Danish Companies Pool Travel
<B> Danish Companies Pool Travel</B>
By Amon Cohen
Small is beautiful, the environmentalist Schumacher tells us. In business, however, it is often the big companies that see the results. This is why 10 medium-sized Danish companies have banded together, to achieve spectacular savings in a travel purchasing consortium called Danish Travel Pool.
Founded in 1991, DTP is a nonprofit joint-venture company that appears to have succeeded where the more ambitious Business Travel Contractors Corp. in the United States failed. Managing director Soren Schodt claimed that DTP members achieve a 10 to 25 percent greater reduction on their airfares than they would if they purchased individually. This is partly due to the successful implementation of strategies that other travel managers only dream of, including the bulk buying of tickets and using travelers' frequent flyer mileage for business trips.
The 10 companies make further savings by entrusting travel management to DTP and using a travel agency only for reservations and ticketing. The three-person team that runs DTP charges the individual companies a set fee that accounts for 2.6 to 3.7 percent of their total travel spend. Adding to this are commission fees of 2 to 5 percent paid to the agency, Dan Transport, the fourth-largest in Denmark. This is significantly lower, noted Schodt, than the 8 to 12 percent that a Danish company typically would pay its travel agent.
The ability to take travel management into their own hands is an even more important advantage of the joint-venture than the savings produced by pooled purchasing, according to DTP chairman Hans Havsager. Not only does reduced usage of agency services save about $150,000 to $300,000 per year, but the members have the certainty that all purchasing is being done genuinely in their interest.
''In an association, you are more sure that the buying of travel is done in a way where you can gain most advantage,'' said Havsager, who also is human resources manager for food company FDB, the largest member of DTP. ''We pay a percentage to DTP too, but we have influence on its management and can be certain it is doing the best thing for us.''
DTP originally was founded as a consultancy but quickly assumed all the travel management responsibilities of its 10 joint-venture partners. It is responsible for data analysis, purchasing strategies and policy control. Any profit it makes goes back to the joint-venture partners in a straight check or as a discount on subsequent travel purchases. The three staff members are paid a fixed salary but their performance is measured by detailed benchmarking of the savings they achieve. All information between DTP and its members is relayed by intranet and extranet connections.
Schodt said the principle of buying as one entity gives medium and decentralized companies negotiating muscle they never would have otherwise. ''Each of the companies has five to 10 big destinations for which it would be able to secure discounts in its own right,'' he said. ''But this way, they have dozens of big destinations between them and can get better discounts on all of them.'' Ninety percent of DTP's ticket purchases are to just 40 destinations, with another 210 destinations accounting for the remaining 10 percent.
All members have the same preferred suppliers and receive the same level of discounts. Travel policy also is broadly similar, the main difference being who in each company is entitled to deviate from it. DTP initially experienced difficulty in convincing suppliers to treat the 10 companies as a single entity with entitlement to greater discounts. But Schodt claimed that sustained ability to move market share and control policy in favor of preferred suppliers has won them over.
The most ambitious deals are bulk-buy purchases, where DTP pays cash in advance for an agreed minimum number of tickets. Ten percent of DTP's tickets are bought using this method, something that travel agencies, which are usually low in liquidity, would not have the cash to do.
Significantly, Scandinavian Airlines System is not one of the providers of bulk-buy tickets. SAS has an unusually dominant position in Scandinavia because of the strength of its route network and the appeal of its frequent flyer scheme to travelers. However, travel managers throughout the region frequently complain about the carrier's inflexibility during negotiations.
Schodt said DTP is doing well without an SAS deal on two counts. ''I do a lot of consultancy work for other companies and from that I know that no one has a deal with SAS that is truly beneficial,'' he said. The other reason is that, unlike some Scandinavian companies, DTP claims to be far more successful in preventing travelers from deserting preferred carriers and defecting to SAS. Schodt said that 90 percent of DTP's business between Copenhagen and Stockholm is on Finnair, which has a hub in the Swedish capital.
DTP avoids SAS in part by grabbing all the frequent flyer points earned by travelers and trying to use them for business. Without the prospect of gaining mileage for private use, the appeal of defying policy to fly SAS is diminished. Travel managers on both sides of the Atlantic have tried such tactics before but the difficult aspect usually proves to be finding appropriate flights on which the mileage can be used for business purposes. DTP claims a relatively high strike rate: Out of every three bookings it attempts to make with SAS using frequent flyer points, it is successful with one.
One of the 10 DTP members has had trouble enforcing policy, so here another solution was found: An in-house frequent flyer scheme with the traveler earning a reward for every 10 flights, irrespective of the airline used.
Schodt now has ambitious plans to bypass travel agents and computer reservations systems altogether and purchase from preferred suppliers directly with extranet self-booking tools. He also is interested in encouraging the formation of similar consortia in other countries which then could pool their resources on an international level.
International cooperation may help each national consortium to purchase from its home carrier at overseas carrier rates.
If, for instance, an Irish consortium were formed, it could be the main purchaser of SAS tickets for the global entity--theoretically achieving a better discount than DTP could manage in its own market. DTP could return the compliment by purchasing Aer Lingus tickets for the Irish.
The cooperation idea is in its very early stages and the airlines may well refuse to play ball. But if travel managers in the United States, or anywhere else in the world, are interested in forming a consortium in their own country and joining forces on an international scale, Schodt would be delighted to hear from them.