CWT's McKinney Frymire Leans Into Recapitalization & Recovery

CWT announced last week that it would file a prepackaged Chapter 11 bankruptcy in the United States. The company in a statement positioned the move as a formality within the overall scope of its recapitalization, announced two weeks prior, that would allow the company to move more quickly toward financial stability. BTN Group editorial director Elizabeth West interviewed CEO Michelle McKinney Frymire at the Business Travel Show America virtual conference on Sep. 23. The two spoke at length about the recapitalization. An edited excerpt of that interview follows below. CWT would not provide an updated statement from McKinney Frymire regarding the bankruptcy filing. 

CWT CEO Michelle McKinney Frymire talks...

• CWT's recapitalization
• How CWT is using recovery paradigms
• TMC commercial models
• How CWT will invest in innovation

BTN: You took the CEO reins at CWT in April this year. Why was this the right time for you, and was the pending recapitalization process a situation in which your prior CFO role really allowed you, specifically, to serve effectively?

Michelle McKinney Frymire: For the year before I took over, obviously we were deeply embattled fighting the pandemic and the whole industry was tremendously impacted in that year. I was serving both as the president and the CFO. I had an opportunity to be in front of clients a tremendous amount… [and] I was running our strategy team. I had an opportunity to think about… how we could transform ourselves in the midst of [the pandemic] and what we needed to look like coming out the other side. Those were all things I was leading and that really positioned me to look at the company as a whole—to look at our strategy, to look at where we were going and to look at where our industry was going. I do think those things gave me a unique view that allowed me to have a much broader view and interaction with the company and our board in a way that maybe a traditional CFO role on its own might not. I had had a breadth of experiences that prepared me for that president role and from there [the CEO role] seemed like the natural next step. Working through recapitalization is a very arduous journey, and it's one that has taken tremendous amount of effort from the entire organization. But based on where we are and what we have ahead of us, it's been so worth it. 

BTN: How does the recapitalization reposition CWT in the marketplace? 

McKinney Frymire: It's such a vote of confidence from an enormous portion of our investor base about how they see us and our strategy and our management team. When over 90 of your debt holders want to recapitalize your business [and] want to invest, it really tells you how they feel about how we've positioned the company and the work we're doing and the work we want to do. But for us and for our clients and our suppliers and our partners, it's about accelerating innovation. It's about being able to move beyond the pandemic focus and the cost maintenance and the multi-year recovery and into the future. Every TMC big or small has had to manage through an incredibly difficult period. Any business that loses 80 percent of its revenue—or more for some—they have to think differently. We wanted to ensure that even for a multi-year recovery that we had adequate liquidity, that our balance sheet was strong and that we could make the right investments. That's what [the recapitalization] is positioning us to do. 

BTN: Does the Carlson family stepping away from having a majority stake change the culture of the company in any way?

McKinney Frymire: One of the things we've been really strong and vocal about is that at CWT we have this rich shared heritage with [the Carlsons]. We have shared values and we have shared perspective, and they have been a part of the business for a very long time. They remain incredibly supportive, and they've been incredibly supportive through this process. They absolutely want what's best for the business. But our values are our values. Just because ownership is changing in some construct, it does not change our values. Our strategy is our strategy. The ownership change is not about changing our strategy or our purpose or our values; it's about giving us the financial strength to deliver on our strategy and our purpose and our values. 

BTN: You've talked about how innovation is where we need to focus. How are you looking to invest—whether in people, technology or even regionally?

McKinney Frymire: People-plus-technology has been our strategy for five years. It remains the focus of what we're doing, and we're investing in both. On the people front, it's about ensuring we have the right resources in the right places to serve our clients as the recovery happens, and it is happening differently in every part of the world. We all know that and see that, and we want to be positioned to manage through that recovery as we need to in each part of the world. But we also want to make sure that we're giving our people the right tools [and the right] technology. We've rolled out an entirely new travel counselor platform during the pandemic that really allows us to deliver on that omnichannel experience. We're also working on developments around MyCWT and what the traveler experience looks like. We're also continuing to invest in data and analytics. We know that is super important to so many of our clients—not just understanding the data and having access to it but how can they look at it how can they analyze it real time. Of course, RoomIt continues to be a huge part of our strategy and we'll continue to invest there. 

BTN: You made a huge investment in China just prior to the pandemic—I presume that is going relatively well with domestic business travel recovery in that region.

McKinney Frymire: China continues to be a great market for us. You're right about the recovery—China has had many weeks in the last year where their recovery is a hundred percent of 2019 or more. So we are absolutely going to continue to invest there. We're really pleased with the response and reaction we've had to the MyCWT China platform. It's very exciting and it's a great opportunity for us. I mean, it is the world's largest travel market, and we want to continue to serve clients in an innovative way. We've learned a lot by the platform, and those lessons are really applicable to how we develop for clients globally as well. 

BTN: When TMCs want to innovate quickly, acquisitions often come into play. We've seen a lot of M&A in the TMC space recently, but CWT has not participated. Will that change with the recapitalization?

McKinney Frymire: We would certainly take advantage of a great opportunity if we felt there was one that was really impactful. But I would say it's not a purposeful or intentional part of where we're headed. A lot of the M&A activity you've seen is about coupling people with technology. And, again, we've had a people-plus-technology strategy for five years. You can do that in one of two ways: you can go out and buy things and then do the heavy lifting of integrating and trying to bring it all together in a cohesive way for your clients or, what we have been doing and what we want to continue to do, is invest in our technology staff and bring it together. 

We already have the biggest owned operating footprint of any TMC. We operate in 45 countries with CWT staff and employees. That's more than anyone, so we don't need to grow our footprint. A potential acquisition would have to be something more impactful, something where you were gaining a real technological advantage. We're, of course, always looking at the landscape and thinking about how we want to participate. But we're also very thoughtful about money invested in M&A is money that's not invested in the technology-plus-people strategy. It's not that M&A is bad or good. It can be great, as long as you do it thoughtfully. I will tell you, I came from a background … where we did 75 or 80 different acquisitions so I've lived in that space and I know how valuable it can be. But we also know that integration takes time, effort and resources, and we want to make sure that if we do it, it's in a way that's really going to be additive for the client.

BTN: Has CWT, like many TMCs, been looking to move away from transaction fee models due to the risk position these models force upon agencies? 

McKinney Frymire: We have been testing and implementing innovative pricing models for our clients. Every client has a different set of needs, a different dynamic around their global servicing model. We have a significant number of clients who are on a management fee, where they've got a set number of resources. We've got clients on a combination of the [management fee and transaction fee]; we've got clients on transaction fee. My worry about the transaction fee is not that it exposes us to risk. My worry is that we align our cost structure and our servicing model to be more variable—to be able to move up and down with volumes. Even in a pre-pandemic environment, this business was very seasonal. We all know what happens in August and December. You have to be able to staff around that. Our large global servicing centers can very readily flex our staffing and really work around the different volumes presented by clients. There are fixed-plus-variable models of pricing that have proven interesting to clients. I've seen simplicity in pricing being really important to clients and we have done a tremendous amount of that. Almost every client we've renewed, we've introduced simplified pricing models. Really getting away from the 40 fees—and 40 different fees in all 100 countries that you travel in. I don't think that's what people want. They want is something that's easy to understand, easy to implement, easy to invoice and easy to manage. They want to know what the travel program is going to cost, so we have worked to do a lot of innovation there. 

BTN: CWT has had some client losses and gains in the past year. What conversations are you having about client retention and pursuing new clients—and how is request-for-proposal activity?

McKinney Frymire: I think everyone in the industry recognizes that you're always winning and losing clients. We have been really pleased to maintain our very high mid-90 [percent] client retention rates that we've had for years, despite a lot of the speculation about financial stability. We saw RFP activity was much lower at the end of 2020. Going into 2021 we've seen it come back—maybe not fully back to where it was pre-pandemic but definitely returning. We've had a lot of great successes with our existing clients and thinking about how to help them modify their programs. We recognize it's a competitive market and we have to prove ourselves every day. So do our competitors. We feel great about the conversations we're able to have with clients now that we've gotten the recapitalization agreement. We're able to say, "Listen, let me take this worry off your plate. Let me walk you through what we're doing [and] let me help you understand how much liquidity the business will have [and] how strongly it positions us." When clients have that question mark, it's hard. What we've done through the hard work of this [recapitalization] process is to be able to remove that question mark.  

BTN: What recovery models is CWT working with as business travel begins to emerge from shutdown?

McKinney Frymire: We are believers that this is a multi-year recovery. Because we're thinking about liquidity and investment, we have taken a fairly conservative approach to our recovery projections. That's been good for us because it also means over the last three or four months we've been exceeding those projections. For staffing, we take a slightly more aggressive perspective. We look at volumes a little bit higher and a little more aggressively because if I think there's going to be a significant uptick in September, I need to be preparing for that in June and July. You're going to bring people back to full-time … or maybe they've got to do some retraining. So we do use multiple scenario models. We have an internal long-range projection that goes all the way through 2024. We think every month how did data come in, how did we do against the competition, how is business travel recovering versus travel as a whole? Also, what does all that mean to our forecasting—does what we learned this month change what we think about next month or the next three months or the next three years? We have a regular process by which we do that, and we don't just look at our own data we look at [external] information. The large strategic consulting firms like McKinsey and BCG have done phenomenal work in this space, and we look at what IATA is saying and at the GBTA surveys and other polls. Most importantly, we hear from our clients. We have the greatest database of people to draw on to ask about the recovery—the people actually doing the traveling. We've done a number of client surveys. 

BTN: What are you seeing?

McKinney Frymire: I can tell you what I'm seeing right now in real time is that there has absolutely been in the last 30 days a meaningful step up in business travel. It's really exciting for the business and it's not just in one country it is in multiple countries. That said, it is a highly varied recovery. There are countries like India where the human suffering has been tremendous, and the recovery of business travel is going to lag there. There are countries like the U.S. and France that are definitely leading the way, and certainly China. So we look at it at a pretty granular level not just by region and country but by segment industry segment. 

BTN: Do you see any commonalities among the successful first-movers?

McKinney Frymire: You can clearly see that is coupled with vaccination rates. Our No. 1 goal for our employees and our travelers is that they're safe, and we believe that safety comes with being vaccinated. So we just keep encouraging [people] to do that and know that it'll be a part of the recovery.