Modeling Tools Maturing - 2001-01-15

<B>Modeling Tools Maturing</B>

By David Jonas

A new crop of analytical modeling tools available to buyers preparing for airline contract negotiations is beginning to mature and, in some cases, yield significant savings.

These products, available both from third-party technology providers and the travel agency community, have been driven by the increasing complexity of airline deals, availability of consolidated data, improved technology and trend toward procurement and sourcing-focused travel management.

"The travel industry deals with a vast amount of data, and buyers and sellers need improved technology to really get their hands around all of it," said Michael Whitesage, president of the Prism Group in Albuquerque, N.M. "Without analytical software, you were shotgunning. Now, you have good matches being made between buyer and seller."

Cleveland-based Travel Analytics' Tango product is one of the more successful of the new breed. In less than 18 months since launching an initial beta version (BTN, Nov. 1, 1999), Tango has secured about 50 clients including Compaq, Deere & Co., Dell, Hewlett-Packard, PricewaterhouseCoopers and TRW. Travel Analytics said many companies can save as much as 5 percent off their air spends, but some clients already have slashed as much as $15 million.

Tango, developed in the service bureau format, allows buyers to run detailed simulations of air programs to identify potential savings scenarios, either prior to RFP creation or during the negotiating cycle.

Among the product's newest features is the ability to calculate travel time in any scenario and to help travel managers determine the trade-offs between price, flight connections and travel productivity. "The travel management pendulum can swing too far to cost savings, but it's starting to swing back toward an HR-orientation and travel managers will have to pay a lot more attention to traveler productivity and traveler retention," said Travel Analytics founder Scott Gillespie.

Also new is the capability to report an airline's ability to serve a corporation's city pairs in the context of the overall share an airline is requesting.

Meanwhile, Tango continues to have a contractual relationship with Maritz Travel, whereby the agency collects and normalizes a client's data within its Northstar data consolidation system and sends it off to Travel Analytics for analysis and number crunching. "About a dozen of our clients have used it with about half improving their airline discounts simply by determining how and when to narrow the number of carriers they use," said Jack O'Neill, Maritz president of corporate travel.

Moving forward, Travel Analytics plans to automate airline RFPs and negotiating, and perhaps even establish online auctioning. "Airlines probably are not yet willing to participate in e-auctions, but I predict that within the year we will conduct automated RFPs and negotiations from start to finish that take less than one week," Gillespie said.

Travel Procurement Solutions, under the WorldTravel BTI umbrella, also is developing an analytical contract modeling tool. Air Program Manager began as a Web-based application but has been redesigned as a desktop Windows program to keep costs down. "While it is not as sexy as the Internet, we think it will provide much more functionality and usability," said Barry Rogers, senior vice president at TPS.

Air Program Manager pulls data from various sources to create an independent quality of service index (QSI) and a baseline to which multiple hypothetical scenarios can be compared. Those scenarios are based on changing the parameters of existing policies and contract terms to predict likely outcomes and expected savings.

"Airlines now are much more sophisticated in terms of how they are managing corporate contracts. And sophistication breeds complexity," TPS' Rogers said. "Air Program Manager is a tool that allows you to test drive your air program before you implement it."

About a half dozen initial users who have been beta testing Air Program Manager since November are now in the training process.

So is John Wenzelman, director of industry relations in the Midwest region for WorldTravel BTI and former travel manager at Ft. James Corp., which recently merged with Georgia-Pacific. "This tool allows me to hit a multitude of clients within our division and do base analyses," he said, adding that he expects to start applying the tool to his accounts within two months.

Other travel agencies have developed similar products and services. Rosenbluth International's Discount Analysis Containing Optimal Decision Algorithms system first surfaced in 1994 and will sign its 50th client within the next few months. "Rosenbluth's Dacoda is important because they had the foresight to understand how the market would be going," Prism's Whitesage said.

The patented yield management product was first positioned as a point- of-sale optimization tool, but Heather Guyon, general manager of Dacoda strategies, said client business is changing in so many ways that it now also is marketed as a decision-support tool.

Dacoda collects a corporation's historical data, links to the GDSs and recreates its own fair market share capacity indicator. "After looking at all the variables and customized parameters and producing multiple scenarios, the goal is to find the optimal carrier combination, or best buy," said Guyon. "We have known for years that the industry was moving in this direction and that travel managers always are searching for a way to justify their portfolio or to alter it appropriately."

Following last year's move from a standard spreadsheet format to an Oracle-based Internet platform, Rosenbluth expects to boost Dacoda efficiency by nearly 50 percent this year by automatically linking its consultants and analysts into back-office systems to include or exclude particular parameters.

Meanwhile, a patent infringement lawsuit by Rosenbluth against Travel Analytics has not yet been resolved.

At American Express, clients can use what the agency terms actual versus potential analysis to identify possible carrier combinations and potential volumes net of overlaps. "We then project for a customer who they should be talking to and what the potential gross volume without discounts could be," said Rob Pacheco, manager of airline strategy for American Express consulting services. "At mid-negotiation, we'll put an airline proposal back into the model and see what it would save."

Considering the multitude of factors, Pacheco said complete analysis cannot be automated. "Every contract and combination is different, so you need human interaction and industry expertise that the computer cannot provide," he said. "No one model can do it all."

The modeling capability mirrors a system formalized at American Express Consulting Europe called Air Deal Manager.

Consultants within the Carslon Wagonlit Travel solutions group also use homegrown software to run what-if scenarios and build a negotiating road map. But they also will work cooperatively with third parties if the client prefers. "Of course, we'd prefer to use our own system because it has greater customization capabilities than some of the third-party products," said Steve Shook, vice president of strategic sourcing for CWT's solutions group. "We use data drawn at the transactional level to know their spending patterns, full fare versus restrictive fares, codeshare usage, etc., and apply all that to what is going on in the corporate discount environment. The modeling is absolutely critical."

Whitesage's Prism Group, meanwhile, expects to fully implement in March a suite of products called Avion. Avion will be available as an ASP model to the largest travel buyers and will include an analytical modeling component parallel to a product available to the airlines.