Negotiating for travel services in many respects is the same as it's been for years. Suppliers provide discounts in exchange for agreed-upon levels of market share or volume, especially when business can be shifted from competitors. With some notable exceptions, either additions in the form of new entrants or deletions through M&A and/or bankruptcy, the primary suppliers in traditional travel sourcing categories have changed little during the past few decades.
At the same time, travel purchasing has become much more complex. Both buyers and sellers have increased their focus on data and performance rather than the pure relationship-selling of old. Within corporate America, travel spending has become more visible to both senior management, which demands more reporting and incremental annual savings, and travelers themselves, who now use a variety of mobile devices and social media tools to share experiences, complain at times and generally seek their own path.
Probably both a cause and effect of the complexity, procurement's involvement in travel sourcing is no longer a trend; for many organizations, it's a reality that has been there for a while. That has meant more sophistication in the buying process and a focus on procurement principles that may, at times, overshadow traveler needs and wants. Though there are some who see a trend in the other direction--a renewed focus on traveler satisfaction--travel purchasing has evolved into a science, grounded in data and analytics.
Therefore, perhaps unsurprisingly, more than half of 294 survey respondents indicated that their organizations' procurement, purchasing or sourcing department was responsible for travel supplier negotiations. For the rest, that function was spread across finance, executive offices, human resources and other departments.
Smaller firms represented in the survey, those with annual travel and entertainment spending below $5 million, were several times more likely to have negotiating responsibility within the executive offices (33 percent) than larger companies. More than eight in 10 respondents from pharma companies placed the travel contracting function within procurement, compared with fewer than six in 10 among manufacturing and financial services firms, and fewer than half of high-tech companies.
Sourcing Involvement
When it comes to many of the traditional travel supply categories, most respondents said they had either direct or indirect involvement. Fleet, private jets and corporate housing were the exceptions, each with roughly only one-third of all respondents involved. For many of the familiar travel categories--hotels, airlines, travel agency, car rental, self-booking tools, chauffeured cars, rail and payment cards--more than half of the respondents (in some cases much more) said they selected suppliers, measured performance, managed supplier contracts and marketed/communicated preferred supplier use to the traveling population. But that last task, communicating use, garnered the fewest responses in each category, perhaps because travel policy compliance falls to departments or employees other than procurement specialists.
Meanwhile, the smaller the company's annual travel spending, the less likely that the company generally, and the representative survey respondent specifically, negotiated with airlines, hotels, car rental companies, chauffeured car services, travel management companies, rail operators, payment card providers and self-booking tool vendors. These findings are logical, given that smaller companies with less business to offer are less attractive to suppliers and/or have less of a need for such services as self- booking and chauffeured cars.
Regarding some of the newer categories in the managed travel space, 58 percent said they dealt directly with the supplier of a travel intranet page or portal, which oftentimes is the travel management company with which they already established a relationship. Meanwhile, a large majority of respondents said their companies contracted for mobile phones, mobile software and applications, and social networking technology, though in most cases the respondent was not involved in those aspects of the program. It is likely that an organization's IT department oversees some of those items. As with traditional travel categories, smaller spenders were less likely than larger ones to negotiate with suppliers in those newer areas.
Virtual conferencing technology, notably telepresence, clearly has grown in popularity as economic conditions in recent years forced companies to examine the return on investment of corporate travel, organizations became more sensitive to employees' work-life balance and the technology improved to allow for smoother virtual experiences. The research bore that out, as 96 percent of respondents said their companies negotiated with suppliers in that category. However, more than half said they were not personally involved, again probably because their IT departments take the lead. Of those involved, about half selected suppliers and fewer than three in 10 communicated use.
A Word On Exec. OfficesSurvey responses from those who worked within their organizations' executive offices differed noticeably from responses submitted by those who worked in all other departments. Those from executive offices divulged their companies were less likely to negotiate with nearly every category of travel supplier covered in the survey. The only exception was restaurants and dining programs, for which 35 percent of those respondents said their companies didn't seek out negotiated terms, versus 50 percent among those who worked in finance departments.
Among those working in executive offices, 65 percent said negotiating with travel suppliers was a task handled within their department. Among respondents working in all other departments, very few indicated that travel sourcing fell to their organizations' executive offices. Furthermore, executive office respondents said they personally and their companies overall were less likely to benchmark travel data internally and/or externally, and less likely to collect, analyze and monitor data than respondents representing other departments.
Market Trends
Generally accounting for the largest portion of the T&E dollar, the airline category always draws the most attention among corporate travel supply chain categories. Maybe it's because airlines roller coaster between solidly profitable years and deep loss-making ones. Maybe it's because each new day seems to bring new developments related either to M&A or alliance building. Or maybe it's because airline policies seem to frustrate the traveling public more than any other travel sector.
Case in point, ancillary fees. Advancing the general perception that airlines nickel and dime their customers, carriers during the past few years aggressively unbundled products and services--most of which, admittedly, are optional--and now charge for checked bags, seat assignments, ticketing flexibility, meals and many other items. For corporate buyers, these charges, when applied across their traveling populations, can add up quickly. With few exceptions, buyers have been stymied in their attempts to effectively track spending on ancillary items, negotiate discounts on those items or develop other ways to nullify the impact.
"The biggest question out there is, how do you deal with ancillary fees?" said Pall Corp. global category leader Chuck Locascio. "To date, I really have not been successful in negotiating any type of waivers on the airline side for checked bag fees, etc. That is something that will be evolving over the coming months, I'm sure."
Also constantly evolving is the make-up of the industry's competitors. In the United States during just the past few years, Delta Air Lines bought and integrated Northwest Airlines; United Airlines and Continental Airlines began the same process; and South- west Airlines agreed to buy AirTran Airways. On a global scale, most major airlines have gravitated toward one of three major alliance groupings, spawning new joint ventures and altering industry competition and corporate contracting.
Given such consolidation, "travel buyers are dealing with a subset of larger suppliers," said Travelport GDS chief commercial officer Kurt Ekert, speaking in October during the Cornell Hospitality Research Summit. "It reduces competition. For suppliers, it means more rational pricing and capacity behavior than you have seen over time, and it probably leads to a more stable airline industry."
While stability is welcomed, needless complexity is not. Pall's Locascio, for example, is seeking longer-term contracts with his preferred airlines and quarterly reviews (leading to contractual adjustments as warranted) rather than formalized requests for proposals. "RFPs can be a waste of time," he said. "You drown in that. Our traffic patterns remain fairly consistent."[PULL_1]
Other buyers have taken a similar approach when they are confident their preferred carriers continue to match up well with their programs and traveler needs.
Rising Room Rates
As with airlines, the current hotel industry development grabbing headlines and affecting pricing, availability and therefore corporate buying strategies is recovering business travel volumes.
"The big thing to watch for in lodging is rising rates. Hoteliers are hungry to recoup" revenue lost during the economic recession, said Christine Duffy, president and CEO of meetings management firm Maritz Travel, also speaking during the Cornell conference. "We also see occupancy going up. We are finding it more difficult to get space at the properties that we use for our business."
In terms of 2011 pricing, hotel executives in recent months have said corporate negotiated rates would be up year over year by high single-digit percentages.
Such expectations, driven by rebounding demand, point to more leverage for suppliers, which for a few years have been scrambling for any business. It follows, therefore, that buyers are preparing themselves for more challenging contract talks.
In particular, "airlines and hotels are wielding more power in negotiations as the economy begins to rebound," according to a September report from the NBTA Foundation, based on a survey of 170 direct members of the National Business Travel Association. For example, more buyers expected their 2011 negotiated discounts to get "worse" than those expecting "better" discounts for air and hotel, the two largest spend areas (representing 35 percent and 19 percent on average, respectively, of total business travel spending among the NBTA survey base).[PULL_2]
Meanwhile, given the proliferation of review Web sites and social media tools, buyers need to be as aware as ever of their travelers' feedback, especially for hotels, where various options generally are available in a given destination.
At the same time, "hotel products are getting better and better, and more and more alike," according to Cathy Enz, a professor at Cornell University's School of Hotel Administration. "Competitive convergence suggests that pricing becomes more important when differentiation is lacking."
Similar to some buyer sentiments about airline RFPs, the hotel RFP process has become maligned in certain circles for its expense, required manpower and, according to some, unnecessary complexity. Instead, some hotel companies are advocating a dynamic pricing model, similar to airline pricing, in which corporate rates consist of agreed-upon discounts off floating public pricing, rather than fixed rates for the duration of the contract term.
TMCs Also Unbundling
While representing a much smaller portion of the typical T&E dollar, pricing for travel management company services is negotiated by 90 percent of organizations represented in the survey. But in some cases, it too is undergoing change.
Travel management "fees, or anything that is considered in an RFP, are going to be very formalized and have grids," according to Atlas Travel International vice president of corporate business development Cindy Sauter, "but the typical procurement supply chain analysis just doesn't work anymore. If you say, ‘I am going to go with the lowest fee,' if you look at how much that fee takes of the entire buy, it's almost as if the fee shouldn't matter, but it does because it's the one number that you can pull out. But we have to look down the line in order to add social media or mobile technology or other things that we are going to add in the future.
"Basically, what we have to do is unbundle in different ways in order to match what we believe is the thought process of the buyer so we can get past the grids, so that we can talk to them," she added.
Regarding global distribution systems, Sauter explained that Atlas clients, generally in the midmarket, are less interested in striking financial deals with GDSs--35 percent of all respondents said they were not involved and another 15 percent, including 22 percent of the smallest companies, said their company didn't do it--and more interested in the content they provide. Some clients, she explained, consider using multiple GDSs to maximize available inventory; others are satisfied with the low-fare availability in a single GDS.
At the top end of the market, among respondents representing organizations with annual T&E above $60 million, 78 percent were involved in GDS negotiations, including 50 percent with direct involvement.
Concur executive vice president of worldwide marketing Mike Hilton corroborated those survey results. "We see that more in larger companies than small," he said. "In general, buyers over time are becoming more intelligent, demanding more transparency and breaking the supply chain down. When you get in to the Fortune 1000, if you are not negotiating with the GDS, you're probably not at best practice."
Benchmarking And Data Analytics
As in all aspects of managed travel programs, effective sourcing and supplier management requires reliable data, especially because many suppliers--notably airlines--base their offers on crunching numbers through sophisticated systems.
"One of the biggest things that's different now from even two or three years ago is the power of data," said Acquis Consulting Group managing partner Randy Kane. "A CEO or CFO is going to care about having better insight on opportunities to consolidate and to drive more savings. The single biggest barrier that's always been there has been the lack of quality data and completeness of data, and that is something that has changed a lot."
A very large majority of respondents said they were involved in collecting, monitoring and/or analyzing their organizations' travel data, especially among those representing companies with the largest travel budgets. More than 10 percent representing annual budgets below $5 million said their companies didn't manage travel data versus none of those with budgets above $60 million.
Similarly, 17 percent of represented companies with the smallest travel budgets didn't benchmark travel program metrics internally or externally. Nearly all of respondents with larger budgets said they did. The larger the travel budget, the more likely the respondent was directly involved in benchmarking.