English as the sole language option at its Budapest operation. Feedback on this issue, said McLeod, has been "barely audible." Instead, the influence of company culture appears to have been more influential than national culture. At present, the HP culture is highly compliant after a long period of retrenchment. "In a different time, it might have been more difficult to win acceptance, but there are so many changes in the company right now that people are accepting it," she said. "The service levels people are used to are changing."
At other companies, however, national culture may prove more important. According to CWT's Lovell, acceptance of remote service is greater the farther north one goes in Europe. Carlson Wagonlit still has 115 onsite implants in Spain, for instance.
However, it would be wrong to write off the country-by-country option, or even the onsite option, as inefficient before researching the subject first. Lovell has watched the ebb and flow of the consolidation of European operations into call centers for more than a decade and although he agrees this often works in the United States, he is more equivocal about Europe. "A dedicated team is frequently more efficient than a call center," he said. Not only is their subject knowledge superior, they are more productive, with fewer days lost to sickness and absenteeism. Since online booking is fast becoming the norm for simpler transactions, there is an argument that smaller teams of expert staff with good local knowledge should be left in the country to deal with the more complex transactions that remain.
Lovell said clustering can offer a reasonable balance between local knowledge and economies of scale , as well as the ability to offer extended service hours. Another important point made by Amex's Kereere is that putting all operations through a single center makes contingency planning harder. A single center is vulnerable to global distribution or telecommunications outages, not to mention terrorist incidents or health epidemics.
Kereere said Amex has invested more than $70 million to standardize operations across Europe, making virtually consolidated service easier. "There was value in a drive to physical centralization, but now we can do it with technology," she said. "Why move the people?"
Yet, Mullineux remains convinced that a single center still is the best option. "Clustering is a stepping stone," he said. "If you are going to bite the bullet, you might as well do the whole thing."