ABB Plans Trio Of European Air Hubs
<B> ABB Plans Trio Of European Air Hubs</B>
By Amon Cohen
<I>Zurich</I> - Asea Brown Boveri, the globalized technology and engineering company, is planning to crown its ambitious travel cost reduction program by creating three air hubs on its home continent. ABB will strive to direct long-haul traffic to and from Europe through these hubs to leverage deals to an unprecedented degree with the airlines that dominate them.
The hub plan is one of several works in progress in a two-year program that already has saved ABB 23 percent on its travel budget, principally through an integrated strategy of a globally mandated policy, leveraging with fewer suppliers and initiatives to reduce internal processing costs. Other breakthroughs have included global deals with eight carriers, and a scheme to route travel requests through the group's Lotus Notes system.
Thomas Faller, group travel manager for ABB, is in the midst of negotiating special long-haul net fares to and from the three hubs, which he declined to name. The group already has net fare deals pitched "somewhere between excursion and full fare," according to Faller, with most of its eight global carriers. These are the three Star Alliance carriers awarded antitrust immunity to work together--Lufthansa, SAS, United Airlines--plus Delta Air Lines, Sabena, Singapore Airlines, Swissair and another Star Alliance member, Varig.
The hub net fare proposal will be a corporate reworking of a money-saving strategy familiar to many individual European travelers, which is the use of consolidated fares. Travelers flying business class from London to Johannesburg, for instance, can save around 50 percent if they opt to fly with Sabena via Brussels. Information taken from the ABB travel data warehouse will tell travelers which is the best hub to connect through for any given long-haul city pairing.
The downside is that travelers will have longer journeys. Faller, who is based in Mannheim, Germany, believes it is a sacrifice worth making. "It means our travelers will have to leave their office about two hours earlier, or arrive at their destination two hours later, but they usually arrive in the evening anyway," said Faller. "If they look at the savings, they will agree it is worthwhile."
"There will of course be exceptions. If an engineer needs to fly somewhere for a client emergency, then he won't have to travel via a hub; but we are concentrating on the 80 percent of travelers whose journeys would be within the rules."
The hub proposal is likely to push costs down still further for a group that has completely overhauled its travel management since a drive to reduce travel costs was ordered by the ABB executive board in 1997. The job was handed to Faller, 34, a German-born economist who also has worked in Spain, the United Kingdom and United States. Faller, who reports directly to the group financial officer, was tasked with forging a global travel policy and worldwide supplier agreements and leading an effort to leverage on volume.
ABB has 200,000 employees (although 30,000 are being separated into a joint power venture with Alstom), of which 80,000 are travelers. The group's annual travel spend is well in excess of $500 million per year, not surprising since ABB has dealings in virtually every country in the world, often in remote locations. However, 50 percent of travel is within Europe and 80 percent of the volume is accounted for by only 10 countries.
Setting a policy was the cornerstone of the new strategy and the same rules apply to everyone from top to bottom in every country. Basic tenets of the policy include rulings on selection of suppliers, such as using the same card (American Express), using only one travel agency per country (from a menu of American Express, Carlson Wagonlit Travel or Business Travel International) and using globally designated suppliers where possible, even for indirect flights. Other details also are mandatory but with relatively lenient conditions. For instance, flying economy is mandated only for journeys of up to five hours.
Any country wishing to opt out of an element of the global policy is welcome to do so--as long as they ask the CEO. Not surprisingly, this has been attempted only once.
On an individual traveler level, compliance levels have been transformed. Countries such as Germany and Switzerland used to have more than 80 percent of their travelers flying in business class. Now the same percentage is flying economy despite not only the status-oriented culture in those countries, but the fact that they are countries where there is little difference between business class and economy fares--unlike, say, the United Kingdom.
"What if--and this has happened--you have a novice employee from Switzerland and a senior executive from the U.K., both working for ABB, on the same flight?" asked Faller. "To be fair, you have to have the same policy globally."
Faller believes this egalitarianism combined with the strong mandate from the CEO and the overwhelming economic case have made the globally mandated policy acceptable to employees. He understands that travel ranks first as an issue of personnel sensitivities, along with company cars and office space, and that managers are being asked to defer to a central travel mandate even when they have autonomous responsibility for profit. "They recognize that wherever we have leverage as a group, we must use it," said Faller.
ABB stays in touch with employee sentiment through a seven-strong global taskforce, which meets to discuss travel issues. Combined, this septet represent 70 percent of the group's travelers. There are also full-time travel managers in five key countries and part-time travel managers (who have other supply management responsibilities) in another 35 to 40 countries.
The strength of this setup, and particularly the high compliance rate, has given ABB excellent leverage with suppliers. However, there have been battles with vendors along the way. Some airlines refused initially to negotiate on economy-class travel, leaving Faller no option but to threaten to take away their market share.
When it came to global deals, like many before him, Faller discovered that some carriers could not and others would not do business. "A lot of airlines don't have a global sales structure," he said. "Some also saw that this meant global pricing and they did not like it. However, what made it easier for us was that we have received loyalty awards from card and car rental companies for being their most compliant clients. If you can prove compliance, the airlines will listen to you."
Faller can prove compliance thanks to constant vigilance of the management information he receives. All three globally approved agencies have to supply their air data based on the same parameters, the main issues being total air spend, top 10 airlines, class of travel by region, average ticket price per region and method of payment. If compliance with preferred airlines is low on a specific city pair, Faller explains the potential savings to the relevant country managers.
ABB is one of the biggest Lotus Notes users in the world, with around 110,000 connections. The system also contains the travel policy, as well as information on designated suppliers, including the hotel directory.
By year-end, following a successful pilot, there will be an even more ambitious service on Lotus Notes. Travelers will use it to make an electronic trip request to their travel agents. The agent will respond on the system with an itinerary plus a range of options including the full and cheapest airfares, and the rack rate and most heavily discounted rate for hotels. Once the traveler makes a selection, the form will be forwarded to the line manager showing the best prices and the option chosen by the traveler. This will allow the managers to question travelers if they suspect there's no good reason to refuse the cheapest option.
Faller believes the transparency of this system will reduce purchasing costs, but he also thinks it will bring down process costs. After extensive studies, ABB has determined that its travelers take an average 7.5 minutes to complete a booking via a human agent. The company also piloted online booking systems and found that these actually took longer--an average 10 to 15 minutes of a traveler's time per booking. Add to this the greater cost of an ABB executive's time compared with that of a reservations agent, and Faller concluded there was no business case for introducing self-service reservations. The realization that an online system could not provide creative ticketing and that its lowest fare search capabilities were poor reinforced his conclusion.
In Europe, Faller decided the answer was to use Lotus Notes as a workflow rather than a reservations solution. Tests showed that the average transaction time for the traveler was five minutes, making electronic requesting quicker than human intermediation or online booking. The system will feed directly into ABB's back office travel management data and from there into the group's SAP R/3 accounting system.