Reaching For The Global Data: Corporate Buyers Take World View In Travel Supplier Negotiations

<B> Reaching For The Global Data: Corporate Buyers Take World View In Travel Supplier Negotiations</B>

<i>Multinational corporations, pushing to manage travel on a truly global basis, increasingly are advancing in number and effectiveness as they negotiate with agencies, airlines and other suppliers and their own internal departmental and regional divisions. To understand how far companies have to go, BTN editors met with pioneering practitioners. Joining the discussion were Philip Dunphy, manager of travel, Pfizer, which spent $85 million worldwide in 1997; Earl Foster, president of the Association of Corporate Travel Executives and director of global travel management for Joseph E. Seagram & Sons, which has a $200 million global program; George Odom, manager of corporate travel and corporate meeting services for Eli Lilly, which spends $34 million in the U.S. and about $12 million in Europe; and Richard Wooten, manager of travel systems with Texas Instruments, which has $160 million in global T&E . Also present was Liliana Frigerio, senior vice president of worldwide sales and account management for Carlson Wagonlit Travel.</i>

BTN: What sort of data does the buyer need today to pursue global deals with the airlines?

Dunphy: What the airlines are looking at is volume, market share and segments, and what the competition could possible take away from them or what could they possibly gain from the competition. Asia is still a struggle and trying to consolidate all of that information is not easy.

American Express has made some great strides on the corporate card side in pulling together the European data. If I understand it correctly, they've contracted with each of the major CRSs for feeds tying in the ticket numbers and then pulling together the city pair data that's required. The data doesn't get cut the way I'd like to see it, but we've got it so I'm sure we can manipulate it to the format that we'd like to have it in. We're working on that now.

My whole approach has been to be very open book with the airlines. I provide as much information as I possibly can in order for them to assess where they stand and where they'd like to go with our business. And I sell them on the fact that we've been very, very successful. Not only are we capturing more information and not only are we driving more of the market share, but our company also has almost doubled in size in the past three years.

BTN: Liliana, what are the specific hurdles that you see in gathering data at this point?

Frigerio: The problem is the discrepancy between the ticketed and the flown data. It is an eternal problem that all of us have--the card companies, the travel companies, the corporates of course, because nobody except the airlines have this data. And they're not going to give it up. The only way that you could possibly get it is for a traveler to come back and staple his boarding pass to his expense report. But can you imagine how much that would cost you? I think the cost would outweigh the advantage of knowing what your flown data is against what the airline tells you.

BTN: Someone recently said that the difference is so small between ticketed and flown data that it is negligible.

Foster: Absolutely not. It is somewhere between 20 and 25 percent. This is where I think net fares help a lot. You still have the problem in reporting flown data, because they're going to measure flown for performance. But if you put that deal together right then you take care of all that.

BTN: Because you're now using their numbers?

Foster: Well you're going to still measure performance against the flown revenue but you've already got the discount up front. So they're going to have to prove to you at this point that you didn't. Because I'm going to show them all my reserve data and say, "Show me those tickets that I didn't fly."

Odom: I'd like to turn your question a little bit and say the data issue that the airlines need to come to grips with is the data that says what is the good of these alliances. How does it help each partner? It sounds great when they come in and say, "We're the global airline with alliances across the world. Frequent flyers can get their credit on any one of our carriers. We're streamlining our process. We're becoming more consistent." So the corporations come back and say, "OK, what's in it for me? Do I get the same deal that I negotiated with alliance partner A with B, C, D and E?" And the answer is no. And if it's a U.S. carrier and you're negotiating in Europe then they're much more aggressive and will offer some better rates and stuff there, however, the European carriers will come and sit to make sure that the American group doesn't give away the shop. So, if these alliances are true then they should know the good of the group will get them more dollars. Some are going to lose and some are going to win but ultimately they all win and that has not yet been accomplished at this point. So so far it's an alliance for the airlines, an alliance for the frequent flyer, but it's not an alliance per se for the corporation.

BTN: While many companies are thinking globally they are acting multinationally, right Lilliana?

Frigerio: I think there's more said than actually done on global deals. Many corporate buyers start off with the objective of the global RFP, but when it comes down to awarding the contract I very often see that it breaks up into regions at best. However, if we talk just pan-European deals from 1990 to today it has come on by leaps and bounds, although today only about 35 percent of European companies have consolidated to one or two or three agencies.

You also have to consider that in Europe, it being such a large number of countries with different cultures, currencies, laws and regulations, it's a little more complicated than consolidating in the U.S. where you have, if nothing else, the same currency and language. Pan-European deals have become the norm, everybody's going out to bid. If they can get from 30 agencies to three, it's a huge success. Some of them are able to go from 30 to one but it takes a lot of discipline, knowledge of marketplace and buy-in.

BTN: Is there any way to quantify the movement that there's been in Europe toward travel management?

Frigerio: In terms of travel volume, I can tell you how much we've won last year. It was close to $1 billion.

BTN: That's in new agency consolidation deals?

Frigerio: Yes.

BTN: And then those people, I would assume, are looking for European air deals as well?

Frigerio: Yes, and that's also becoming the norm.

BTN: Richard, where does Texas Instruments stand in its efforts to consolidate in Europe?

Wooten: In Europe we have three major facilities, one in Nice, France, one in the U.K., one in Germany. It's just difficult to get people into looking at apples and apples--there are so many differences. One of the things that the purchasing managers over there are really looking forward to, now that we are deploying our automation system, is having a universal system to start capturing the data on the back end for standard compliance to negotiated airfares.

BTN: So it's been created but it's not actually in place yet, is that the situation?

Wooten: We're starting the implementation of it.

BTN: And how long do you think that will take?

Wooten: We're beginning with the U.K. first and we'll start beta testing by the end of April, and then in France and Germany in August.

BTN: Are you looking at automated systems to pull together global data instead of relying on your travel agency?

Wooten: That's one of the things we're looking at. We have run into some problems, just inconsistencies in the way the data is collected in the branch offices. Even within one agency you still have differences from country to country. And we believe that the automated systems could be the tool to start collecting that data.

BTN: Earl I know you've been very active at Seagram and also within ACTE on developments in European travel management. How are things changing there?

Foster: From the ACTE side, I'm really pleased at the activity. We have over 400 members in Europe now and every month it's going up. From Seagram's side of the house, we're absolutely delighted with what's going on. Regarding the data capture, we partnered with International Software Products. We have 18 months worth of data from North America and all of Europe on there right now and we will start to get some Asian data in there starting in the next two weeks. Asia's having to key in some data instead of being able to depend on the backroom systems but that's just the way it is in Asia.

BTN: But they're keying it into the same systems?

Foster: The nice thing about ISP is that they can take data in any form rather than in a specific format, so I'm really pretty pleased.

BTN: So they're cleaning that data for you?

Foster: As much as they can. We have to clean it, we have to test it, but at least it's all in one spot. So as I do my corporate reports to the senior management in the company, that's the tool I'm using.

BTN: Phil, I know that you also have been working in Europe and particularly in the U.K. What's the status there? Are the people that you have in Europe interested in dealing with the systems the same way that you are or do they have a different perspective?

Dunphy: We really only have one person primarily in the United Kingdom who has a high level of interest in travel management and I think more so from a service perspective than a cost perspective. So we're really relying on our global travel council to create the strategic initiatives that we want to impose throughout Europe.

To date our best efforts to capture data have been through the corporate card and that's one thing we have mandated. We currently have more than 16,000 cards worldwide and American Express has been successful in providing me with pan-European reports integrated with my reports in the United States. So I'm getting some very strong segment reports by carrier. We've also been trying to negotiate with carriers on a pan-European basis and our initiative has always been to start with the carriers of choice. With the U.K. being our largest market we have gone to British Airways, but unfortunately the results have been miniscule, and almost insulting. So we are now looking at alternatives and trying to develop programs that we can present to our senior management.

BTN: How large is your global travel council?

Dunphy: We have about 12 members from around the world. We try to meet at least every six months. It should be more often but there have been so many changes just within our own organization, it's almost like you're hanging on to the caboose of a runaway train.

Odom: We have a travel council and like Phil we have 12 folks that are in that. The major countries are represented. We did it through a strategic sourcing initiative and used that as a framework. From that we said we really need one individual to become focused really primarily just on travel. That's the person we recently hired in Germany as our European travel coordinator. There's a dotted line to me.

BTN: And how often does your travel council meet?

Odom: Over the past year we've been meeting once a month.

BTN: And what issues is the council dealing with these days?

Odom: Right now we're in the transition from getting it to everybody, deciding that you do need a travel policy, that you should consolidate airlines, that there is opportunity in rental car and hotels, to saying, "OK, now what do we do with this information?" We've got the work in progress, negotiations are relatively complete with the airlines. The agency has been decided and so it's really been taking that information and communicating it out to everybody who now has to operate within those guidelines.

BTN: So how long has that been in place?

Odom: Actually we started last March. So within a year we've created a first-time European travel policy, consolidated the group to two agencies within Europe and also consolidated the air.

BTN: Is there a specific goal that you have set for yourselves?

Odom: There's always a goal that management wants us to reach, but we've tried to be fairly conservative with that. That's one of the processes that the travel council has to say, "What are those numbers that people feel comfortable with, that can be achieved, especially in the first year." Because while there seems to be a very large amount that can be saved, as you get it together everybody says, "Why do I have to go along with everybody else when my local deals are better?" And then the implementation process slows down the savings.

BTN: So is there a percentage savings goal that you have?

Odom: No. Each country has some goals and they vary. Some countries were paying full fare tickets. Others were more aggressive and were using discounted tickets, or even coach transatlantic. Every day it seems there's another country that says, "Hey, we probably ought to fit into this." So the bigger countries first got that taken care of and then the others, even to the point that the next council meeting will have a representative from Russia.

BTN: Are you looking at pulling meetings into the global program or is that something that has to wait?

Odom: The answer is yes and yes. Meetings do need to be pulled into the program. European meetings are completely different from U.S. meetings. So we're going to start that as an initiative probably midyear to third quarter of this year.

BTN: Richard can you tell us about your travel council?

Wooten: We have four purchasing managers and about 10 percent of their time is devoted to travel management. In Asia we have two purchasing managers who are also involved.

BTN: Do the purchasing people get together periodically?

Wooten: The group in Europe does. They have a very strong team. They're actually the ones that decided to go forward with the automation in Europe. Once we roll it out, we'll probably have a little over 1,500 travelers on the system.

BTN: Earl, do you have a travel council as well?

Foster: No, we don't have a council. We are a travel team. I have seven people around the world dedicated to travel, that's all they do. I have one who manages all of travel in Europe for me. I have one woman looking after Asia/Pacific. I have one in here in New York paying attention to all my spirits business, one in Florida paying attention to the beverage business and one out in Los Angeles paying attention to all the entertainment business. And, as we speak, they are being changed from reporting to local people to reporting directly to me. And I get all of them together once a quarter at minimum.

BTN: Do you have some specific goals for your travel program?

Foster: Sure do. I have committed to the president and CEO of this company that I would return minimum $15 million in air this year. And as of the report I issued just last week, I'm on track to do $17.5 million in savings.

BTN: And this is through consolidating the program?

Foster: That and coming out with the global policy. Of the $15 million, $3 million alone is just from policy changes, because in my company they used to fly first class for anything over four hours. I had more people on the Concorde than I think anybody else had. Now I have nobody booked on the Concorde. And as of the exception report for the past six months, I have six people that are still flying British Airways, and as of Monday when I kick the report to my president and CEO they won't fly British Airways any more either. So we're getting great compliance.

BTN: Liliana, travel councils seem to be a way of moving to the multinational dealing environment. Are you seeing an increase in the number of travel councils?

Frigerio: Not only travel councils, but also an increase in the number of people being completely dedicated to buying travel and managing travel.

Most of the time I find purchasing managers who dedicate 10 percent, 5 percent or even 2 percent of their time--it's just another commodity to purchase. Very often they don't really know very much about the industry and that's why you'll find many corporations are still discussing rebates. To them, a good deal is when they manage to squeeze another half percent rebate out of the agency. That's where it stops.

BTN: In Europe now are you seeing the conversion to management and transaction fees?

Frigerio: Yes. Within our company we have in Europe about 40 percent of our travel coordinators on a management fee basis. And I must say that the European commission caps have also opened the door a lot. We have been talking management fees for the past four years. Many a time we found ourselves running into walls. When we said commission caps are going to arise nobody would really believe us. They'd say, "OK we'll look at it when it does arrive." And it did. So that has helped in going forward.

BTN: And by comparison, where is the Asian market at today?

Frigerio: The Asian market is where Europe was about ten years ago. Perhaps that's a bit of an exaggeration.

Foster: Not by much.

BTN: Which is coming to terms with the idea that there is a concept called travel management?

Foster: Yes. As we're saying, travel management is not a profession yet in Asia. There are relatively few travel managers, there are lots of directors of finance who have travel in their portfolio, but they don't know what to do with it. If I had enough funding I'd go over there and become a consultant and get rich over the next few years, because they're gonna do something, they just don't know what it is yet.

Frigerio: Even the U.S.-based companies are not consolidated in Asia. They have to cross so many hurdles, even more so than in Europe, because the market is not yet mature.

BTN: What's going on with Pfizer's travel program in Asia, Phil? Are you able to make advances or is everybody busy recalculating what their currency's worth?

Dunphy: To heighten the awareness of travel management only takes a minor financial crisis and all of a sudden we're heroes. Japan is one of our key markets, it accounts for about 10 percent of company sales, and we're doing quite well there. We have all the travel consolidated with our travel partner BTI. We have a contract with United Airlines there. One thing that was surprising to me, especially in the Japanese market, was that once you have the commitment it is absolute. We're getting almost 100 percent of the market share exiting Narita on United Airlines right now.

We have a production plant in China and we just sent a few people over there. That market has blossomed very quickly, but it's a very difficult market. The government and the banking industry have very tight reins on what's going on in that country. I think the only thing we're going to accomplish there will probably be more in the way of the soft dollar incentive or a rebate.

Australia is probably very close to the level of travel management in the United States today. I find them more receptive in general than the Europeans. We have in Australia consolidated with American Express. We also have a deal there with United Airlines and that's working very well also. We're hoping to couple that with a domestic deal either with Ansett or Qantas.

BTN: George, what has your experience been in Asia so far?

Odom: Very minimal in Asia. I try to be a resource for those folks. I'll get e-mails requesting help to understand a contract. So I take more of a consultant role.

BTN: Do you use your corporate intranet site to communicate the program globally?

Odom: We're on Lotus Notes worldwide and that, along with e-mail, takes away the time differences pretty well. So does voice mail. And then they can access our home page on our intranet within the corporation. But its focus right now is on North America. There are places around the world that have home pages but there's not a really consolidated effort yet to drive all of those things together. That's on the wish list.

Foster: The Internet and the intranet around the world is not a real solution yet. The technology is there. The problem is the cost. When you go to Europe, as an example, and Asia's even worse when it comes to the telecommunications companies, the cost is astronomical to hook onto the Internet. So there's relatively few companies that are really turning all their employees on and saying go get them. But it's evolving.

BTN: Richard, I know that you've done a lot of work in that area. What's been your experience globally?

Wooten: For TI, our success globally on the intranet is with the hotel program. That's probably the biggest reach that we have into Asia right now.

BTN: How long has that been in place?

Wooten: Since the first of 1996.

BTN: So have you stopped printing hotel directories?

Wooten: We print a directory on demand now and the demand for that has really come to a halt.