Cobbling Business Travel Purchasing Into Packages

<B>Cobbling Business Travel Purchasing Into Packages</B>

When I was a young man in 1322, we used to go to our local cobbler for shoes. We would tell him if we preferred leather or wood--sometimes metal for when we had to go on Crusades. He (it was always a "he" in those days) always had a few samples to show at various prices. After I selected my favorite style, he then would measure my feet by sticking them in a mold full of wet clay. I would wait until it dried. He would split the mold and help me wash my feet. About three weeks later, I would come in and hope that my feet hadn't swollen so much that my new shoes didn't fit. If they were made of wood, he always could take a knife and carve a little, or, if they were made of hide, he could soak them in whiskey or rum and they would stretch nicely. He always told me in advance what my shoes would cost and I always paid him, not for materials of which they were made, but for shoes.

When my cobbler wanted to increase his margins, he bought leather and wood in advance when hides were lower priced and harvested wood was also plentiful. He had to warehouse his stock, but he could be sure that his price permitted that desired margin.

My cobbler did very well for awhile, but around 1500, some entrepreneur decided to make shoes without orders, in various sizes, and then peddle them to people who wanted their shoes in a hurry. My cobbler then went into a repair business, complaining that his former customers were paying extra for shoes that probably did not fit. Nobody cared. I now buy shoes that were mass produced.

Today, when I want to take a business trip, I go to my travel agent who orders the equivalent of leather or wood--air transportation or ground transportation, or both--plus the equivalent of innersoles--lodging and meals--and assembles a nice trip.

My agency has consignment from airlines through use of the CRS and can take my money or charge card right away to confirm my flights, but must order other services by phone or CRS, and I must pay for those when I get "there." Unfortunately, my travel agency cannot tell me how much any of these components costs until she (travel agents seem to be mostly "she's") orders them from her real-time CRS catalogue, because prices change all the time.

Now, when I want to go on vacation, my travel agency can give me a cruise--transportation, lodging, meals and sightseeing--all packaged together with a combined price as much as a year in advance.

If I want the equivalent of shoe-buckles--say, an outside cabin--my cost will be higher. The same is true with a package vacation: Somebody did the planning and pricing so I could pull a brochure off my agency's rack and say, "This is exactly what I want. Book it."

Business trips are theoretically corporate procurement items; that is, they should be acquired as simply as possible, and like most corporate purchases, should be at assured pricing levels.

We know that few corporations today have guaranteed fixed fares or even truly fixed hotel rates. About the only prices they can depend on are domestic car rentals and those are national "blended" rates, often higher than market on a given day or given location.

<B>Manufacturing Travel</B>

Trip packaging at fixed rates for each component is essential for business travel. Travelers should not have to make multiple separate purchase transactions every time they plan to go somewhere. Whether described on paper or delivered on a computer screen, pre-planned itineraries, priced, well-detailed with maps, dining suggestions, tips on local transportation options and other destination-specific information should become a business travel standard.

As with my cobbler's successors, either travel agencies or suppliers or travel managers or independent entrepreneurs should be buying components at risk and manufacturing trips in advance when they know that demand will continue.

Travel agencies can review their clients' city pairs in aggregate, noting on what weekdays and seasons demand is most frequent. Then, they should ask their accounts how flexible they might be in adapting demand to value, that is, whether or not travelers would schedule appointments to take advantage of lower costs on air, hotel and car rental. Pre-purchasing at risk should achieve savings of as much as 11 cents a mile on airline trips--about 33.3 percent less than what large corporations now pay, even with discounts.

On lodging, similar savings can be assured if demand peaks are flattened. Even car rental, where one-day rentals beginning on Wednesday at noon often require extra inventory, can probably cut a deal for three car-days at-risk at substantial discounts from contract rates.

Business trip packaging could very well be a way for travel agencies to generate more income than when they were earning, with override, up to 18 percent in commissions on airlines and up to 15 percent on hotels. Their corporate customers can back them to cover inventory costs and surely will allow them a markup of 15 percent to 25 percent.

Some people will counter that not enough is in it for airlines to want to discount fixed fares from 30 cents/mile to 35 cents/mile to 20 cents/mile to 25 cents/mile; why not?

Airlines, at least American, Continental, Delta, Northwest, Southwest, United and TWA, on average now get from all their customers about 13 cents/mile. At-risk, off-peak inventory for 20 cents/mile reduces their selling costs, exceeds average margin and provides for easier revenue management. Three-night hotel stays and three-day car rental agreements are appealing to those suppliers because they lower what can be called terminal costs--checkin and checkout.

Finally, when we see a vigorous embrace of automated booking systems, use of packages will reduce transaction time and programming expense. Inventory management responsibility for pre-purchased blocks will belong to the agency or other intermediary, not the supplier. In fact, suppliers may even ask their contract buyers to sell them inventory in time of need.

Even if at-risk inventory is asking for too much of a leap into the unknown, corporate travel buyers should insist that their travel management partners manufacture trip models so that information on trip packages and their components can be reviewed by travelers online in advance.

What I foresee is the automatic appearance of a model itinerary as soon as a traveler keys in a destination's name or GPS address. And corporate travel buyers also should negotiate with suppliers on a trip-model basis, assuring an airline, for example, that all travelers going to visit a Pittsburgh dealer will see ahead of time that their schedules are being "advertised" as part of a best-trip package.

Like my cobbler, travel managers--both corporate professionals and travel management agents--will lose their future unless they move in these directions. Emphasis will be on persuading travelers not only which supplier to use, but also when travel represents best value. Changing human behavior is what management is all about.

<I>Rolfe Shellenberger is a consultant with Runzheimer International and has been involved in travel for eons. In previous Op Ed articles, he has rallied interest in ticket-less travel, in automated booking, and in paperless expense management. In 1971, he choreographed what he calls the most successful leisure travel package ever sponsored by an airline, American's Fly/Drive program, "California Wholesale.