New York - There's no rush among buyers to go offshore for agency or other call services, but the largest and newest travel distributors are gearing up in such places as India and the Philippines. Executives from American Express, Cendant, Expedia, Orbitz, Sabre, Travelocity and WorldTravel BTI told buyers at Corporate Travel World here last month that the decision to use those services is up to them.
"We follow our customers," said Mike Buckman, WorldTravel BTI CEO and chairman of TRX. "We're prepared to work with them to do it. We will have one or more offshore installations this year tied to a customer's interest, but we're not doing it in a general sense in 2004." One WorldTravel client, Siemens Shared Services, is running a pilot travel management service from India. TRX customer Expedia will "probably investigate that as well," said Expedia Corporate Travel president Matt Hulett. "It just makes good business sense to have different choices."
TRX recently promoted to executive vice president Vic Pynn, formerly an Amex vice president responsible for launching offshore activities in India and the Philippines. At Amex, "We have dabbled in offshore servicing," said Pam Arway, executive vice president and general manager of North America corporate travel. "We started just over a year ago in the Philippines, and there's a small test in India as well. We don't have very much business there yet. It may grow, it may not. We view it in response to a customer need. We would never drive a customer into an offshore center without the customer making that decision. The customer can have any number of choices, from VIP services to onsites to local centers to mega call centers to fully online to offshore. The cost of providing those services can be plotted on a graph."
Sabre Travel Network president John Stow said Travelocity's recent decision to outsource some of its leisure travel support to Indian firm WNS generated bad press, but "you can't create more jobs if you're not making money," he said. Travelocity Business president Ellen Keszler said her firm would make offshore "an option for the corporate customer. Some companies want nothing to do with it for security or philosophical reasons, but some are interested. We'll likely provide it as an alternative to customers if they want the lowest-cost alternative, or they can choose onshore."
While Cendant and Orbitz have tested the offshore waters, officials with both reported no demand from corporate clients.
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They did not directly answer questions about their average transaction fees, but the online-originating agency heads acknowledged that vendor-paid commissions offset those fees. All three said they keep commissions, although Travelocity Business' Keszler said, "We're happy to discuss that with customers."
"We feel our transaction fees are aggressive," said ECT's Hulett. Asked how much the company collects in incentives, he said, "We obviously can't disclose that. My answer is that, pound for pound, look at a closed-book model and decide what your net cost is. If it's lower in the traditional role, do that. If it's lower in the online model, do that."
Asked about GDS incentives paid to the likes of Travelocity Business and other agency subscribers, Sabre's Stow said, "Over the next three years, we're looking to take out $40 million in incentives. We pay $400 million annually today, so that's 10 percent, which is not a drastic change."
"Incentives are really going in only one direction, and that is down," said Amex's Arway. "So for companies, such as Amex and others, GDS revenues have been part of the business model for a very long time and they typically have been used to fund technology development. They are not pure profit, by any stretch of the imagination. If they are passed to the customer, then the transaction fee has to go up. It's simple math."
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More than 55 members of BTN's Top 100 business travel buyers met for a morning of brainstorming during CTW to discuss such topics as inaccurate hotel rate loading, how to get the best deals for a start-up program with no data and how to tackle the might of Air Canada in its home market. Throw in a debate on the merits of airline alliance deals and another on striking the correct balance between corporate deals and lowest logical fares and all the participants came away with some clear pointers on maximizing their programs in a rapidly resurgent travel market.
One overriding theme was identifying strategies for standing up to unhelpful suppliers, exemplified by one travel manager who denounced hotels' poor management of rate loading. The buyer said two key issues were getting rates loaded and getting the wrong ones taken out. Telling her peers that she is a proponent of pre-loading rates when going out to bid, she warned that buyers must remain vigilant to ensure that hotel companies clear up errors. "Tell hotels they have X amount of days to amend their rates. If they don't, then they are in danger of losing the program," she said. Against a chain that failed to amend its squatter rates, the travel manager said, "We made them cut us a check for the amount we lost."
The top 100 showed less consensus on balancing corporate and lowest logical airfares. Participants divided into three roughly equal camps: The first group always makes travelers use the corporate fare; the second insists travelers book the lowest logical airfare, regardless of carrier. The third group mandates the lowest fare but only if it is a specified amount cheaper than the corporate fare. Within this group, most said the lowest fare had to be around $150 cheaper, but one travel manager said it had to be a minimum of $500 cheaper, a steep condition influenced by missing out recently on a monthly hurdle of $20,000 for a corporate deal.
"You are all walking a very delicate line. You need to do the analysis," commented Carol Ann Salcito, president of consulting firm Management Alternatives, in the wrap-up for the CT100 session. Taking the lowest fare increasingly means using a low-cost carrier, but Salcito warned this effectively could mean losing an entire city pair from an agreement with a traditional carrier. Buyers need to run the numbers to ensure this does not cannibalize a corporate deal and cause a net cost increase.
Buyers also reported mixed experiences with airline alliances. One travel buyer said he has encountered several airlines attempting to deal with him through an alliancewide bid. Suspecting that they might deal more aggressively if he negotiated with them separately, "I challenged all of the airlines to submit a letter from their head of worldwide sales, asking for an assurance that each airline would submit its best prices through the alliance," he said. "I only received one letter back." However, another travel manager was considerably more satisfied. "We have had an alliance deal since 1998-99, and it has worked pretty well for us," she said.
Allowing data aggregation company Prism to gather management information that enables carriers to monitor corporate contracts was another airline issue. One buyer attendee warned his counterparts not to accept the process passively. It is fair for all carriers to evaluate their business and whether clients are meeting commitments, he said, but his company specifies parameters for how airlines can use Prism in their contracts, such as what data will be provided to Prism and who in the company will be allowed to see it.
That buyer also urged his peers not to accept at face value what airlines say about their data culled from Prism. "One airline with Prism data said it had a great deal for me. I asked, 'Where's your analysis?' and sent it back," he said. "The deal sounded wonderful but when we did the analysis ourselves we discovered it would have cost us $750,000."
Several CT100 participants presented mini-case studies during the morning. One of the most intriguing came from a buyer who put her company's hotel business in its key cities of Milwaukee and Cleveland out to bid with a reverse auction. The twist was that instead of conducting the bidding online, as is all the rage, the company staged it face to face in a single room. The process worked, and the buyer ended up with rates in both cities that were 20 percent lower than the previous year. She conducted the process by issuing bid sheets that she collected from suppliers after they had either written down a figure or left them blank. "The hotels said they preferred doing it this way to working online," the buyer said. "If they had a question, they just had to raise their hands, which was a personal interface they all appreciated. It was a good experience for us too. We didn't have to worry about the Internet crashing on us or waiting to take telephone calls. It was also low cost because no Internet facilities were required, and we did it ourselves."
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Orbitz For Business' highest-profile account, McDonald's, now is focusing on globalizing its travel program, said senior manager of travel Patty Little. "We don't have a huge global program, but we had concentrated on the U.S. and only now are ready to expand globally," she said. Orbitz officials have acknowledged that clients are showing willingness to split their business between global TMCs and Orbitz For Business, but also general manager of corporate travel David Cerino said, "We're working on a couple different countries right now. We have done no acquisitions, but we've tried to go in and grow organically. We're looking for options on how we can enter different parts of the world."
Expedia Corporate Travel bought Egencia
(BTNonline, March 29), an online corporate agency in France that it said handles McDonald's there. About Egencia, ECT president Matt Hulett said, "We scoured the planet looking for someone like us. There are not a lot of people out there like that."
On selecting OFB in the United States, Little said, "The status quo was not going to work at McDonald's. Overall, the philosophy we have tried to adopt is to stay ahead of what's happening in the industry." On online booking, she said, "We were well behind, but we feel it's been less painful to have waited for that technology to catch up with the needs of the corporation. In 2000, we realized the online agencies would really become the new model, and we had to keep our eye on that. None was yet ready for corporate travel then, but we continued to watch them. They have developed considerably over the past couple years, and we thought it was a bigger risk not to make that change than to make it and live through some of the pain with it—especially with travelers—although many travelers are shopping and perhaps buying on many other Web sites."
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In a session on airfares, panelists attempted to dissect the ABCs of airline pricing, a daunting task given the growing number of fare buckets in the market. "Thankfully, there only are 26 letters in the alphabet or we'd have even more fare basis codes," quipped Steve Shook, vice president of strategic sourcing at Carlson Wagonlit Travel.
Bob Harrell of Harrell Associates, however, said only three fare types—Y, B and M—are applicable for corporate discounts and available consistently among major carriers. Those fares, he said, account for only one-third of total fares in the market. "Some fares are suitable for business travel but still excluded from corporate discount programs," Harrell added. "That is where lots of companies lose money because their systems direct travelers to those fares."
Of course, the growing influence of low-cost carriers impacts major carrier pricing and corporate buying strategies. Cindy Heston, manager of worldwide corporate travel for Thomson Corp. in Indianapolis, suggested a few solutions. "Target top markets, look at average fare paid and negotiate flat rates off that average. If the flat rate is sold out, then standard pricing applies," she suggested. "The goal is to make sure is a simplistic structure is in place. Another way to look at it is: Whenever a fare is over X dollars, I should be able to apply contract value."
Meanwhile, in light of both generally declining average ticket prices and the increasing number of fare types, CWT's Shook gave delegates a word of caution: "Be realistic in your expectations as you go into negotiations. It is critical to build the best fare structure, that can be implemented easily, used and understood."
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The discussion on airfares spilled over into a panel on the airline value proposition for corporate accounts. "Our percentage of low-fare buckets is increasing, but we made commitments to higher fare buckets," said Janan Johnson, director of global travel procurement for GlaxoSmithKline. "So we have a new key performance indicator measuring use of contract versus use of non-contracted fares to determine the savings."
Jack O'Neill, Carlson Wagonlit Travel U.S. executive vice president and COO, agreed that travel managers should be tracking usage levels of discounted fares, especially "as inventory is used up and load factors increase." Delta Air Lines managing director of corporate sales Steve Smith noted that 61 percent of 1,700 of the carrier's contracted accounts now use low-fare buckets—which he described as Q fares and below—versus 20 percent to 25 percent three years ago. "That begs the question about the pricing structure down the road," he said.
O'Neill added that airlines "now are more serious" about corporate contracting. "They are more willing to lower discount levels," he said. "It is no longer nudge-nudge, wink-wink."
Acknowledging that, "in most cases, price is the major driver" of corporate agreements, Delta's Smith told attendees that other program value drivers include airport clubs, upgrades and elite-level frequent flyer status. "The customer base tells us that speed, reliability and on-time performance are key," he said. Suzanne Fletcher, director of travel and meetings for Federal Way, Wash.-based Weyerhaeuser, agreed that elite status "is as important a thing an airline can provide" to corporate accounts, given the preferential treatment afforded to elite-level travelers at the airport.
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A show of hands from buyers in the audience at a session on hotel Web bookings suggested there still is a significant degree of confusion as to how the various Internet distribution channels operate, particularly the third-party discounters known as merchant model sites. Shafiq Khan, Marriott International senior vice president of e-commerce, and Marty Ginoo, corporate director of pricing for Starwood Hotels & Resorts Worldwide, spoke of their companies' Internet strategies. "To some degree, we are channel agnostic," Khan said. "Two-thirds of our business today still comes through direct channels. We like that and want it to continue. At the same time, we'll continue to be on every online channel possible, whether Expedia, Travelocity or Priceline."
Hotel companies' Best Rate Guarantee programs have been successful in ensuring customers, including business travelers, that the hotels are serious about retaining pricing control over their inventory. "Customers across all segments consistently tell us they want access to the lowest available rate," Ginoo said. "The guarantee has been a success in instilling confidence in customers that they can find the best rate on our site."
Panelist Wendy Blaney, director of corporate travel for Cendant, said many travel buyers have no philosophical problem with Internet-only rates, including merchant rates, assuming the rate is right and the company knows where the traveler has booked. "More buyers are okay with travelers booking merchant rates, if the rate is lower than the rate at the preferred hotel. No buyer wants to spend more money to book the preferred hotels. The company just needs to know where travelers are in case of an emergency."
Terry Sullo, manager of travel and meeting services at Akamai Technologies, disagreed: "Travelers searching the Web is not how we want people spending their time. Travel managers are the authority on what are the best, most appropriate rates for their company. They're the ones who are going to produce the best value to the companies in the long run, not only on spend but in identifying where people are. If hotels don't participate in what we consider to be our designated agency or portal, they're going to lose our business. That sends a strong message."