<B> Big Buyers Benchmark</B>
<I>U.S.-Booked Air Volume Leaders Create Baseline Of Rates, Practices</I>
By Jay Campbell, Mary Ann McNulty, Maria Vallejo and Sarah Welt
<i>New York</i> - About half of the nation's 100 largest travel-buying corporations gathered last month to set benchmarks and found some fascinating insights into the state of travel management and negotiations with air, hotel, travel agency and corporate card vendors.
The majority of the group reported having shifted from profit to cost centers, an intent to adopt automated booking systems by next year at the latest and the adoption of flat airfares. A large percentage also reported an average travel transaction cost of more than $45 and an average hotel discount of 21 to 30 percent off standard corporate rates.
Business Travel News' first Corporate Travel 100 Benchmarking Summit, held in conjunction with Corporate Travel World last month, was designed to set baseline benchmarks. More than 50 of the companies that appeared on the Corporate Travel 100 list in the past few years were represented, though only one from each company input data. Last year, the Corporate Travel 100 was comprised of buyers with 1997 U.S. booked air volume in excess of $38 million (<I>BTN,</I> July 6, 1998).
In the booking arena, the transaction cost benchmarks showed that already-high costs are still on the rise. The lowest per-transaction cost category reported by any respondent, $25 to $30 per transaction, was cited by just 20 percent as their 1998 cost. And the number of companies holding the line there fell in 1999 to only 12 percent, a 40 percent decline.
At the high end, though, buyers appear to be getting their costs slightly in hand. The greatest percentage, 36 percent, paid "more than $45 per transaction" in 1998--but in 1999, the number paying top dollar fell to 32 percent.
Perhaps not surprisingly, given those figures, 100 percent of attendees said they intend to automate some of the process by rolling out an electronic self-booking system by next year, if not before.
That's precisely what Allied Signal has done, said travel and site services director Jim Lee. While the company fell into the "over $45" transaction-fee bracket in 1998, it this year has cut its cost to between $36 and $45, thanks to "a series of productivity measures that allowed us to reduce the call volume to our travel center." Among these was the use of online systems that allow travelers to book tickets themselves, or at least to search the schedules and choose a flight before calling an agent. Allied Signal also spent a great deal of time focusing on reducing call times, Lee noted, finding that "it's not really a value-add to recap reservations."
Chevron Cos. in San Francisco has lowered its average transaction fee from $51 in 1998 to $50 this year by reorganizing staff and removing some specialty positions, said corporate travel manager Nancy Godfrey.
But Valerie Cordell, corporate travel director for Oracle Corp., questioned whether respondents were using the exact same data to figure their transaction cost. "I have a hard time believing people are paying less than $35," she said, suggesting that some buyers are not including the overrides generated by their accounts that they allow their travel agencies to keep.
Indeed, the practice of allowing agencies to keep a corporation's overrides and commissions in return for a rebate check is falling out of favor. The majority of attendees (57 percent) operate their travel departments as cost centers, while 43 percent are still considered "profit centers."
Allied Signal has been a cost center for the past four years, since shifting to a management fee with American Express, Lee said, and charges back the cost of travel management to individual business units.
Chevron also went the cost-center route three years ago, and is now "72 percent net" of commissions, Godfrey said.
Meanwhile, if the 100 percent interest by the CT100 is any indication of the total market, online booking systems better brace for a banner year. Thirty-two percent of respondents already are using such systems, and another 43 percent currently are testing one or more. Eighteen percent will try a product before the end of the year, and the remaining 7 percent will give developers until 2000 to perfect their offerings before taking one for a spin.
Among the testers is Memphis-based Federal Express, which is trying American Express' AXI for the next three months and also plans to test Worldspan's TripManager this year, said corporate travel manager Deborah Wilson.
Not surprisingly, Oracle, which last month acquired E-Travel (<I>BTN,</I> March 22), is beginning its implementation of that system. Its first group of 250 users got the system last week, and the company hopes to have all 20,000 employees on board by May 30.
Allied Signal also will adopt an online booking system by mid-year. It has been piloting AXI while also evaluating other tools, and has narrowed its search to three systems. Whichever it chooses, "our goal is to get 20 percent penetration by the end of the year," Lee said.
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Some of the 49 buyers comparing their airline purchasing data at the benchmarking conference noted that in 1999, more of them are getting the big discounts and fewer of them the little ones.
The discount numbers, which include both front- and back-end incentives, are a reflection of the immense variation in corporate travel patterns and practices. "Discounts seem to have increased, but this is partly a result of airlines making corporations whole after lowering commissions," said Anton Bronner, chief of travel and transportation service for the United Nations. "So while a lot of people are showing higher discounts, they're not necessarily indicative of lower prices. And those discounts could be offset by higher agency fees."
In addition, Bronner said, discounts are typically based on a moving published fare that can quickly rise. One solution to that problem is flat city-pair fares, which more than half of participants said they already have negotiated. In 1998, 53 percent said they had flat fares on domestic routes only, 4.4 percent said they had them only on international routes and 13.3 percent said they had them on both.
Twenty nine percent said they had no flat fares in 1998--a number that dropped to 25 percent in 1999. This year, more corporations that had flat fares only on domestic routes are getting them on international routes as well, as the domestic-only category dropped to 48 percent and the combined group increased by over 7 percent. The number of buyers with flat fares only on international routes also increased slightly.
"We looked at flat fares, but I don't find it to be rampant out there," said Armand LeCompte, director of aviation and travel services at the Hoechst Corp. in Bridgewater, N.J., though more of the CT100 are using flat fares than he had expected.
The figure also surprised Joyce Bembry, manager of business travel services at Wilmington, Del.-based Du Pont. "The airlines like you to think you're the only one getting these things," she said. "To me, a percentage discount is a foreign concept in purchasing. If you have predictable and routine traffic patterns in certain markets, you should have prices, not discounts."
But some buyers warned that flat fares can be a gamble: If a low-cost competitor enters a market, the published fare can drop to below what the company has negotiated. "That's the risk," said Colleen Guhin, Motorola's global travel manager. "So, you just try to negotiate low enough and have some clauses to adjust to the market changes."
The benchmark set by the group on airline alliances also yielded some surprising results. Only a third of participants (32 percent) said that more than half of their 1999 air spend will fall under alliance agreements--a 25 percent increase from the 24.4 percent that gave alliances the biggest percentage of their air spend in 1998. In both years, 5 percent of the companies said that over three-fourths of their spending went to alliances. In 1998, 39 percent said, they did no business at all with alliances; that figure dropped to 34.1 percent in 1999. "It's not hard to do--in doing business with American Airlines, for example, you're automatically including Canadian Airlines," said Guhin. The same goes for KLM and Northwest.
Then again, noted Bronner, alliances may be less interested than individual airlines in the fragmented business of buyers that do not have high volume concentrated in a small number of city pairs, like the United Nations (<I>BTN,</I> March 22).
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On the hotel side, the Corporate Travel 100 attendees set a discount benchmark for negotiated hotel programs of 21 to 30 percent off average corporate rates, even as they clashed in their opinions of the standardized electronic requests for proposals.
Almost two-thirds (62.5 percent) said they realize savings of 21 to 30 percent off standard corporate rates from preferred properties. "That's about normal for anybody that does a good job in negotiating," said Sara Isaacs, senior associate of travel systems for PricewaterhouseCoopers in New York. "Anything lower than that, they're not trying or they don't put a lot of volume into those properties."
While 3.1 percent said they receive 31 to 50 percent off published corporate rates, others suggested such savings are possible only outside major cities. "If hotels have a city forecast to run at high occupancy for a year, you can't get 50 percent off corporate rate," said one travel manager. Another suggested that companies that outsource their hotel programs may not understand their true discount.
In addition to price, last room availability was an issue in hotel negotiations, with 51.4 percent saying their rates apply to the very last room in more than 80 percent of preferred properties. "It is difficult to negotiate," Isaacs said. "In most of our deals, especially the global ones, we stress the need for last room availability and accept slightly higher room rates for that concession."
Moving into a discussion of standardized electronic RFPs, the majority of buyers agreed that automating the tedious process is worth the effort. More than half (51.3 percent) plan to use the standard form endorsed by the National Business Travel Association and the Association of Corporate Travel Executives, while only 8.7 percent do not.
PricewaterhouseCoopers will continue using the electronic version, albeit somewhat reluctantly. "I would have liked to have used a customized version, but it's very difficult for hotels to break the mold when they already prepopulated those forms for the basic data," Isaacs said. "Asking them to do anything different is like asking for the moon."
Instead, she noted, she will cut the number of RFPs being sent out, sticking more with existing vendors and focusing on rate negotiations only. About 90 percent of the hotels that provided electronic data last year will not receive a full RFP.
"We're not going to send out many forms because my hotels did not change much. We'll be requesting rates instead," Isaacs said. "If there are a few questions that are not on the standardized version, we'll include them in the request for rates forms."
Wal Mart Stores Inc. travel services director Rick Johnson agreed the standardized form does not quite meet its needs. "We're considering it, but it has a lot of information we don't look at," he said. "I think we'll customize it."
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More than half of the 15 corporations responding to the Corporate Travel 100 card questions said they are receiving paper reports, while 23 percent dial in to get their data, 15.4 percent use magnetic media and 7.7 percent get their data over the Internet. Just 20 percent of respondents said they have vendor-provided software that allows them to run their own reports.
On the global front, 45 percent said their companies have global card programs, while 55 percent have domestic only. More than three-quarters said they've used their current vendor for more than three years, with just 8 percent using the vendor for one year or less. Nearly three-fourths also indicated that they rely on their card program to replace company-issued cash advances. At these companies, travelers either use the card for business expenses or to get cash advances from ATMs.
Despite vendor development of reporting software that allows users to analyze their own data any time they want rather than waiting days, if not weeks, for custom reporting, more than half said they're still receiving reams of paper. "Although the card companies have made great strides, I'm not sure they are where they need to be for very large volume clients," said Jack Witherspoon, travel manager for Electronic Data Systems. "Many of their automated products work well for accounts of $10-15 million, but not for $50-100 million."
Only two of the 10 companies that participated in this segment of the CT 100 benchmarking said they even had vendor-provided software that allows them to run their own reports. One reason, noted Anne Kelly, newly named travel manager for Deloitte & Touche, Wilton, Conn., is that corporations rarely have someone on their staff with the time and skills to use the software, as Deloitte now does. Searching on her own for some data, Kelly said it took her a few hours to compile the information she needed, where it would have taken weeks had she requested a report from her vendor.
Another factor, suggested Leni Tamboer, travel manager for Chase Manhattan Bank in New York, could be that corporations are unwilling to pay for such software. As a card issuer, Chase gets all its reports electronically, and it takes Tamboer just five minutes to access the data she needs, she said.
While many CT100 companies have global travel management programs, only 45 percent of respondents have global card programs. Fifty-five percent have domestic programs only.