Content Conflict At CTW: Attendees Evaluate Distribution Evolution

New York – Against a backdrop of airfare reform, crippling fuel costs and sustained business travel recovery, much conversation at last month's Corporate Travel World conference centered on evolving corporate travel distribution. Depending on who was speaking, the key issues either are economic or technical, but most agreed content aggregation is paramount.

"The concern I have is that we may see some of the same issues we ran into a couple years ago around fare content and this will become quite distracting," said Sabre Holdings chairman Sam Gilliland during a keynote speech, discussing the viability of emerging distribution alternatives. "If there are places where you are willing to accept compromise in the way in which you manage your business, you may be able to use those systems."

Gilliland traded barbs with G2 SwitchWorks vice president of sales Bill Hogate by implying that neither corporate buyers nor travel agencies had expressed need for such new systems as G2's.

Responded Hogate: "Corporations are very seriously asking about it, agencies are begging for it and airlines are praying for it. There are a lot more players than you think that are involved."

TRX is one, said CEO Trip Davis, speaking during a later panel. "We are looking and booking today in G2 and in ITA Software's new system on both ResX and Selex," he said. "It does not mean that we have a lot of volume there, but we are working hard to stay attuned to that as an available option."

Davis, like several others, told attendees that corporate buyers would influence decisions on distribution options and that those systems aggregating the most inventory—including discounted corporate pricing—would be best positioned. "A very large network of direct-connects across this industry is the definition of inefficiency," he said. "The idea that you will see a wave of carriers approaching corporations directly and changing the way each accesses content is a little overly exuberant."

Gilliland said ongoing discussions with airlines about distribution arrangements would accelerate as the current content-for-discount deals near expiration. "What the airlines want and where they will be probably will be two different things," he said, when asked if GDS fees could be reduced. "We are not interested in racing to the bottom."

Should GDS companies fail to negotiate new terms with airlines and/or the large travel management companies whose contracts also are near completion, "the Web fare noise could start all over again," suggested WorldTravel BTI president Danny Hood. "We have over 20 million segments out to bid."

As a result of such converging factors, Carlson Wagonlit North America COO Jack O'Neill suggested corporate travel management companies may opt to use both entrenched and new-entrant systems. "We want to be engaged with all distributors to make sure we are getting all content for clients," he said.

Looking ahead, Travelocity Business president Ellen Keszler said GDSs would be largely successful in retaining most, but not necessarily all, content from suppliers. "Some carriers might participate fully in some GDSs and only partially in others and may choose to make their best content available to specific agencies or specific corporations," she said.

Other speakers suggested new entrants would offer capabilities not currently available in traditional GDSs, such as price differentials based on either window or aisle seats and on customer loyalty level. "There is naturally some inefficiency and an inability to really do what is this latest trend, which is delivering customized information to individuals, based on policy constraints and anticipating true demand with true supply," said Travel Tech Consulting president Norm Rose, regarding existing GDSs. "Perhaps there is specific pricing that can be delivered through some of these alternative channels. There is value in seamlessly designating, on an individual transaction level, where products will be sourced and fulfilled."

Should new entrants successfully offer such solutions and create value in bypassing the GDS, they will become acquisition targets, suggested Cendant Corporate Travel Solutions president Dave Falter. "The online technology will morph to become more of a trusted partner throughout the travel experience," he said. "I don't think the new entrants are a giant ruse perpetuated on all of us by the airlines. Cendant certainly will be first in line at the table to say 'let's have an open conversation about the economics.' "

Gilliland, meanwhile, also touched on meta-searches, a newer trend in Internet travel distribution thus far absent from the corporate market. "If the airlines and other suppliers are worried about the value delivered by GDSs, or even travel agencies, just wait until they are negotiating with AOL, Yahoo, Google and Microsoft," he said, referring to big Internet companies now developing travel search capabilities. "I can tell you from experience that it isn't a picnic."
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In a session that laid out "the naked truth about airlines," panelists provided attendees a grim prognosis of the current state of the commercial aviation sector but also suggested buyer strategies. Analyst Helane Becker from The Benchmark Co. set the stage by estimating industry revenue losses associated with Delta's SimpliFares initiative at $1.5 billion. "The airfare structure will continue to evolve," she said. "It has to. The United States cannot have a healthy economy without a healthy airline industry."

Such a pricing evolution has led to uncertainty for buyers negotiating new airline contracts, according to other panelists. "Price plays a less important role in negotiating contracts with carriers, which may start to pay more attention to schedules, on-time performance and flight time from origin and destination," suggested Laurence Smith, a corporate travel advisor and attorney with Wolff & Samson in West Orange, N.J.

"Since fares already are at a depressed state, in order to squeeze more value out, corporate travel managers have to put their arms around airline partners and ask 'where can we help you and how can we help you?' " Smith said.

Smith also said buyers can benefit by leveraging any international spend and should include clauses in contracts that automatically adjust performance goals when the airline reduces service in key citypairs. With airlines limiting the number of deals they offer to the corporate community, "performance criteria will take on greater importance than we have seen in the past 10 or 15 years."

Cautioning attendees that current pricing is unsustainable, Cindy Heston, manager of worldwide corporate travel for Thomson Corp. in Indianapolis, implored travel managers to maintain program consistency and lines of communication. "You want to keep the dialogue with the airline open because it is a very elastic market now," Heston said. "There is a lot of beyond-contract value-add in the market and airlines are trying to be creative."

In a separate session, Hewlett-Packard global air and car supplier manager Kevin Iwamoto also predicted further changes in airfare structures. "I do not believe SimpliFares will be permanent," he said. "It's not realistic, with that kind of red ink and oil prices what they are. There is a lot more reworking to be done."

Buyers in another session, which centered on air management strategies for small and midmarket accounts, said the consequences of fare reform on their corporate deals have varied by carrier. "We've heard from our third- and fourth-largest carriers already," said Bose Corp. corporate travel manager Gary Polito. "Our third told us that this is our new discount and this is how it is. Our fourth said they want to keep our business, and what could they do to work with us? There's been nothing from our first and second." Adecco director of corporate travel Barbara Finn said some of her company's preferred carriers approached her with alternatives, but she was analyzing the situation.
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At a gathering of small and midmarket corporate travel management professionals, travel managers and agency executives discussed the shifting industry landscape and agreed that recent changes have reemphasized the importance of consistent service and renewed interest in maintaining highly personalized relationships.

As low-cost carriers and major airfare reform continue to drive down pricing, content access remains an industry question mark and effective cost-management becomes standard practice, travel managers must increasingly look toward service-level agreements to differentiate travel management company offerings.

"To me, this is one of the most important aspects of the relationship between a corporation and a travel management company. Put together service-level agreements that have some teeth in them, some meaning. You might want to incent the TMC to perform higher than standard, but you also want to have a penalty in place should they not perform at standard," said Consulting Strategies principal Mark Walton. "You want service-level agreements to somewhat manage the operation for you. Travel managers generally do not have time to spend on a detailed daily basis managing a travel operation and that's what this helps you do."

In conducting a TMC selection process, said Robin Buzzeo, corporate travel manager at New York-based Taro Pharmaceuticals, "It became really apparent that most of them are very similar and what became very important to us was cultural fit and relationship. That's unusual now, because everyone wants to go touchless, or low-touch, and it becomes almost faceless."

The panel, including both a traditional and online TMC, noted online need not be synonymous with impersonal, and agreed that hands-on relationships can improve travel operations and differentiate provider offerings.

"Being in the industry for so many years, I feel that it is extremely important to establish a relationship where you can work with and feel comfortable with your TMC. Your uniqueness can be addressed better if they understand you from the get-go," said Buzzeo. "Ask questions. Ask about conflict resolution, ask about the account managers that they have, how satisfied are they with them and what they want to see changed. Go see the operation. Feeling comfortable with the people right down to the inside agents is very important."

Those sentiments were echoed later in the program during an educational session on maximizing agent productivity. "Travel managers don't have enough contact with travel agents," said Hanna Murphy, vice president of Siemens Shared Services, who manages Siemens' travel program through an internal corporate travel department. Murphy, who employs 87 travel agents across Siemens' 43 separate operating companies, said she relied on a rigorous, internally developed agent education and certification program. "We don't want anybody to wing it. We want agents to be knowledgeable and our customers to be comfortable on the phone."
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During tech tutorials on the CTW exhibit hall floor, Travel Tech Consulting's Rose discussed the growing importance of online booking with a group of corporate travel managers and addressed some of the business travel community's associated concerns with content access and distribution.

Sheri Bonsall, assistant vice president of business services at insurance firm Chubb & Son, said that in 2004 the company realized $2.5 million in total savings, transactional and operational, as a result of pushing adoption to 87 percent through effective communication, education, and policy structuring.

"Online booking is the hub of our existence right now at JPMorgan Chase," said company vice president Judy Bauer. She advised peers and colleagues to "be realistic about adoption. Make sure you've set realistic expectations with your management."

Still, Rose said, despite the industry emphasis on driving the cost out of travel through online booking, solving automation issues merely masks the deep-seated problem of content access and cost of distribution. "This is a progression, an evolution. It's not just about driving adoption anymore, it's about integrating all these components," he said. "We're going to return to a period where these booking technologies are an important factor, but they're really just a Band-Aid approach."

Rose argued that, as inventory aggregation shifts away from GDSs and to TMCs, agencies will need both an online booking tool and a neutral agent point of sale to weather the distribution storm. Though the jury is still out on GDS alternative technologies such as G2 SwitchWorks, ITA and FareLogix, Rose said he is confident a technological sea change is imminent. "It's not just vaporware, this is not just marketing hype. These are real technologies."
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A pair of travel buyers, in the midst of expanding their travel management programs throughout the world, said patience, support from domestic and international management and the realization that each country will have specific issues and needs are the keys to a successful global rollout. "You need support from foreign management because it is for them to ambassador it," said Polo Ralph Lauren senior director of global travel services Mary Talvi. PRL last month concluded a country-by-country European travel program rollout, including the implementation of a global travel policy with regional addenda. "You must communicate strategy," she said. "We had a road show through all our offices in Europe, and we explained the benefits of how this would enhance service levels and the booking process." Talvi plans to commence an Asian initiative by year-end.

Duane Futch, director of the global travel division of Wal-Mart, stressed the importance of divining best practices from each country and tapping the resources of experts in local legal, financial and labor procedures to reap the full potential of globalization. "If someone wants to book a ticket in the U.K. on British Airways, I want to be able to ticket it in the U.S. and pay for it in Hong Kong dollars, if I want. Those days are coming," he said. Wal-Mart's cost-cutting ethos has led not only to strict policy, Futch said, but a strong hand in supplier negotiations—including the ability to successfully request specific carriers form alliances outside of their traditional partnerships and require standard service levels. "It sounds a little forceful, but it has to be, because someone's got to support change," Futch said. "Everyone understands where this has to go."
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As the lodging industry has rebounded, small and midsize buyers face hurdles in managing their hotel programs that large hotel programs don't. Two midsize buyers and a hotel consultant for an online TMC laid out the extent of these challenges in a session on hotel contracting.

"Given that our room night volumes are more modest than large programs, hotels that we want to work with have begun looking with greater vigilance at the mandates we have built into our programs," said Kevin Maguire, travel manager for Tokyo Electron America in Austin. "In our case, we have a no-reimbursement policy for travelers who book outside the program, but I understand a lot of companies aren't prepared to impose mandates this extreme."

Consequently, Maguire said a lot of small and midsize programs are denied national or global account status at the multi-brand hotel companies, which in turn denies them access to a national account manager. "Services of a NAM can help you with everything from rate loading to availability on peak nights," Maguire said.

Considering that hotels see increased demand, small and midsize buyers can expect more trouble getting the room nights they need, which increases the pressure to have negotiated last room availability provisions, according to Cynthia Gillen, director of procurement and travel for BDO Seidman LLP in Chicago. "Hotels have become hesitant about offering LRA and, if they do, are wary of even confirming the number of rooms or room type that it covers," Gillen said.

Small to midsize buyers should concentrate on negotiating room rate in this kind of market and not focus as much on amenities.

"During the downturn, hotels were much more willing to discuss amenities because they were so eager for buyers' business," according to Brian Murphy, director of supplier relations for Travelport and Orbitz for Business. "In today's environment, buyers would be smart to just try to zero in on rate. It's hard enough to get hotels to ensure the correct rate is loaded into the GDS. It's almost impossible to get them to reflect fees and charges that have been waived for amenities."
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Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers, told the Corporate Travel 100 that though the industry's performance has been more modest than it first appears, buyers still can expect increasingly more difficult rate negotiations in 2005 and 2006. "This is really good news for hotels, but not such good news for buyers," Hanson said.

Full-year 2004 U.S. industry occupancy was 61.3 percent, up 3.7 percent versus 2003. Occupancy is forecast to increase another 1.8 percent this year and 1 percent in 2006.

"Occupancy in 2003, which was the low point of the recent downturn, had only been lower in seven of the past 75 years," Hanson said. Consequently, people talk about last year as a great year of recovery. Granted, occupancy was up, but occupancy still only was lower in 16 of the last 75 years."

Similarly, recent increases in average daily rate, while representing a turnaround, are modest in the big picture. While buyers typically negotiate rates with a discount off the ADR, increases in ADR reflect increases buyers are likely to face in their next negotiation.

According to Hanson, growth in ADR increased 3.9 percent in 2004 and is forecast to rise 4.3 percent in 2005 and 4.6 percent in 2006.

"You have to go back to the Great Depression to find three consecutive years where ADR didn't increase," Hanson said. "In the past three years, rates declined in two of the years and increased by one-tenth of 1 percent, which is statistically insignificant, in the third." Rate increases that first became apparent in 2004 turned out to be overstated. "When you take the effect of inflation out of the numbers, you see a different story," Hanson said. "If it weren't for inflation, we'd be down to 2003 levels, which was the trough of the downturn."