American Airlines senior vice president of global sales David Cush recently hinted about intriguing tech-driven developments in contractual performance monitoring, and cited the Prism Group corporate sales and contract management tools that AA adopted two years ago. He also urged corporations to not be blinded by the prevailing procurement focus and functionality of technology, thus losing sight of the big-picture benefits of relationships. What follows is an edited excerpt of his speech at the May Association of Corporate Travel Executives conference in Miami.
"Through globalization, increased competition and everything else going on in the world, we're all under tremendous cost pressures. As part of this, we have seen travel managers come under the procurement organization to squeeze every nickel they can out of the travel process. Lots of good things have come out of this. There is a lot of expertise in procurement that is being used by travel. A lot of people have also brought in external resources and experts--lots of consultants to help out.
It's our view, though, that while there are good things that come out of travel moving under procurement, there is money being left on the table for the travel departments.
Looking at the buying process, [if] you go back several years ago, you had more of a relational buy: strong, long-term agreements and long-term business relationships that would focus on generating long-term value. You had very complex contracts and higher discounts. Today, much more of it has moved to transactional buying. You have multiple suppliers, and a lot of this is because of automation-which has made it more efficient to manage multiple suppliers. You have very short-term goals in terms of minimizing travel spend, sometimes on a transaction-by-transaction basis; you've got simplified corporate agreements in many cases, although they don't look that way to me; and lower discounts.
Our view is that we need a combination of all the long-term benefits of the relational buying and all the efficiencies of transactional buying--bringing these together into a new way of partnering between suppliers and buyers. The time is right. The gap in the cost base between traditional carriers and the low-cost carriers has narrowed, giving us some ability to go in and change some things.
International networks carriers--the Americans, Continentals, Deltas--offer strong alliances, a sense of familiarity and the ability to service all levels of corporate traveler. We like to think of ourselves as one-stop shopping. There is a benefit of familiarity which comes from 'knowing the drill' when you walk into an airport. If a traveler is traveling on five different airlines because you're buying by transaction, he has a more stressful experience every time he walks into the airport. The low-cost and specialty carriers have a very narrow niche in the market, limited scope, typically one product offering and no strategic or global alliances. You can go in and build a product line with these guys, but what you're going to end up with is a lot of suppliers who aren't really going to meet all your travel needs. Is that maximizing your total spend and your total savings? Is it doing a disservice to your travelers?
A lot of technology has been brought on line and [the question is] how do you integrate it? You've got procurement systems, and things like Prism that airlines have rolled out. We think part of this is [about] integrating all that technology with the systems you may have in house to come up with greater accountability and greater savings. Again, getting away from the transactional buying where a person with a desktop tool may be looking at a flight and says, 'I can save $20 on this flight,' but the travel manager knows--or would know if they had the proper tools--that that one transaction may cost them two points of discount in the next quarter. We [are] working with our partners at the global distribution systems and travel management companies to make sure these tools get in your hands, so you can maximize contract savings, as opposed to transactional savings.
It's good for you, because you're spending less money on travel, and it's good for me because I don't feel like I have to compete on every single transaction. There's an opportunity here to strip out supply-chain cost and to make life a lot easier for your travelers. It's stressful, and to the extent you can make it a little less stressful for the people who work for your corporations, we're all going to be better off."