Digital Embarks On European Hotel Consolidation

<B> Digital Embarks On European Hotel Consolidation</B>

By Amon Cohen

<I>Geneva </I>- It is little surprise that Calin Schiau regards himself as a true European: born in Rumania, of Italian and Macedonian ancestry, the business travel manager of Digital Equipment Europe is married to a Finn and lives and works in Switzerland, but crosses the border each winter weekend to ski in France.

With that sort of pedigree, he is ideally qualified for implementing a travel program of around $100 million across 23 countries, which he has managed with some impressive successes along the way. With "consolidate and leverage" as his guiding philosophy, his latest strategy has been to halve the number of hotels used by Digital Europe overnight from around 600 properties. The program only commenced a few weeks ago, so it is too early judge its progress. However, Schiau is hoping to achieve significant savings and efficiencies based on Digital's strongest negotiating asset: its proven ability to shift market share toward preferred suppliers.

He already has pulled off some spectacular savings with the company's preferred airline program. In one European market, Schiau discovered Digital was losing more than $100,000 per year because travelers were using the national carrier instead of one of Digital's four preferred global airlines. Schiau presented the stark financial evidence to senior management in the national market and secured their support for a concerted push with the preferred airline. Within three months the national carrier, which had refused to offer a deal, saw almost all its business disappear.

The shift has produced two benefits for Digital, said Schiau. The first is the direct, annual six-figure improvement to the company's bottom line; the second is that the spurned national carrier, stung by 18 months of lost business, is talking to Digital again. That means Digital travelers could be flying with the national carrier again at a more reasonable price. Even if not, the renewed competition has created a virtuous circle, putting pressure on the global preferred carrier to improve its terms to maintain the business.

<B>Leveraging Card Data</B>

Schiau is hoping to create the same effect with his new hotel program, devised in close collaboration with the European purchasing group of American Express, which handles Digital Europe's travel in every country except two.

As Digital's corporate card vendor, American Express used management information pulled from the card to identify the 600 or so hotels Digital currently uses. Amex then created software to identify which properties should be selected for the new, streamlined program. First, each property had to fulfill a list of minimum requirements, including basic amenities plus the ability to load rates on a global distribution system and the guarantee of last-room availability.

The next step was to judge each property according to a variety of criteria. Each of these was given a weighting, the most important being lowest rate and proximity to the local Digital office. Amex gathered all this information by sending RFPs to the 600-plus hotels on the list. It initially received a 65 percent response but many more arrived once those properties realised they were about to be thrown off the Digital preferred program.

Schiau, however, quickly learned that many of the hotels had not grasped the rationale for the new program. "They responded with one rate to Amex but promised Digital a better rate locally," he said. "I realized I had to educate the hotels that these were not local but pan-European deals and that they were for Digital, not for Amex to give to all its customers."

But if hotels were prepared to give Digital good deals locally, why did Schiau insist on controlling them centrally through Amex? "I am trying to achieve leveraged, fully outsourced travel management," he said. "That will allow us to reduce Digital's administrative work and to use Digital's local purchasing resources for high value-added work rather than booking hotels."

In addition to outsourcing the non-value added administration to Amex, Schiau said the new program finally will ensure all rates are loaded in the GDS, which will lower administrative costs too. There also are direct financial benefits, with most of the newly negotiated corporate rates either the same or slightly higher or lower than last year. However, with the newly integrated management information plus the experience of either gaining or losing Digital business in 1998, Schiau expects significant improvements in 1999.

"The main achievement of the program is that we will prove to hotels that we are serious about controlling and directing business towards them," he said. "They will therefore be more eager to retain Digital. Hotels dropped from the program have come back and said they will do their best to be included in the future."

Devising a program as ambitious as this has inevitably had its problems. Schiau anticipates some initial resistance from travelers who consult the company's intranet hotel guide only to find they may no longer use their favorite hotel. "My expectation is that as with any new program we are going to have some inherent negative reactions about the absence of certain properties, but the majority of the most popular ones are in there anyway," he said.

More unexpected was the lack of cooperation from the hotel chains, with which Schiau attempted to negotiate at the same time as talking to individual properties.

"In the hotel business, we are still far away from doing chainwide deals," Schiau said. "In many instances, the rates offered to us locally were 40-60 percent lower than those for the whole chain and I was not offered any umbrella benefits either."

With the hotel program under way, Schiau now has time to address some of the topical airline issues being considered by many travel managers with pan-European responsibilities. The first is finding ways to negotiate with the newly formed international alliances.

At the moment, true alliance deals are an idea rather than a reality. Schiau is discovering that his combined card and business travel information from Amex is giving him better data about his spend with the constitutent airlines than the carriers possess themselves. "Alliances are a concept of the year 2000," he said. "It is difficult to finalize an agreement when there are so many unknowns."

Schiau also is hoping to pursue his goal of consolidation by introducing cross-border satellite ticket printing, which eventually would enable Amex to service Digital across the continent from a single call center. However, his research is still at an early stage. The same goes for net fares, which are proving difficult to secure on a pan-European basis.

Amex director of purchasing for Europe Kyle Davis said there are several lessons that travel managers can learn from Digital's approach towards vendor agreements.

"I am particularly impressed with the way Digital uses data to find a win-win solution with suppliers rather than just leveraging discounts," said Davis. "Digital genuinely develops partnerships and finds value for the supplier. Calin and his team also have a very structured, disciplined approach. They define their objectives and develop their strategy before jumping into negotiations. It means they avoid the trap of perpetual negotiation and are able to examine the whole of the purchasing cycle. Some companies don't ever seem to close on their negotiations or as soon as they finish, they want to open up again and squeeze some more from the vendor.

"You can get a lot better savings by directing business towards your preferred suppliers instead of negotiating a few additional percentage points."

But Digital's greatest triumph, according to Davis, has been its ability to deliver on market share agreements.

"It means that the company achieves its agreed savings and has even greater negotiating power next time because it has proven it can meet commitments," according to Davis.

Schiau is assessing the potential benefits of a proposed $9.6 billion merger with Compaq. With the two companies' travel budgets combined, the opportunities to consolidate and leverage would be greater than ever before. Schiau is looking forward to the challenge.