Carlson's Gourio Sees More Fees, Pan-European Deals
<FONT SIZE="+3">Business Travel Europe
<B>Carlson's Gourio Sees More Fees, Pan-European Deals</B>
<I>Herve Gourio, co-president and CEO-Europe of Carlson Wagonlit Travel, spoke recently with </I>BTN<I> editor-in-chief David Meyer about pressing issues for European corporate travel buyers. Topics included using satellite ticket printers across European borders, low-cost carriers, pan-European air deals, converting to fees and net fares, intranets and Carlson Wagonlit's European reengineering plans.</I>
BTN: What is the effect of the new IATA cross-border ticketing regulations?
Gourio: There is no European market as far as air travel is concerned. You are just beginning to have access, so there is no single market-only in certain areas. IATA has issued a nice piece of paper that says you can issue cross-border tickets, but what is the power of IATA? Each IATA rule is followed by a clause that says, "subject to government approval."
BTN: Are governments taking this seriously?
Gourio: We have tests going on at the moment with EU. When you have a cross-border STP, you need to know what the currency is. In France, we don't have STPs at all. It's a protection of the local market. In Europe the travel agency market is not as concentrated as in the United States. The local associations of travel agencies see the introduction of STPs as something that endangers them. In France and Spain, STPs do not exist. There's no law against it, but the bank settlement plans don't want them.
BTN: How much will low-cost carriers affect air competition in Europe?
Gourio: What we have seen is that they can have a huge impact domestically. In France and Spain and Italy, we are seeing carriers who are playing the same kind of game that has been played in the United States, and very effectively. They have a competitive advantage in that they have a lower payroll and none of the constraints of state ownership. They are beginning some movement internationally, but international business travel and leisure travel still are very separate in Europe.
BTN: Are we getting into a phase now when it is possible to negotiate multinational air deals in Europe?
Gourio: Yes, but not enough corporations are even combining two markets to leverage their volume on a certain city pair. When you are thinking of combining three markets, it becomes very difficult because you don't have the kind of competition you have in the States. When you operate in Frankfurt, London and Paris, there is hardly an airline which has a strong market share in the three markets. BA begins to belong to that category because, as they say, the Charles De Gaulle Airport in Paris is their number-two airport. But there is no BA service between Germany and France. But still, there is the possibility to choose two airlines instead of three. There is a huge opportunity here.
BTN: What about the alliance between Delta, Sabena, SAS and Swissair? Is that link making such negotiations more possible?
Gourio: They are not working very closely together. It is the beginning of a financial relationship that could help create a choice for corporate customers. As a consequence of having fewer choices in Europe, companies have less opportunity to leverage their buying power. When it comes to internal procedures and policy, however, Europeans are not lagging behind U.S. companies.
BTN: Have you seen a marked increase in pan-European bids?
Gourio: Very much so. We have on our desks today between 15 and 20 different bids at various stages of the RFI-RFP process. That's double what it was three years ago.
BTN: What's the potential from here?
Gourio: Great. Now it's become a real snowball effect. Before, it was just the American subsidiaries in Europe that were pushed by headquarters toward consolidation. Today we see companies headquartered in France going through a pan-European bid process. And the level of sophistication has increased. The larger companies consolidated nationally in the late 1980s. Now between 50 and 60 percent of companies are consolidated nationally. Pan-European, we are talking about perhaps 25 to 30 percent of companies.
When all this started on a pan-European basis about five years ago, the reasons why were quite different than they are today. Today, they are even more accelerated by the technological push. What will drive it further is price competition-airline deregulation. Two factors will contribute: Open currency, if that can be established, will bring more price comparisons, and the consolidation of the airline industry. If the British Airways-American Airlines alliance will come through, as I think it will, there will be a lot of constraints on them, especially in the U.K., so that will really restructure things.
BTN: Do you think there is going to be an international commission cap this year?
Gourio: No. I never believed there would be one. There is less consistency in the European market. We expect instead more domestic price wars. In Italy and in Spain there are incredible price cuts for domestic flights. What we see is a commission erosion. The airlines are looking to cut their costs, but I don't think they will do it the same way as the U.S. airlines did it.
<B>BTN: </B>Are European companies looking to convert and going to a fee basis?
Gourio: Yes. Because it is erosion rather than a cap, it makes it a little more difficult to sell the concept of fees. Still, because it is so sensible to go that way, corporations are beginning to do so. Depending on the country, I would say we have between 20 and 60 percent of our customers going to fees; it's about 60 percent in the U.K. On average, I would say about 30 to 35 percent of our clients have them right now. And here we're talking about a management fee as opposed to a transaction fee.
BTN: Are net deals being negotiated in Europe now?
Gourio: By the large multinationals, yes. It has been going on for a while, but it's growing. It's becoming more up front.
BTN: How many of those deals are now in place in Europe?
Gourio: Our major clients all have net deals, either negotiated by themselves or with our help. Ninety percent of our largest clients have special rebates directly from the airlines. So the difference between a net deal and a special rebate from an airline is not that great. The rebates at the end of the year are becoming up front-which equals a net deal.
BTN: Will you begin helping European companies build intranets soon?
Gourio: I would say immediately.
BTN: Will they have the suite of Carlson Wagonlit products?
Gourio: Yes. We began beta testing four clients, including Whirlpool, in September with some of our new products.
BTN: It seems that the greatest interest in the market is for the expense management piece because people can see the return so clearly.
Gourio: We have seen the same thing.The average expense report costs about $100 to process, and if you automate that, it could cost anywhere from $37 to $50. In Europe, because there is less policy compliance today, companies prefer to go through a self booker that is an e-mail product rather than a direct connect to the CRS.
This is linked to the airfare situation because it is harder for us to see on the screen which is the best. Agents need to be trained to think of alternatives. There are a certain amount of negotiated airfares in the market. But yield management has not been developed in the same sophisticated way in Europe as in the United States.
BTN: For Columbus, the Carlson Wagonlit reengineering project for Europe, are you designing an e-mail connection to the same front-end system that is being used by Carlson in the United States?
Gourio: We put part of the Magellan experience into Columbus and now we are putting the two together. We have not finalized plans for Columbus, but 70 to 75 percent of what we are going to do is going to be the same.
BTN: When will those systems be installed in European companies?
Gourio: Maybe just a few months behind the States. The front-end system will be installed in 1997 or early 1998. All of these systems will be installed in European companies by the end of 1998.