Conventional wisdom dictates that the farther out you buy an airline ticket, the lower the price. This maxim is certainly true for tickets purchased seven or 14-days in advance. But a Six Sigma study of advance purchases conducted by Dominion Resources proved "that there was no financial advantage to booking airline tickets greater than 20 days in advance" and that purchasing too far in advance was actually adding more than $100,000 in exchange fees to its travel costs, said Donna Kelliher, director of travel services for Dominion Resources Inc., during the National Business Travel Association conference last summer.
Over the past 15 to 20 years, Kelliher said, she oftentimes "managed travel based on intuition, what my gut told me about things. It's very difficult to do that anymore. I now use Six Sigma to prove my point. Sometimes I'm right, sometimes I'm wrong. But the beauty of it all is that it's statistically proven and you can really manage your costs and get the senior management buy-in that we all look for," said Kelliher, who has managed travel at Dominion for 19 of her 28 years in the industry.
[PROFILE_1]Kelliher's study of advance purchase tickets began innocently enough in 2004 as she heard "a heated discussion" by onsite travel agents about a traveler who had changed his ticket five times. Asking how long ago the first booking was made, Kelliher said, she was surprised to learn it was booked six months in advance.
"I walked out of there thinking, 'Why is that happening?' We needed to take a look at it," Kelliher said.
A Six Sigma Green belt, Kelliher said she invited expert Black Belts within Dominion to come to her organization and work on two studies. They readily agreed. The team used the Six Sigma DMAIC tool to "Define the defect; Measure the current situation (11,000 tickets purchased outside of 30 days, in this case); Analyze the causes (why do those tickets fall outside specifications?); work to Improve the results; and, at the end, put future Controls in place to standardize and manage." They also used a variety of other Six Sigma tools to map the process, pinpoint when, how and where defects occur and measure the cost of defects.
"Six Sigma is 3.4 defects per million opportunities," Kelliher. said. "We took 11,590 tickets, costing $5.7 million, purchased through Sept. 2004. The focus was: How far in advance are we purchasing these? What is optimal? And most importantly, why are we purchasing tickets so far in advance and what is that costing us? The further out you end up purchasing them, the more they can cost--with change fees, exchanges, add collects, etc. Six Sigma is a systematic approach to defining defects in your system."
TICKETS PURCHASED BY DAYS IN ADVANCE Source: Dominion Resources Six Sigma Study
The project "proved statistically that there is no financial advantage to booking airline tickets greater than 20 days in advance at Dominion," Kelliher said. "In one particular market--which is highly competitive between Houston and New Orleans, one of our largest markets--it was less expensive to purchase the tickets within the seven-day mark," compared with 14 days in advance or more.
Yet, the study found significant use of advance purchase and penalty fares, which were also more prevalent in the market at that time, she noted. Kelliher said it's important to "constantly monitor what's going on in each market."
The team found that 28 percent of the tickets purchased in the first nine months of 2004 were "purchased outside of our 20-day mark--many of these were purchased six to nine months out."
"We were looking at fees of $100,000 for these particular tickets," including exchange fees, transaction fees and unused, non-refundable tickets, Kelliher said.
Quickly, Dominion changed its travel policy to limit advance purchases to less than 30 days in advance. Should business reasons require more advanced bookings, Dominion allows them with a manager approval, as long as they do not exceed 90 days.
The new policy helped the company reduce advance ticket purchases from 40 to 50 days in advance to 35 to 40 days out, Kelliher said. "The deviation was reduced from 21.4 days to 18.7 days while defects were reduced from 41.5 percent to 27.6 percent ... with more to come."
Kelliher acknowledged that she has more work to do communicating and ensuring compliance to the policy. One way she is doing this is by reporting the cost to exchange tickets by business unit. For 2006, she forecasts exchange expenses of $246,000, with one business unit responsible for over half, and four others ranging from $33,000 to $25,000.
"What we have learned now is that we need to delve into a bigger project: Why are we exchanging tickets so much? For us, it's a quarter-of-a-million dollars," Kelliher said.
While her travel management company advises that such costs are average for large corporations, Kelliher said, "I don't think we need to settle for average. There's real money out there--$30 here and there adds up quickly for us. We're going to report this to the CFO."
Six Sigma has also taught Kelliher that "knowing/admitting you have a defect in a process you own is a good thing." She has used this process to study electronic ticket tracking, preferred supplier programs, T&E card utilization and use of corporate aircraft versus commercial flights between Richmond and five key business travel destinations.
Most importantly, Kelliher said she learned that "knowledge is power… You don't know what you don't know, and you don't know what you think you know." With Six Sigma, she has learned that "if you can measure it, you can improve it."