Corporate Travel West Notebook: DOT Seeks Biz Travel Buyer Input

<B> Corporate Travel West Notebook: DOT Seeks Biz Travel Buyer Input</B>

<I>Santa Clara, Calif.</I> - Corporate travel managers are a group that the Department of Transportation hasn't spent enough time listening to, DOT general counsel Nancy McFadden told the audience during lunch at the Corporate Travel West trade show here earlier this month.

At the same time, travel and meetings buyers have not been especially vocal on DOT's proposed predatory pricing guidelines for the airline industry, even though they "know firsthand how expensive it can be to travel without competition," McFadden said. "It is very important that people like you let your voices be heard."

McFadden said DOT is studying whether there is any need to broaden its authority on areas such as computer reservations systems to cover corporate travel departments. Historically, DOT has said that its rule-making authority extends only to travel agencies and consumers.

McFadden also provided DOT's first comments on a recent Air Transport Association letter to member-airline CEOs that indicated the ATA treats the predatory pricing issue as a political one. The letter named key Republican congressmen for their help in getting Congress to order DOT to delay its proposed guidelines for study. ATA president Carol Hallet called the delay "a significant victory."

"I am deeply disappointed by those kinds of words from the airlines' top lobbyist," said McFadden. "We at the Department do not view this as a war to win or lose. The public only wins if the best public policy decision is reached."

In a more surprising statement, McFadden said DOT was "currently reviewing the Continental-Northwest alliance and we expect to take action in the next several days." However, no action had been taken as of press time. McFadden indicated that DOT could rule that the airlines' respective route authorities change as Northwest gains the potential for management control of Continental (<I>BTN,</I> Nov. 2). Also, she said, recent legislation could give DOT authority over the joining of the two carriers' frequent flyer programs.

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Paine Webber managing director Sam Buttrick told seminar participants that his firm believes the United States "is much more likely to avoid than to slip into a recession in 1999." But, if corporations are cutting back on travel in anticipation of such a recession or downturn, "that's something we on Wall Street are very attentive to and you can be sure that if it happens, it will take the airlines by surprise," he said. "For the typical airline, over half the revenue walks in the door two weeks before the flight," Buttrick said. "When they say 'everything's fine,' that only means the first half of November is in the bag."

Buttrick said it was hard to explain why airline stocks are down since the industry is enjoying 10 percent margins, keeping capacity in check, paying less for fuel and enjoying high demand. The industry has cut costs and continues to report record profits.

In terms of costs, he said the airlines will look at commissions again, noting that travel agents are being disintermediated at a rate of 1.5 to 2 percent a year (based on the mix of commissionable and noncommissionable tickets). But CRS costs are going up faster than that rate and the next distribution frontier, he predicted, is CRS bypass. "Why is an airline with a corporate customer in a captive hub city paying CRS fees in this age of the Internet and direct booking?" Buttrick asked. "Someone will crack the code on that one."

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Siemens manager of corporate travel and fleet arrangements Hanna Murphy revealed that National Car Rental, Delta Air Lines and United Airlines joined Sheraton in helping develop the Siemens/U.S. Bank Visa smart card now in test with 2,500 travelers (<I>BTN,</I> April 13). The card, which is embedded with the Siemens fare basis code for air travel or ID number for cars and hotels, ensures Siemens gets its preferred rate no matter how the reservation was made or what rate was obtained at that time.

The suppliers involved are spending millions of dollars to adjust their back-office systems in preparation for the cards, but Murphy said, "They like the fact that in the end, Siemens travelers can't get our rate without the card, so there's no piggybacking on our rates." She also said that National and Sheraton are up and running, but the Delta and United tests will proceed at a later date. "In phase two, we expect to add more suppliers and traveler profiles," she said during a "Playing Your Cards Right" panel. "We'll look at the data in February and by March we'll know whether to add more users to the pilot."

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Times Mirror Resource Management Co., based in Los Angeles, is getting closer to converting its profit center into a cost center with plans to shift into net deals next year, Betty Harder Lucero, Times Mirror's travel service manager, told Corporate Travel West attendees.

The company's travel program is structured to enter net deals, but officials were not prepared to relinquish commissions. "We decided not to do it this year because if we continue to offset costs it means we need those commissions coming in," Lucero said. "It isn't the season because it's too tight. They didn't budget for it, but we definitely plan to do that next year."

Getting to this point was not an easy task for Lucero, who joined the firm in August 1993. Times Mirror then had 80 to 100 travel agencies and several travel policies in place. It had limited airline and hotel agreements and no travel data was being received by any source. Each of its 16 companies owned their own general ledger.

Because 80 percent of their travel spend was located in 500 cities worldwide, "there was not enough volume in one location to warrant an agreement," Lucero said. "There was no general expense information, so we were unable to see where the problems were when we tried to get the information."

The commission cap in March 1995 helped drive change at Times Mirror, resulting in the firm requesting agencies to reevaluate their relationships midstream.

"With commission caps, we had to minimize the impact the airlines would have," Lucero said. In a drastic turnaround, the company consolidated to one agency.

While Times Mirror still operates under several travel policies this year, it will consolidate into one policy by year-end and begin mandating T&E card usage Jan. 1.

Already in a cost center position, 3Com Corp., based in Santa Clara, Calif., moved to primarily net agreements in airline and car. About 70 percent of airline purchases and 90 percent of car purchases are net. Net hotel agreements are running at a lower percentage, between 30 to 40 percent, said Bob Lichtman, 3Com's global travel manager. 3Com, best known for its development of personal digital assistant Palm III, cleared out commission dollars and "saved a tremendous amount in taxes," he added.

In order to continue to maximize revenue streams, consultant Gerard Smith, senior partner of Newport Beach, Calif.-based T&E Group, also suggested moving to net fares, especially regarding car deals. "There are so many opportunities out there to renegotiate," he said. "You can get net rates with car rental companies. Travel agencies literally don't care--they make money as long as they charge a transaction fee. Agency relationships have changed."

When working out an agreement, corporations need to question several aspects of a deal or agreement. They should request information on what is included and not included in management fees and transactions fees.

When a company wants to adopt an online booking tool, it should find out whether the agency will pull the system off-line if it decides to switch agencies. If the firm does switch agencies, it may be required to install a new online booking tool to match its new agency. Such technology decisions can be a costly burden to the travel department.

C. Thomas Nulty, president of Associated Travel, the Santa Ana, Calif., Navigant-owned travel management company, said that even with all the movement to fee-based agency agreements, as many as 30 percent of his clients currently are receiving some kind of rebate.

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In an innovative how-to session on crafting airline deals, Hewlett-Packard's Kevin Iwamoto, airline/car travel supplier manager, and Continental's Monisa Cline, director of national corporate sales, detailed the strategy, information and nuances to consider before negotiating. "Plan your strategy and be prepared for the meeting by telling airlines how and what you are able to deliver," Iwamoto said. After a deal is struck, the corporation and airline need to discuss their implementation plans.

Iwamoto uses train the trainer sessions to communicate new agreements. "A lot of companies make a big mistake in relying on their account managers to implement deals. But training the agents isn't their job. By the time it gets to the agents, the information often is miscommunicated," he said.

In terms of data, Cline said she likes corporations to provide the top 200 city pairs, total segments and total revenues on Continental, all broken down by domestic and international. Continental likes to see both agency and card data, as well as reports generated from automated expense reporting systems.

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While the spotlight softens on Patriot American, the paired-share REIT is focusing its attention on improving customer service through a new buyer program and various technology improvements, said James Carreker, chairman and CEO of Wyndham International, based in Dallas.

"Growth will not come from more mergers and acquisitions," Carreker said. "Growth in hotels will come in maximizing existing assets, and focusing on customers and markets."

Wyndham, Patriot American's operating arm, plans to launch a transfer pricing strategy that will give travel buyers the opportunity to guarantee peak room nights in high volume locations by agreeing to provide stays in other properties during low occupancy periods. The project will shift pricing within properties to prevent devaluation of inventory. Transfer pricing will beta test in cluster hotels in Atlanta and Chicago this fall, followed by a nationwide rollout.

Simultaneously, Wyndham is working on single image inventory that will link its property management systems brandwide and help develop a guest folio database. "We have not spent the time building information about our customers and they all have different needs," Carreker said. "They're expecting new service levels. Technology can change that expectation level."

Guest folio data is further captured by the installation of a new beta test product attached to a hotel's property management system. The technology extracts the guest information nightly and sends the data to the corporate office.

Besides gathering and providing a connection for guest history information, single image inventory will allow Wyndham to better keep track of its available inventory, allowing for better selling. In the past, the company has lost about $50 million in revenue because of the "imperfect knowledge of inventory."

"We must understand the demand because we already know the supply," Carreker said. "The more you know about the total supply available, the more equipped you are to meet customers' needs."

Wyndham also plans to offer Internet hotel bookings and improve in-room technology to meet business travelers' growing needs. The company plans to provide real time booking directly linked to its central reservation system. "Travelers expect technology where they live and especially where they travel," he said. "Technology is getting cheaper and prolific. The Internet is becoming a processing platform for us. It will be the communication processing resource for our properties."

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During a session on hotel negotiating, consultant Pat Hall, former travel manager at Varian Associates in Palo Alto, Calif., said travel managers now are expecting the seller's market in hotels to come to an end, an event that already has occurred in some markets, although he noted that recently prices have escalated significantly at upscale properties in key business destinations.

Ed Skapinok, director of key account sales for Bass Hotels & Resorts, agreed that in some cities rates have peaked and that last room availability is coming back to the table.

However, Nathalie Lissinna, manager of the corporate hotel management group for American Express consulting services, said that the pendulum shift does not mean that the hotel market is heading back to the good old days, because the new financier owners are looking closely at the bottom line. She noted that agency consortia rates never stopped including last room availability, and said that the preliminary figures she has seen showed a 10 percent difference between regular preferred and last room availability rates.

As one might expect from a national chain representative, Skapinok said individual hotel requests for proposals aren't saving many companies the money that they should, and that business travel buyers instead should try strategic activities such as negotiating with national chains to get the level of service, distribution and frequency programs that can work for them.

He said that the costs of RFPs come from the labor to prepare and send them; printing, postage and fax charges; labor to receive and organize completed RFPs; labor to process and review information and field follow-up phone calls from hotel salespeople; data entry labor; labor and communications costs to notify hotels about decisions; labor to load rates into the CRS; directory publishing or Web posting costs; and the monitoring of compliance.

Dan Geller--former vice president of corporate travel for ITT Sheraton, and now president of WizBizWeb, an e-commerce consulting company specializing in travel--also pointed at the waste in the old RFP process. He said that 30 percent of cost traditionally has been for administering hotel programs, and only 70 percent of hotel expenditures have been for direct costs. Meanwhile, he said that 90 percent of transactions involved in hotel purchasing don't need to involve human intervention.

Geller said the automated RFP, which he has helped the National Business Travel Association develop over the past few years, "is still in the middle ages, but it is a long way from the dark ages of the manual RFP process."

He said the next stage will be the e-commerce stage, in which a central depository of RFP information, operated by a third party, will eliminate the duplication in communications by holding all relevant information for corporations and hotels to access, how and when they see fit. Up-to-date information will be exchanged in real time and the costs of the RFP process will be drastically reduced.

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Detailing the 10 top myths of the Airline Reporting Corp.'s new Corporate Travel Department designation, Barry Lemley, director of agency accreditation services for ARC, said, "it has met all of our objectives." While all 32 pilot spots have not yet been filled, Lemley said more than 300 different companies have contacted him about the designation. Four companies have been approved and 14 others have started the process.

Andy Menkes, vice president of Republic National Bank's global travel management program and the first CTD appointment, predicted that by the end of next year there will be more than 250 other corporations approved.

Bob Grant, travel manager for Charles Schwab and another CTD designee, said, "My sense is the interest level is very high. The problem is there are too many legal departments out there."

At some point, corporations will realize that the CTD allows them to control the process, outsourcing the services they need to agencies or other third parties.

One of the unexpected surprises that Menkes found was the "net commissionable car rates" he was offered, along with the net-net hotel rates that also were commissionable. The vendors, Menkes said, appear to be unable to eliminate paying commissions. When he encounters such vendors, Menkes said, he gives them his new ARC number to send the commission checks to, instead of his former agencies'.

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Sabre's Business Travel Solutions offered a previews of its new Web-enabled VantagePoint reporting system, to debut early next year. Partnering with Business Objects, Sabre is brainstorming ways to help travel decision makers better use and distribute reports. For instance, it's researching whether to partner with other companies to offer benchmarks of hotel, meal and car costs that users could compare against their own data. The new format will allow users to load vendor data, such as car rental reports.