Disassembling Environment Derails Service
<B>Disassembling Environment Derails Service</B>
It has been of grave concern to me for some time now that the convergence of a number of somewhat related variables would cause this year to be the year of "res-agent Armageddon." The reality of this phenomenon will cause many in the airline-travel management-corporation supply chain to rethink their strategies in order to avoid the inevitable and keep the travel system operative. Toward the end of this elongated letter, I will offer an industrywide solution for discussion.
Let's begin with the facts: First, all the talk of agency disintermediation has scared hundreds of thousands of fine people from entering the industry. Second, while I'm not adverse to airlines having reduced commissions, they did so far more than they should have and may not have thought through the end result. Third, technology is not the near term answer many think it is. Fourth, travel agencies did some stupid things over the past few years regarding pricing. Fifth, a tight labor market remains in place. And last, while we enjoy a turnover rate in the single digits, employee turnover in the travel agency industry is approximately 60 percent.
The net result of these combined factors is that there are far fewer agents in the industry than needed, and most agencies can't afford to hire, train or retain them even if there were. Corporations and consumers are crying out for better service and most agencies have no chance of delivering it.
Service has already dropped precipitously this year, and next year will be even worse. Prospective clients' report to us that telephone hold times are averaging more than two minutes and in many cases more than 10. Most of our client contracts call for a live agent to answer the phone within 20 seconds. No airline would ever agree to this and most agents are trained in their airline alone. This will further diminish service and cost the airlines dearly.
Let's start with disintermediation (a word not even included in my spell check.) I don't believe for one second that airlines want to rid themselves of agencies. The problem is they are quickly and unknowingly doing so. If that were to happen, the airlines in the United States alone will need to hire close to 250,000 reservationists. You think they want to, forget it. The unions would have a hay day and airline costs would soar. The cost of distribution at 9 percent commission would be a bargain.
Most airlines just want to de-leverage agencies, corporations and all other entities that are obstacles to higher yields. Thus, reduced commissions to agencies, veiled strategies to divide and conquer corporations through direct Web sites, data requirements, CTDs, etc., all are designed to raise fares.
Most corporations now have become cognizant of these practices and are forming even closer bonds with their travel management companies to fight back. Corporations are outsourcing their travel to sophisticated travel management companies at a faster pace than ever. Only a few of us are prepared to accept it, and in the long run that is not good for anyone.
I have asked many an airline executive to tell me what is the correct commission level for outsourcing their reservations to agencies. In only one case did I get an answer, and it was 7 percent. I was amazed that they had even studied and measured the amount. No other airline had any idea. They just answer with "we need to be competitive in the marketplace." In a world where outsourcing is the most efficient means of doing business, airlines are unknowingly creating an environment for themselves of unwanted insourcing of reservations, a return to the 1950s.
Turning to self-booking, this a tool we'd all like to see proliferate. The truth is, the adoption rate is horrendous and cannot keep pace with the number of reservations being produced by corporations in an expanding economy. Penetration rates remain around 3 percent and the chances of those rising to double digits by next year are bleak. Obviously, there are exceptions to these figures, but on average this is what they are. Hopefully, I'm wrong and those of us with this application software are doing everything possible to increase its usage.
Travel agencies and travel management companies are not without blame either. By being near-term and top-line focused, many agencies, large and small, priced their products and services below cost. For years, we have benchmarked our costs and believe we are the low-cost producers in the industry. Yet, we see pricing from competitors leaving no room for margin; in other words, doing business at a loss. In fact, I believe many are losing millions of dollars, some even tens of millions yearly and thus causing irrational behavior in the marketplace.
Couple all the above with a tight labor market, turnover at the highest rate ever, and you end up with an industry depleted of qualified agents. Years ago, we opened large Intellicenters in remote parts of the country and people laughed. Now everyone is headed for the hills. In the words of famous vocal artist Carly Simon, "Well it's too late baby, now it's too late." You can't just find a large building in rural America and stuff people in. It doesn't work like that. To deliver elegant service, you must invest heavily in recruiting, training, leadership, telecommunications, technology and, most importantly, a pleasant working environment. It took us eight years to perfect the process, and we're opening them as quickly as possible to satisfy client demand.
But remote call centers are not the end all either. Local centers and onsites are critically important aspects of the business. Being able to hire for all sites and situations remains key to success. The proverbial "one size fits all" couldn't be more appropriate.
Most disheartening of all is the turnover rate in the industry. What causes turnover? Well, for starters, stress. Agencies are asking more from their people than ever. Business is infringing on their personal lives. The velocity of change and the pace of work are accelerating. Compensation from most agencies is not keeping pace with the added responsibility and stress associated with the job. Corporations are doing their best to keep the lid on wages and as most contracts are now fee based, or cost plus, thus have a direct correlation with salaries paid reservations agents.
Something has got to give. Airlines don't want to and can't afford to take reservations directly. Corporations demand service levels unattainable through most agencies. Reductions in the airlines' costs of distribution have not resulted in lower ticket prices and the agency community is consolidating down to a few, giving companies and consumers less choice.
When it comes to Rosenbluth International, I'm not complaining. We're having our best year ever and service levels are at their highest. But we are only one company, and the investments we made years ago in technology, infrastructure and people have paid off.
The industry is in chaos and looking for direction. At the risk of ticking everyone off, I offer the following solution for consideration. Airlines should increase commissions to the right level, whatever that is. Corporations should be held to performance levels for discounts from airlines (tools are readily available to do so), so that indiscriminate discounting ceases. There are far too many corporations doing the right thing in support of their airline programs that they shouldn't be penalized by carriers giving away discounts to corporations without the tools or desire to deliver share in return. The net result would buy deeper discounts for performing corporations and higher profits for carriers that don't behave like lemmings, and simply match deals.
Most travel agencies should consider changing their business model and outsource their infrastructure and overhead to others. Mega agencies should decide whether or not they really want to remain in the business. If not, get out. For those deciding to remain in the business, I highly suggest a major refocusing on the people they employ. Without them, they will cease to exist. In a business world with very few sustainable competitive advantages, your people are one. Years ago, we chose to focus on our people and it has been the magic behind our success.
Corporations should recognize the value they receive from their agency partners and reward them accordingly for their contributions. Certain industry consultants should cease acting like they understand the idiosyncrasies of travel management and stop suggesting ridiculous ways to remove sorely needed revenue streams from agencies, i.e., CRS segment fees. Corporations don't want the grief of contracting directly with CRS companies and don't have the infrastructure to work directly with them anyway. When properly researched, companies will find the costs of doing so are far greater than they'll ever know. In any case, agencies will just turn to corporations for relief to make them whole.
There is so much smoke these days that the people creating it don't even need the mirrors to go with it. They won't be able to see themselves through the haze anyway, and if they were to, they wouldn't like what they see. What this industry needs is truth, honesty and time to sort things out. Too many dumb things are going on out there right now and it's time for some sorely needed fresh air to clear the fog.
<I>Hal Rosenbluth is chairman of Rosenbluth International, the Philadelphia-based mega travel management company.