Cos. Leverage On A Smaller Scale

<B>Cos. Leverage On A Smaller Scale</B>

By Megan Hjermstad

Corporations with small and midsize travel volumes are at a distinct disadvantage when it comes to negotiating with suppliers. Nonetheless, companies that historically have had little to leverage with suppliers are generating discounts by demonstrating that they can corral travelers to certain hotels and drive volume on key city pairs. Other companies are using rates negotiated by their agencies or aligning with other companies with similar travel patterns for greater buying power.

Ralph Brown, president of Illinois-based consultancy R.D. Brown Co., said, "A lot of their strategies are the same, they just don't have the same clout as larger clients. A corporation with $5 million to $6 million in air can still go to an airline and negotiate. If their travel is far flung, they are disadvantaged in negotiating. In terms of city pairs, if there is a percentage they can give an airline, they are at an advantage."

According to Larry Austin, chairman and CEO of Melville, N.Y.-based Austin Travel, "There are two basic vendor strategies: volume and share. Larger companies secure deals based on volume. Smaller companies have to demonstrate they can move share. They have to go into more concentrated markets and be more disciplined. If you're an airline executive, would you rather have a larger company not give share or a smaller company giving share?"

Dan DeFranceso, president of Robustelli Corporate Services in Stamford, Conn., has seen small companies that have concentrated air spend in certain markets come up with big discounts. "A small company that lives in three city pairs has fixed fares there and nothing else," he said.

Policy enforcement is critical for small companies looking to move share to certain airlines. Fortunately, with fewer travelers, they can be more agile when it comes to changing policy, driving policy awareness down to the lowest level.

Huntington Beach, Calif.-based Quiksilver is negotiating directly with airlines, attempting to leverage its $1 million air volume with the air portion of adventure packages sold commercially by Quicksilver. "They're working with us," said director of travel Jeff Wilson. "I know we're not getting the best rates, but it's a volume game. We're just trying to negotiate the best rates we can and get the best service."

While cost is important, Wilson said the linchpin of his program is service. "We want to ensure as many VIP-type accommodations as we can get," he said. "Service is first; cost is a very, very close second."

Andrew Face, senior manager of human resources for Overland Park, Kan.-based Applebee's International, which has an air volume of $2.5 million, said, "When we bring in vendors, we make sure they understand we're growing. If they trust us now, in the end the benefit will be huge."

Applebee's previously used Avis and Alamo, but was able to leverage a better deal using National and Alamo, which have the same ownership. "We take revenue and say, 'Here's what our promise is, and for that we want a bigger discount,' " said Face. However, he has backed out of contracts when he could not live up to his promise. "I wasn't able to give volume to United Airlines. After six months, I came forward and said I can't hit those numbers, so I don't want the contract," said Face. "There has to be give and take."

Face believes partnering with quality suppliers is essential to discouraging travelers from going outside of policy. "We've done good things with vendors so people aren't staying in crummy hotels. Companies that just try to low-ball travel are going to have problems."

Other small companies lean heavily on their travel management companies to help negotiate deals on their behalf. Burton Snowboards, in Burlington Vt., which spends less than $5 million on travel, has relied on its agency, New York-based VTS Travel Direct, for help negotiating in a tough market where there are not many carriers. "We don't have the expertise or the contacts to do it," said executive assistant Tracy Sheldon, who is responsible for travel. "We could only go so far with our local rep, but VTS has incredible contacts with lead carriers."

While Burton is in a unique situation, small companies with more common city pairs are turning to travel management companies that leverage multiple clients' spend. "Using cluster deals, we combine our revenue and negotiate on a client's behalf," said VTS Travel Direct president Patrick Fragale. "We don't just let them go out and negotiate alone."

Meanwhile, six companies with similar buying patterns last year formed the Corporate Travel Consortium to bring combined volume to the table (BTN, Dec. 4, 2000). The independent purchasing consortium, which spent six months working on data consolidation, a few weeks ago sent out joint hotel RFPs.

"In San Jose, for example, unless you had half-a-million room nights a year they didn't want to talk to you," said Kevin Maguire, travel manager for Tokyo Electron America in Austin, Texas, which has 130,000 room nights per year and 30,000 corporate apartment nights per year. Tokyo Electron now has the buying clout of a group with 300,000 room nights per year and 65,000 corporate apartment nights per year.

Although the group is getting good response, it already has run up against suppliers unwilling to cooperate with them. In Austin, for example, Tokyo Electron controlled 30,000 room nights and another consortium member controlled 10,000 nights. One property would not give last room availability and wanted to increase the rate 7 percent. "If you're going to be a successful travel manager, you've got to be gutsy," said Maguire. "We jerked 45,000 room nights from that hotel. Those room nights have already gone to another property. As word got around, we started getting calls from other cities asking, 'What can we do to accommodate your travelers?' "

Although the group has not yet focused on airline negotiations, which pose a greater challenge, John Heilner, a consultant with Management Alternatives/MSIG in Princeton, N.J., said small purchasing groups and consortium stand a chance negotiating with airlines: "I don't think airlines will permit huge groups, but they will be willing to talk to small companies with common objectives, as long as everyone really is pulling in the same direction."

"Based on our initial feedback, it's been a success," said Maguire. "We are making people think out of the box.