HRG chief executive David Radcliffe in a Wednesday interview with The Beatimplied a more sympathetic position than in the past on airline strategies to directly connect to TMCs and acknowledged such strategies would lead to changes in remuneration models. "There is no question the financial dynamics will change, and the TMCs with the technology to direct-connect will be the winners," Radcliffe said in the interview scheduled to discuss HRG's financial results for the year to March 31, 2011. The company increased its pre-tax profit to £32.9 million from £28.4 million.
"There will be some restructuring of the financials around the industry and that will have some impact on financial dynamics with the client," Radcliffe continued. "The GDSs are the most efficient way to distribute but they are not the most cost-effective for airlines. We are already in discussions with at least one GDS and one airline about how it can be made more effective."
HRG operates its proprietary Universal Super Platform to accept direct feeds from suppliers and this year announced that it now hooks into Travelport's Universal API connection.
Meanwhile, with rumblings in the European marketplace about whether some TMCs are compensating for unprofitably low fees by charging unseen mark-ups and engaging in other less-than-transparent practices, and questions about whether TMCs can continue to expect substantial incentives from global distribution systems, Radcliffe set out his views on TMC remuneration. "We are driven far more by client fees than our competitors, rather than supplier fees," said Radcliffe. "More than 80 percent of our revenue comes from client fees. When I look at the strategy of some of our competitors signing business at nonsensical rates, it can only point to their income coming from elsewhere. I like to think that one of the reasons we are successful is we do take a more open approach with our clients--and we are prepared to sit down and talk to them about profitability."
HRG Posts Improved Financial Figures
Hogg Robinson Group for the 12 months to March 31 reported a 16 percent increase in pre-tax profit to £32.9 million. Revenue grew 10 percent to £358 million, or 7 percent at constant currency, while client transactions rose 17 percent (following a 3 percent fall in 2010) and client spend jumped 20 percent at constant currency (after a 17 percent decline in 2010).
Some of the improvement can be attributed to greater productivity, with HRG's average headcount remaining at 84 percent of the level from financial year 2008 while revenue per full-time employee rose to 109 percent versus 2008. HRG's results statement refers to rationalization of the company's branch network into fewer service centers and growth in online booking penetration, most notably to 25 percent across Europe from 17 percent during 2010.
HRG reported that current client activity is tracking ahead of the financial year ended March 31, when activity was strongest in Asia/Pacific and North America, while performance in Europe varied widely by country. Nevertheless, Europe contributed 68 percent of revenue and 73 percent of underlying operating profit, which rose in the region to £30.8 million from £28.1 million.
In North America, revenue rose 11.8 percent to £77.7 million and underlying profit grew to £9.9 million from £6.8 million. Client spend in North America was up 22 percent and transactions rose 24 percent, of which approximately half were online. HRG said underlying operating margins in North America improved to a level comparable with its European business, noting that North America accounted for 22 percent of total revenues and 24 percent of total profits. Finance director Julian Steadman told The Beatthat HRG improved its North American performance by integrating the businesses it bought in the region during the past five years, with more synergies possible. "We are expecting North America to grow at least at the average for the group," Steadman said.
The biggest disappointment for HRG was its automated transaction and expense management subsidiary Spendvision. While revenue rose 11.6 percent to £12.5 million, underlying operating profit fell to £800,000 from £1.4 million. "It is underperforming and underachieving and we are taking steps to address that," said Steadman. "We're not pleased with it but it is not going to bleed us dry either."
HRG also revealed that it has reduced its pension deficit, a major concern for many British companies, by 12 million pounds to 115 million pounds. Earnings per share rose 16 percent to 7.3 pence and the company raised its final dividend by 25 percent to 1.0 pence per share.
The article originally was published in The Beat.