Philadelphia - Rosenbluth International today will launch Eclipse Advisors, the mega agency's new offering that includes the first-ever release of its Dacoda vendor contract optimization tool to corporations that are not Rosenbluth travel management clients.
The move, one of several actions the agency has taken in the past two months to revitalize its battered business, follows a trend in which travel management companies split off their value-added services for sale to competitors and vendors. As such, Eclipse introduces an array of services to other travel agencies, vendors and software developers.
Eclipse is the first major corporate travel product launch since Sept. 11, marking the first test of the industry's now-constricted ability to invest in new technologies. While Rosenbluth expects to announce supplier and agency customers in the coming weeks, five large companies that are not existing agency clients already are using the buyer-oriented services of Eclipse, a line of business staffed by 50 people, including mathematicians, negotiators and vendor analysts.
Rosenbluth would not comment on whether the decision to offer Dacoda independent of its traditional travel agency services was related to recent developments in the company's patent infringement lawsuit against Solon, Ohio-based Travel Analytics. Travel Analytics sells Tango, software whose functionality closely is related to that of Dacoda. Chairman and CEO Hal Rosenbluth would say only that "we still are in active litigation."
To expedite the appeal process in that case, Rosenbluth's lawyers on Oct. 30 asked Ohio U.S. district court judge Lesley Wells to rule in Travel Analytics' favor, acknowledging that its patent infringement claim "cannot succeed given the court's claim interpretation decision of July 27." In the July decision, Wells had determined that Tango did not infringe on Rosenbluth's patent for Dacoda.
Rosenbluth also asked in its Oct. 30 request that the judge toss out Travel Analytics' counterclaim that the Dacoda patent should be invalidated. Travel Analytics president Scott Gillespie said his lawyers would respond to that this week.
Plans for Eclipse Advisors have been in the works for months, said Rosenbluth, but the launch was delayed by his own resistance because he saw Dacoda as "a major selling point" for the travel agency business.
Separating the product from the agency, though, helps Rosenbluth assure clients that Dacoda-generated decisions on which suppliers they should support are not affected by loyalties Rosenbluth has on the agency side. Buyer skepticism of agency override deals is rampant, but Rosenbluth COO Michael Boult said addressing that concern was not the goal.
"We've saturated our customer base," he said. "Part of the motivation was that our business would grow only as Rosenbluth grows, which historically has been healthy, but we were limiting the growth of what we think is a core competency for us. We've received unsolicited requests for Dacoda from companies including agencies."
He credited WorldTravel BTI's treatment of TRX Inc. as a trendsetter, showing the industry how a company can do business with the competition of its creator. Among Eclipse's offerings for airlines are data management services and Cobra, a tool to help carriers analyze the risk/reward of corporate deals. Rosenbluth also is offering point of sale and contract management tools for agencies. By far, though, the longest list of tools falls under the buyer category, which includes the seven-year-old Dacoda and its RFP Evaluator, Airline Portfolio Evaluator and Airline Portfolio Manager, as well as systems for both car rental and hotel contracting.
The future of the air contract analysis market—which also includes offerings from American Express, Carlson Wagonlit Travel and WorldTravel BTI (BTN, Oct. 22)—very much hinges on the patent battle between Rosenbluth and Travel Analytics. "If Rosenbluth wins, everyone else is hosed," said one competitor.
But if Rosenbluth's planned appeals fail, and especially if Travel Analytics succeeds in invalidating Rosenbluth's patent, it would be the latest of several blows for the mega agency.
For one thing—and this is, of course, ubiquitous—business is down dramatically. "We were down somewhere around 18 percent prior to Sept. 11, then we took a precipitous drop after that and now it's back to being down around 25 percent," Rosenbluth said. "I'm not sure it's going to get any better."
The company furloughed 1,200 workers in "every part" of the business. "It didn't matter where they were working, except when it came to our customer care and travel reservation agents," said Rosenbluth. "That was a variable, but as far as finance, communications, technology, there needed to be a 25 percent reduction in salaries. We also were able to reduce our general administrative costs by 55 percent." He said some technology projects were put on hold for about six weeks.
In addition, Rosenbluth's reaction to the events of Sept. 11 generated significant criticism, though some credit the company for facing reality sooner than its competition. In a letter dated Sept. 12, which clients said gave eloquent context to the inhuman events of the previous day, Rosenbluth notified clients that it needed to "temporarily invoke new financial terms to all our client agreements" in order "to be compensated at levels comparable to the past but based on different metrics." The "short-term" pricing measures were to take effect on Sept. 11 and remain through year-end. Included in the new program was payment for a minimum baseline of transactions, even if actual transaction activity fell short. Rosenbluth also made car rental, limousine and hotel transactions billable and added a charge for "information calls." Finally, the company said a hike in transaction fees was due.
Rosenbluth told clients they needed to make it whole if they wanted to continue to enjoy appropriate service levels and "to keep Rosenbluth a viable strategic supplier." Combined with other events—including the failure on Sept. 21 of Rosenbluth Interactive's Biztravel.com unit—such statements have some clients beginning to worry. But they shouldn't, said Rosenbluth, who called his company "one of the most financially strong in the industry" with a "fantastic" cash position.
On Biztravel, he said, "We had some discussions with potential buyers, but it got to a point where it was not going to sell at an appropriate price, so we decided the best thing to do was to shut it down." Rosenbluth now is leveraging partnerships with booking vendors as well as its own Travelution.com, a site designed for the personal needs of corporate travelers.
Clearly, Rosenbluth is operating in a much more difficult environment than it was in 2000, but that's true of the entire industry. Since most agencies, like Rosenbluth, are privately owned, one can take cues on the depth of the difficulty only from publicly held American Express and Navigant International. At Amex, net income for the Travel Related Services division took a 51 percent hit in the third quarter on 2 percent higher net revenues and 28 percent lower travel sales. In a preview to earnings that will be announced tomorrow, Navigant saw a drop in revenues of 22 percent, largely due to a 35 percent drop in September transactions, and expected a loss for the quarter of $5.6 million. One only can imagine that the fourth quarter, typically the slowest for corporate travel, simply will be dismal.
To help the industry weather this storm, Hal Rosenbluth has taken the lead along with some others in lobbying the government to provide assistance to the travel distribution industry. The American Travel Industry Stabilization Act, which would provide agencies with $5 billion in loan guarantees, was referred to the Senate Banking, Housing and Urban Affairs Committee on Oct. 25 and remained there at press time.
Rosenbluth also is approaching airlines with a bold new approach to commissions, in which they would unilaterally reduce base payments to nothing and then begin charging travelers a fee when they book directly with the airline.
Though airlines have not commented on the commission proposal, Continental managing director of distribution planning Jim Young said he would not charge a fee to customers who work directly with the airlines: "In rewarding you for loyalty, I won't charge you a fee." Execs from WorldTravel BTI and TQ3 Maritz Travel Solutions rejected the concept as harmful to smaller agencies, but the American Society of Travel Agents is reviewing the idea.
Undaunted, Rosenbluth will continue to offer bold new strategies: Next up is a new airline pricing structure.