Internet, Mega TMC Clients Debate Configurations, Cost

Three corporate clients of travel management companies—one of an Internet travel management company, one of a mega agency and one that uses both—met with BTN editors at last month's National Business Travel Association convention in San Diego to discuss agency service and pricing. Buyer participants were Patricia Carlin, manager of global card and travel for Sybase; Nancy Garner, global travel procurement manager for Extreme Networks; and Robert Steiner, director of procurement for Fair Isaac Corp.

BTN: Patricia, you're in a particularly interesting situation, trying to play your traditional agency against your online agency. Is Amex even more aggressive with pricing than in the past?

Patricia Carlin: I sure hope so. I would think, though I can't speak for them, that under the circumstances, they would be pretty aggressive. I can't stress enough that they've been a great partner. They've been extremely supportive of me. They're not crazy about the program but they're supportive of the program. They're a great partner in Europe, and there's nothing that I can say here that would be a negative.

Nancy Garner: These agencies are really going to become consultants. All the Expedias and Travelocitys are going to be your fulfillment centers, because the agencies can't afford to compete.

Bob Steiner: You don't think so? It's a transition. Step backward and look at any type of evolution of an industry. Take global distribution system renegotiations of contracts. The Danny Hoods of the world are looking at their business pace and saying, 'What do we do?' It comes down to, 'We provide a service.' That's the paramount emphasis of their business. They're like our auditors or our accountants or anyone we go out to bid for. Especially on the procurement aspects, we have service providers. They say, if we're going to play in the same marketplace and we're going to go to online tools where we're going to eliminate the personal aspect, I don't need an account manager and if I do, it's nominal at best. I can rely on technology to do my booking…

Garner: Ah, that's where it's not going to work, because if you don't have somebody that understands travel working with Orbitz, Expedia and Travelocity in the booking tool, and knowing what they're doing, you're not having a marriage.

Steiner: I'm not saying that. There's the account management side on the agency side, but you're getting less. It's like any buyer. I have a buyer who buys software. His or her job is to know that software inside and out, what it is, how it operates, why there's a value to it. Their job is to go out and maximize the volume of the company and our relationship. What's it going to cost me to service your account with an agent, if it costs $35, $45, whatever the case may be? You, as a buyer, have to say, 'Is it worth it to me?' On the procurement side, if I pay $40 a ticket for an agent to book it, and they can book, say, 10 tickets an hour, that's $400 an hour your company's paying for that individual if they're booking for you. Now, $400 an hour is a high-priced consultant in any area. You're looking at it as, they provide you a great service and that service is to get your travelers from point A to point B at a fair market value. That's a lot of money.

Garner: I think you misunderstood. I said the travel agencies are going to become consultants who help you…

Steiner: They've already become that…

Garner: A lot of them are still doing the fulfillment part for companies and a lot of companies are now turning to these other places for less. Agencies are finding that it's very costly to do that, and they're letting it go.

BTN: Nancy, beyond the basic transaction, what do you actually pay for?

Garner: That's why I went to Travelocity. I was tired of negotiating with these agencies that were nickeling and diming me to death. I have an offline fee and an online fee, and the offline fee is less than the online fee, because we have 97 percent adoption rate. Believe me, anytime someone calls in, they're going to help that person to book online because that's what costs more. Included in that bundle are your refunds, your voids, your exchanges, everything. I don't have to worry.

BTN: So, you're paying for multi-segment itineraries and VIP services?

Garner: Yes. It's all in there.

Carlin: I'm paying headcount that way. She's paying for it through Travelocity in a method, I'm paying for the exact same thing, only the way I'm paying for it is I'm paying labor. I get exactly what she's talking about.

Garner: The difference is, what are you paying and what am I paying.

Carlin: Absolutely correct.

Garner: Because what I've done is say I want one price for everything in that passenger name record, period. I don't care if they go back later and add a hotel or a car, or do an exchange or cancel or void or whatever.

BTN: You don't pay for all that?

Garner: No.

BTN: We've always heard from agencies that every phone call has a cost, so how can these guys afford to do this?

Steiner: Well, it does have a cost. In their cost structure, how they break it out, it's like you were saying earlier. No matter how we do business, no matter how we break it out accounting-wise…

Carlin: It has a price.

Steiner: Everything has a price.

Carlin: They're making their money somehow. There has to be some kind of margin there.

Steiner: It goes back to margins too. How are they profitable? If they are profitable, is your account profitable, and if it is or isn't, does it make a difference? It's a cost factor. Whether it's a facility, distribution channels, software, hardware, personnel, it's labor. Even Travelocity has people who work for them, account managers, salespeople. You look at their profit and loss statements and their balance sheets and they look just like everyone else's, except that it looks like they're run better. That could be based on the fact that travel management companies were the early innovators. Their personnel was structured on how many people to support a GDS, how many people do we need to answer telephones, how many telephone systems do we need, do we need telephone systems? The Travelocitys of the world, when they came up in 1993 and 1994, had the advantage of saying, we're going to create a better mousetrap. We know, based on how we do business, that if we can set up our own relationships at a fraction of the cost to what they're currently stuck in their contracts, we can save money and that's true for anybody. If you just want basic ticketing and booking, there's companies out there that provide that. If you want something more, no matter what that is, then you select American Express or we select WorldTravel. I'll guarantee you our documentations look very similar, but the direction we've taken and our analysis are different. That's great, because no matter how much we're the same as far as the global travel industry goes, we're all different companies.

Carlin: Even though we negotiate as procurement officers and our thing is to look the same, we negotiate differently. The objectives are different and you color it differently.

Garner: But it still comes down to cost. What are you going to pay? You've got six gloves that all look the same, and they're priced from $2 to $12 and it's all the same thing.

Steiner: No, it's not. Then you're looking at the lowest cost. We in procurement look at form, fit and function. What's our objective? Is it the lowest cost or are their other factors of that glove that we're looking for? If all things are equal, and we're saying we can fulfill our objectives, then we go with that.

BTN: How are you negotiating service-level agreements differently than you may have done five years ago?

Garner: Service is something everyone promises you, Are they really giving it to you? Are they handling your travelers the way you expected them to or the way you signed on for? A lot of it has to do with the quality of people they have working for them and the knowledge they have behind them. You can get an agent with hardly any experience versus one that has quite a bit. It saves you a lot of money. The fulfillment part of it is really based on how the company has dealt with the people they're hiring to help them.

Carlin: I wonder if they're going to come to us and say, 'I'm going to charge you X because you want this agent who's been with us for 10 years, but if you take this agent here, we'll charge you Y.'

Steiner: From our perspective, any time we go out to bid, we're invoking or involving services. We implement and incorporate contractual terms to hold these service providers to a standard, but you have to ask yourselves the question, as a corporation, do you implement penalties when a vendor fails to meet a service level? Do you also provide bonuses and incentives? As procurement people, you look at both of those. You can provide better service and whatever you want, but are we willing to pay you money for that?

BTN: Are the service-level agreements that you negotiated for this current contract different?

Steiner: There are just a lot of different aspects to it now. Technology is much more prevalent in the industry now as far as how we handle things from that perspective. The generic aspect of the touched transaction, they're all the same still, the phones, everything.

Carlin: Answer 80 percent of your calls within 20 seconds. This is the standard. I ask this to the general population of the world, has anyone actually invoked their service-level agreements? What kind of resources is it going to take to collect on your SLA if it's not met? Our SLAs in technology have to change. You can't just use the old SLAs and say this will be fulfilled 80 percent of the time. No, no, no.

BTN: Nancy, do you have SLAs with Travelocity Business?

Garner: Yes, I do.

BTN: What do those focus on? Obviously not on answering the phone.

Garner: No.

Steiner: But they could do that.

Garner: Actually, that has not been a problem for me with them. What I really focus on is international pricing. Like for you, Bob, for me that's where the money is. I want to make sure that I know someone good is handling those international tickets. I go in and check and I make sure that we're getting the lowest price on those internationals. I mean, I can't tell you how many times I go into reservations to see what they've done. I have to say, 98 percent of the time, I'm happy.

Carlin: So what do you do with that 2 percent?

Garner: I'm on their back. They don't even want to hear from me.

BTN: You're the only one who audits them though?

Garner: Yes, and I audit them all the time. Every single day, I'm checking into things just to make sure that we're getting what we're supposed to.

Carlin: What you want and what your focus is in your program, regardless of anything, is the lowest price?

Garner: No, I never said that. It's not the lowest price, it's more the service for my people. I really want the service to be there for my people.

Steiner: So, you're like us. We want the best value.

Garner: Like I said, we cut the agency cost down to one-fourth of the cost when I went to Travelocity. That wasn't my choice for moving over there.

Carlin: When Nancy talks about going to one-quarter of her cost, I have to say that in our situation, the goal was to reduce our cost of business by X percent. I absolutely met the goal within pennies by reducing headcount. Yes, the cost of doing business is less. The cost of the transaction is less, all the things we're doing in our negotiation, but it was really labor cost. That's what I'm sure we'll see in our new contract.

BTN: How do you justify to senior management not paying the lowest cost?

Steiner: It goes back to what the objective is and what we're looking to buy. That's true of any service or supply we're buying. There isn't just a low-cost provider because you can always find someone who will nickel and dime you.

Garner: You really have to look at the culture of your company and what your VPs are looking for and what kind of service they want for their employees and what are they willing to pay.

Carlin: They can ask us for what they want, but it's up to us as travel management and procurement professionals to know what's the right thing and take it to them and help them see what it is they need.