Air RFP Tools Rise

<B> Air RFP Tools Rise</B>
<I>Software Entries Offer Anti-Yield Management Systems</I>

By David Jonas

New software products and services that give buyers an opportunity to model their air programs and identify cost saving opportunities prior to negotiations with airlines are appearing in the marketplace. These systems--like offerings from some travel agencies--can serve to counteract the airlines' yield management systems and arm travel managers with a new tool in the RFP process.

"With yield management, who says it can't work the other way?" asked Bob Langsfeld, consultant with Corporate Solutions Group.

At least two new products, Tango from Travel Analytics and Air Program Manager from Travel Procurement Solutions, have been in beta tests (<I>BTN</I>, June 21) and now are on the verge of public rollouts, while industry insiders suspect others are on the way.

"You'll see more products like this coming to market because the need is immediate and benefits are clear," said Travel Procurement Solutions' vice president of marketing Chris Miller. They will have a profound impact on the way travel is managed and offer an enormous potential for cost savings."

Furthermore, suggested George Odom, manager of travel and corporate meeting services for Eli Lilly in Indianapolis, more knowledgeable and prepared buyers mean more meaningful partnerships with vendors. "With this type of technology available, you can move away from an adversarial relationship with your suppliers and toward a working relationship," he said. "You both have the data, so there is no sense of mistrust."

Tango, from Travel Analytics, currently is being used as an outsource service by a few beta customers and is expected to be available on the desktop by the first of the year. The company said that the product can "provide enough negotiating power to result in savings of 5 percent or more on a company's total air spend."

According to Scott Gillespie, principal at Travel Analytics, Tango calculates market share for city pairs, tests assumptions and builds multiple scenarios. "The software calculates revenues to airlines and determines how much you'll spend based on your O&D," he said.

Gillespie said at least four clients with air spends in excess of $10 million have used the service and are "quite happy to have us do the number crunching." The corporation provides O&D data and fare mix.

Deere & Co. also has employed Tango to help with the airline RFP process. The Moline, Ill.-based company ran a beta test of the product earlier this year, and supply management specialist Tom Yates said that the information generated by using the system would have otherwise been difficult to come by. Yates added that while negotations still are ongoing with the major airlines serving Deere's North American enterprise, he expects to see savings in this round.

Travel Analytics claims Tango can trim several weeks off contract negotiations. The product's site (www.travelanalytics.com) advertises the outsource service for $12,500, which analyzes 200 city pairs. Additional city pairs are priced at $55 each. The desktop version, when available, will be priced at $18,500.

Gillespie said that a few airlines also are interested in Tango to help them understand how they can bid more effectively on corporate accounts.

Air Program Manager, available through Travel Procurement Solutions, also is being used on an outsource basis. The goal is to analyze the entire life cycle of an air program, beginning with strategy development, working through the negotiating process and including the management and tweaking of the program after the contract is signed. The first of three beta test customers will begin a pilot on Dec. 1, with a wider rollout expected by the first of the year.

Eli Lilly's Odom is one buyer working with TPS to develop the product. "We're interested in managing our spend and appropriately moving market share," he said. "TPS helped us look at shifting volumes, and even though at this stage for us in particular it only formulates 'What ifs,' those are still very important, especially when you have numbers backing them up."

Clients will access the program via the Internet while the system application is operated at the Travel Technologies Group service bureau in Dallas. According to Barry Rogers, senior vice president at TTG, that setup eliminates any IT concerns that clients may have. "The processing we do in running scenarios produces a massive amount of data," he noted. "It's not the sort of thing you would want running on the desktop."

"Airlines have ever more sophisticated modeling techniques of their own," Miller said, "and our product offers the right capability at the right time." He added that in the current environment, "you need to treat carriers as combinations and find the combination that best fits your need by running a number of scenarios."

Air Program Manager uses an electronic feed of OAG data loaded on the back end and cleans it by adjusting for missing segments and making other corrections. TPS also provides training and support for the product and said a company can be up and running "in as little as three weeks." Price depends on specific corporate needs.

"We provide advanced decision support capability, but that must be combined with the travel manager's in-depth knowledge of his or her own program," Miller said. "The greatest mistake is to assume that this sort of analysis is simple." He noted that several Corporate Travel Departments accredited by the Airlines Reporting Corp. have shown interest, and consultants too, "will embrace these tools that promise better insight and a more efficient process."

Agencies also offer similar products. Rosenbluth pioneered the concept six years ago with Dacoda, which now has 35 clients totaling $2 billion in air sales. "You want to be a price maker, not a price taker, and to do that, you need information and tools," said Danamichele O'Brien, Rosenbluth's chief travel scientist. "Reverse yield management tools level the playing field."

For example, Whitehouse Station, N.J.-based Merck & Co. uses Dacoda to model 70 percent of its total air spend. Last year, the company saved 10 to 15 percent off its overall air expenditures of $72 million.

"This sort of product gives us a knowledge base and puts us in a more comfortable position when sitting across the table from the airlines during negotiations," said Lisa Meehan, director of travel services at Merck. "It helps us demystify some of the data and the drivers of that data, and lets us know how far we can push on certain city pairs and when to hold back."

Dacoda has yielded similar savings for Ft. Smith, Ark.-based Beverly Enterprises. The healthcare service provider slashed about 8 percent from its annual air spend of $8 million. "In order to make my negotiating stance stronger with the airlines, I need a backup," said Charles Bell, director of transportation. "Airlines recognize Dacoda for its strength in supporting the strategy I am trying to use in order to reach my contract goals."

Jack O'Neill, vice president of airline partnerships at St. Louis-based Maritz Travel, said all mega agencies, including Maritz, help clients organize data for negotiations.

"The airlines increasingly express city-pair share goals, fine tune their contract measurement systems and expand specifics of contract performance expectations," O'Neill said. "That begets a trend of clients wanting and expecting their agency partners to get more sophisticated with their analytical tools." He added that the desire for such help is clear, but willingness to pay additional for the service is not, and that is the real test with these products.

Still, there is a concern in the industry that agency offerings are influenced by override arrangements with the airlines. "There is a potential for conflict because there is value and return provided to the agencies by suppliers," Langsfeld said. "If I were managing an agency, and there was something that was beneficial to me but detrimental to the customer, it would be quite an issue."

O'Brien dismissed such concerns. "The Dacoda system optimizes a corporation's spend above and beyond anything else," she said. "It has never been anything but an advocate for the client."

O'Neill also said overrides do not preclude an agency from looking out for its clients' best interests, and instead merely are another factor that needs to be integrated into the equation.

Meanwhile, at least a few agencies have considered using Tango to help their own client negotiations. "They see using third-party software to evaluate options in an unbiased manner as a competitive advantage," Gillespie suggested. "There's a fairly large shadow over all agencies with overrides. Here's how they can get out of that shadow."

Meanwhile, there is speculation swirling regarding a potential patent infringement of Dacoda by Tango. "Our attorneys are looking at these products now to see if there are legal issues," O'Brien confirmed.

However, Gillespie said such allegations are unsubstantiated. "My understanding of Dacoda is that it's a linear optimization program and nothing in our approach or software uses any of that," he said. "It's completely different."

Nevertheless, the fact that there are more than one of these products that essentially play the same role--an enhanced negotiating tool for travel buyers--underscores the desire of striking back at the airlines where they live. "For the airlines, yield management is their pride and joy, and their lifeblood," O'Brien said. "And we have a product out there saving clients a heck of a lot money.