U.K. Site Enabling Cos. To Negotiate Rail

British companies finally are taking control of one of the most difficult elements of their travel programs—rail—largely by signing up to an online booking and management system, called Thetrainline. Clients said the system has helped not only to reduce transaction costs but also to slash ticket prices as the familiar online principle of 'visual guilt' persuades travelers to seek the cheapest options on display.

Connected with this development is the appearance of the first negotiated deals between U.K. domestic rail operators and corporations. Virgin Rail and Great North Eastern Railway, which hold the franchises for the relatively long-distance West Coast and East Coast lines respectively from London to Scotland, are giving most of these deals.

Buyers are attributing the advent of the deals to Thetrainline putting reliable management information on rail expenditure in their hands for the first time. The other major factor bringing the train operators to the negotiating table is increasing competition from low-cost and traditional airlines, especially from Glasgow, Edinburgh and Newcastle to London.

"We are using our management information to negotiate with the rail companies right now," said Jamie Hindhaugh, travel and transport manager for the British Broadcasting Corp., which spends an annual seven-figure sterling sum on train fares. "We will use it for fully flexible fares that are bought for last-minute assignments by reporters. We are also showing the rail companies what sort of fares we pay to low-cost carriers for comparable journeys."

Peter Kite, operations director for travel management company BTI UK, confirmed that rail negotiations finally are occurring, with operators seeking gains in volume and marketshare against other modes of transport. All but one of the deals Kite has seen have been for net fares. However, he is keen to put the trend in context. "It is not widespread, and they are not huge discounts," he said. "Our top 130 customers all have at least one air deal, but only five of them have rail deals."

Mark Furlong, commercial director for the Thetrainline, claimed his company has been valuable to its clients in their negotiations. "Employees have traditionally bought train tickets at the station, with the expenditure getting lost in the expense reclamation process," he said. "Almost every company we work with is discovering it is spending much more on rail travel than it realized, which is allowing us to go to the train operators and say we want special fares or benefits."

Yet, although there is growing realization of the potential to negotiate, the main excitement among corporations is the instant effect Thetrainline has had on bringing down average fares. One of the absurdities of the privatization of the British Rail network in the 1990s was that it carved up a series of discrete franchises with almost no competition between operators on any given route. However, the desire to maximize loads, plus more recent competition from low-cost carriers, has led to a proliferation of advance purchase and off-peak fare options for each journey—there are 30 for London-Manchester alone.

Hindhaugh's remark about negotiating on fully flexible fares therefore becomes significant. His biggest savings has resulted from reducing the proportion of tickets bought by the British Broadcasting Corp.'s personnel at full price. "The average ticket price has plummeted," Hindhaugh said.

Tony Archer, manager of global procurement travel services for ICI, which also uses Thetrainline, puts the savings at 15 percent to 20 percent. Russell Hart, principal of Strategic Travel Consulting, which is helping a client sort out its US$12 million rail spend, calculated the figure as high as 30 percent.

It is a trend that is likely to intensify, following a recent lead by Virgin to emulate low-cost carriers by moving to a system of one-way fares. "Travelers can now mix and match," Archer said. "They can travel out at peak time and return off-peak."

Transaction costs also are important. With airline commission falling to 1 percent in the United Kingdom, many travel management companies are thought to have put up their non-air transactions by disproportionately high percentages to keep their headline air transaction fees relatively attractive.

Rail fees are disproportionately heavy, in any case, because transaction values are much lower: The average rail fare purchased by BTI clients is US$130, compared with US$650 for air.

BBC does not pay Thetrainline a transaction fee. Instead, Thetrainline keeps the commission. Previously, BBC paid an US$18 fee per booking to its travel management company Carlson Wagonlit Travel.

Thetrainline emerged last month as the sole provider of U.K. corporate online rail booking when it merged with weaker rival Qjump. Another promising competitor, BuyRail, was scrapped by its owner Eurostar in 2003. The monopoly situation inevitably raises concerns, and there may yet be conflicts of interest over the ownership of Thetrainline—86 percent of the business belongs to Virgin, which is also a significant rail franchise-holder.

Nevertheless, Thetrainline continues to earn rave reviews as the long-sought solution to rail program management. Thetrainline, which also operates a consumer Web site, handles 10 percent of the United Kingdom's entire rail volume, and that figure is expected to grow. It has inked deals with both BTI and Carlson Wagonlit to act as their preferred means of managing rail and also has signed up to supply content to corporate online booking tool KDS.

Furlong claimed Thetrainline's corporate business has shot up from US$18.5 million in 2003 to US$92.5 million this year. The entire U.K. rail market, both business and leisure, generates revenue of US$6.5 billion.

A further boost has been provided by the U.K.'s train operating companies, which beginning in April will cut commission to travel agents from 9 percent to 7 percent for tickets booked on the rail companies' GDS-linked booking system. They will continue to pay 9 percent for reservations through Thetrainline.

Online booking tools that major in air travel have enjoyed a significant acceleration in popularity during the past 18 months but it looks as if, for some companies, in terms of adoption rates at least, they will be surpassed by Thetrainline. Hindhaugh reported 80 percent online usage at BBC, while Barclaycard has hit 90 percent.

One reason BBC and others have achieved high adoption rates is that they can install ticket-printing machines on their own premises. BBC has 10 at different sites. Thetrainline also has installed machines at major railway stations. Tickets can be collected by swiping a payment card.

"Self-service reservations clearly suit rail," BTI UK's Kite said. "It's a low-cost operation, and it is also low-risk for the traveler. Booking London-Yeovil [a town 140 miles west of the U.K. capital] does not feel as risky as, say, London-New York."