<B>Prosperous CTDs Flourish</B>
By Megan Hjermstad
18-month-old ARC accreditation program for Corporate Travel Departments has found its legs, and the ground to stand them on. CTDs have reduced overall travel costs through lower average ticket prices, lower transaction fees and net agreements with preferred suppliers. Although service levels are more difficult to quantify, CTDs are receiving traveler approval that has resulted in improved policy compliance.
With the agency removed from the ticketing process, CTDs are getting a much clearer idea of process costs as a result of a direct flow of funds. CTDs also have taken advantage of greater flexibility and freedom to select online booking systems and implement direct connections with suppliers. However, CTDs are not completely autonomous. They have continued to outsource some components of travel, such as after-hours service, to agencies that have unbundled pricing on a fee-per-service basis.
Ohio-based Troilo & Associates Inc. conducted a benchmark analysis of all-inclusive cost-per-transaction fees. The firm found that among CTDs, the lowest cost per transaction is $12 and the median is between $17 and $19. "This is an amazing number," said Tammy Troilo, president and CEO. "Most people are paying in the $40-plus range, so they are saving more than half."
Chattanooga, Tenn.-based U.S. Xpress Enterprises Inc. has saved 25 percent on airline tickets alone--$250,000 on its $1 million air volume. Since it received its ARC accreditation and began ticketing in April 1999 (BTN, Feb. 22, 1999), U.S. Xpress has reduced its average ticket cost to between $300 and $325. Corporate travel manager Dawn Pandolfi said that prior to becoming a CTD, the company was paying about $75 to $80 more per ticket, in addition to the service fees involved.
Pandolfi said the decision to become a CTD was partially based on lowering overall airline ticket costs. "We were not sure lowest fares were being offered, since most agencies suggest airlines or itineraries based on their need to make a profit via overrides," she said. Pandolfi added that travelers were not normally offered optional departures from cities such as Nashville or Atlanta as alternatives to leaving from Chattanooga, even though those fares might be hundreds of dollars less and worth the extra cost of ground transportation.
Pandolfi also moved to the CTD to avoid travel agency service fees that she found were rising with each commission cut by the airlines. Two years ago, prior to CTD approval, U.S. Xpress was paying agencies in excess of $5,000 a year. She estimated that the same figure would have reached in excess of $7,500 last year.
U.S. Xpress this year has negotiated preferred rental car contracts with Hertz and Budget, and as a result of using preferred hotels the company now pays on average $25 to $30 less per night for rooms at better-quality properties. "It was very easy. Most suppliers have been very supportive and willing to work with us," said Pandolfi.
The CTD also has resulted in better policy compliance and traveler involvement. "The CTD has helped not only with mandating policy but given them what they feel is a perk to work here," said Pandolfi. "We now get much more feedback from the travelers. They trust us and are much more willing to be the CTD's eyes and ears in the field."
Syracuse, N.Y.-based Carlisle Companies Inc., which received its ARC accreditation in May 1999 (BTN, April 12, 1999), also is seeing a substantial reduction in ticket prices after one year of operation. Gail Newcomb, an executive assistant and office coordinator who put the concept together and presented it to management, said she began the program primarily to have more control over the company's $3.3 million domestic air volume. "We've exceeded what we expected. We were hoping after the expenses of the operating department we would see at least 5 to 7 percent savings," said Newcomb.
As a result of adding more divisions through acquisitions, Carlisle has seen a 29 percent increase in the number of tickets issued--which would result in an 18.6 percent increase in total travel expenditure--but Carlisle is paying only 10.7 percent more due to a 15 percent decrease in the average ticket price.
Carlisle successfully has negotiated net fare agreements with four preferred carriers including its top preferred carrier, Delta Air Lines, which Carlisle said was extremely cooperative. "Delta knew the concept of a CTD way before any of the other airlines," said travel manager Rosette Locke. "Some of the airlines still don't understand what a CTD is."
Troilo agreed that Delta is very good about working directly with companies, but has found that other suppliers are inconsistent in their attitudes toward dealing with CTDs. "The thing that bothers me the most is that vendors off the record will say, 'If you find someone interested in a CTD, we want to work with them,' but what a corporation hears from them is, 'You're going to get a better deal with the agency,' " said Troilo. "They are sending mixed messages."
"There has been acceptance of the project among travelers and top executives. The travelers are really doing what we ask them to do and flying preferred carriers," said Locke. "I think the biggest reason is they know they are dealing with other Carlisle employees."
Two years into his program, Andy Menkes, vice president of corporate travel at HSBC Bank USA, is continuing to see 70 percent management cost savings. "One very tangible savings is in looking at outsource fees that we pay for 24-hour service, for management and ARC reports," Menkes said. "The fee that we're paying is significantly lower than services we paid pre-CTD." Menkes also is seeing lower ticket prices as a result of net fares.
As of July 1, HSBC, formerly Republic National Bank, has consolidated and insourced all reservations and ticketing for U.S.-based travel.
Menkes said that the primary value of the CTD is in the direct flow of funds. "Whatever commissions we get--and that would be from the carriers with which we are not net--it is a direct deposit by ARC," said Menkes. "The biggest advantage is happening on the financial side, both in process reduction and accuracy in terms of identifying those funds."
Menkes of late has been a forerunner in negotiating direct supplier connections. "One of the advantages of being a CTD is that by having a unique ARC/IATA number, it provides a vehicle for e-commerce," he said.
HSBC recently went live with a direct extranet booking connection to British Airways' internal res system (BTN, March 6). HSBC also has an extranet car link and is looking into expanding such links to other suppliers such as hotels. "Direct connections are going to increase over time as more and more companies become CTDs and more suppliers recognize the value of those direct relationships," said Menkes.
Barry Lemley, ARC director of accreditation and database management, agreed that the business model offers more options for direct connections and online booking. He said that among CTDs, travel managers have a tendency to be more aggressive with technology. According to ARC, the level of automation in CTDs is 12 percent higher than the national average.
One explanation is that CTDs offer companies more control and more objectivity on the tech side, since they are not tied to an agency. "It allows corporations to evaluate the type of technology environment in which they want to work and how far they want to go, looking at expense report systems and online booking systems and integrating data," said Troilo.
Companies with CTDs have maintained relationships with their travel agencies by outsourcing such functions as MIS. "It has become common to refer to a CTD as synonymous with an agencyless environment," Troilo said. "It is simply an ARC appointment enabling a flexible operating platform."
While agencies have less to gain from a relationship that does not require ticketing because it erodes their yield of overrides, more agencies have shown willingness to work with CTDs and unbundled pricing to meet their needs.
Columbus, Ohio-based Travel Solutions is supporting several CTDs at a variety of levels. CEO and president Torsten Krings said that Travel Solutions is extending unbundled services to CTD or self-managed corporations on a fee-per-service basis as it would to any other client. "We like to have a clean relationship based on a corporation paying for services, where a company always collects their own commissions," said Krings. "We submit service and get paid for service."
Troilo has seen reluctance on the part of agencies to support the CTD model. "The area of the cycle where it is a little squeamish is when a company begins looking into the option and a lot of forces come out to tell them this isn't the right thing to do," said Troilo. "Agencies are using a lot of tactics to deter people from doing this." She said that one agency in particular is putting pressure on the global distribution systems not to deal directly with corporations.
Meanwhile, the number of companies with CTDs is increasing at a pace of 8 percent month over month. ARC to date has accredited 50 CTDs, with another 50 in the pipe.
"Corporate travel managers don't make snap decisions," said Lemley. "They like to research, they like to talk to their peers, and they need to get CEO/CFO endorsement," said Lemley. "People now are getting the green light."
By the end of Q3, ARC will automate the CTD application process to make it easier for applicants. Using the automated system, an applicant will be able to download application forms and then resubmit them electronically.
Increasingly, companies with larger air volumes are seeking accreditation.
Dallas-based Occidental Chemical, which spends $11 million annually on air, will become an active CTD on Aug. 14. St. Petersburg, Fla.-based Raymond James Financial, with $20 million in air volume, on Oct. 1 will go live as a CTD.
"We always have seen interest from larger companies, but it takes a little bit longer to go through the hierarchy," said Jeannine Rehel, ARC's manager of corporate travel department and electronic commerce.
Among the smaller companies that recently became CTDs, all of which have annual air volumes of less than $2 million, are: Fairport, N.Y.­based Canadaigua Brands Inc., Richmond Va.­based Media General Inc. and Medina, Minn.­based Polaris Industries Inc.
Julie Simpson, a consultant at Washington-based Caldwell Associates, said company size probably makes a difference in whether the CTD is the best option. "There still is a delicate balance of determining how much extensive work is offset by having control," she said. "In a large company, travel is more complex, time consuming and prohibitive. The ideal size is a company with $3 million to $15 million, where travel is not very complex, but complex enough to require attention.