Reporter's Notebook: CTW Takes On War-Time Travel Mgmt.

Although they are calling dubious the claim that managed travel service by online travel agencies is competitive, mega travel management company executives are taking seriously the entry of Expedia and Orbitz into business travel. Corporate Travel World in New York last week illuminated this and other issues for more than 500 travel buyer attendees, including 60 from the Corporate Travel 100.

Keynote speaker Jeffrey Katz, chairman, president and CEO of Orbitz, took the most direct shots yet at the megas and claimed: "Online agencies will be the norm for big companies in three years." Noting that the "mega model has worked well and will continue to prosper in my opinion," Katz listed a few unique aspects of the "reports and rebates approach," including onsite agents, pre-booking controls, back-office tools, data integration and "cost-plus with rebate-sharing magic." Katz's mega praise ended with "top-flight experience."

Emphasizing that the models are different, Katz promoted Orbitz's "new" and "superior" technology, consumer presence, traveler service and low costs. He particularly focused on the low-cost argument, saying mega agencies build in "as much costs as you're willing to carry," and "don't deliver enough value to justify today's transaction fees. No corporation assigns profit and loss responsibility to a travel manager. It's the line manager's budget. So you ask, 'Do I want low-cost opportunities or not?' If so, you begin to make the tradeoffs." Although Katz said there are services a company gives up if they choose an online agency over a mega, other strengths mean "the service experience for online agencies is equivalent and may be better than the traditional agency can produce. The business model does indeed differ from the mega model," Katz concluded. "That's how it has to be if we are to stay a low-cost provider."

Carlson Wagonlit Travel president of North America Robin Schleien related a story that equates Orbitz with Southwest Airlines. "What low-cost carriers are to the flag carriers is similar to what the online agencies are to travel management companies," he said. "They're operating at a significantly lower cost base, with lower overhead. We have to look at those differences, and if TMCs don't begin to more effectively facilitate full content access, then I dare say the value of the TMCs will decline in the eyes of many of our customers."

WorldTravel BTI president Danny Hood pointed to a blurring of the lines between distributors--something that also is happening with airlines. "It's been nice to see these compartmentalized GDSs, online agencies and TMCs, but it's not like the GDSs are not in the agency business. All the megas here have a small-business solution, we're all in e-fulfillment and we're all moving online as online players move to the more traditional world. There's nothing saying a TMC won't create a GDS, so I think you'll continue to see a blurring of the lines going forward."

The tumult that distributors are facing is nothing new, Hood noted. American Express executive vice president and general manager of North America corporate travel Pam Arway agreed: "This is a time of tremendous change and I see it continuing. I think we're used to it now." TQ3 Maritz president Jack O'Neill, like Arway, noted an intense focus on costs. "We're monitoring labor as our single biggest expense," he said.

Airline Analyst Headlines CT100 Mtg.

"This year for the airlines will be full of surprises, some good and some bad," said UBS Warburg analyst Sam Buttrick, speaking to Corporate Travel 100 travel managers. He said only four items truly matter to industry survival: supply, oil, business travel and labor. For the industry to fix itself, it would need to reduce supply by as much as 20 percent, he said. "Chipping away 2 percent here and 3 percent there won't save the industry." He then noted that fuel prices, while significantly down after the onset of hostilities in Iraq, won't decline far enough to be the sole industry savior.

Buttrick quickly crossed off business travel from the list--saying a huge rebound simply will not occur in the foreseeable future--which leaves labor cost reductions as the most likely means of saving the industry. "But I can't say labor costs will be ratcheted down soon enough to avoid additional bankruptcies, considering the uncertainty of the Iraq war," he concluded. "But American does, at this point, have a fighting chance of avoiding Chapter 11."

Buttrick also weighed in on airfare reform, telling buyers that "we are moving erratically toward a lower business fare environment." Nevertheless, he said, some carriers have not embraced lower business fares, and "the industry stills clings tenaciously to the notion that it is acceptable behavior to charge their best customers six or seven times more" than leisure passengers.

As for reduced airline schedules, Buttrick assured travel managers that "the level of disruption to your program would likely be substantially less than the fear of such disruption. Where there is an economic opportunity, a resource will move to that opportunity."

Attendees Examine Contract Modeling

"At least now, both sides are speaking the same language," said Bob Brindley, WorldTravel BTI vice president, referring to airline contract modeling and monitoring. "Unfortunately, carriers still are setting unrealistic goals and that can be dangerous in this environment."

The session on contract modeling particularly was relevant this year as airlines change schedules, fare structures and policies and more closely examine account goals and performance. "It is primarily discount levels that are being affected, but secondary and tertiary contracts are being pulled," said Brian Mogler, vice president of supplier relations and consulting for American Express Corporate Travel.

Many factors are at play in the market that make corporate deals less available, less attractive and tougher to maintain. "When discounts go away but your average ticket price goes down 20 percent, what does that mean?" asked Steve Shook, vice president of strategic sourcing at Carlson Wagonlit Travel. Citing a marketshare commitment failure rate of 50 percent, Michael Boult, COO of Eclipse Advisors, a Rosenbluth International technology unit, asked, "If you look at the past 12 years of corporate deals, are the airlines any better off? Have shares shifted meaningfully? Do airlines understand the value of your business?"

Fragmented Channels Frustrate Buyers

"We could talk about Web fares until we are blue in the face," said one CTW moderator in an effort to prevent repetition of the Web fares debate. Nevertheless, the broader challenge of fragmented content--whether driven by Web-only fares or vendors declining to participate in the GDS--is one every buyer is facing. "My head is spinning," said Terry Sullo, manager of travel and meeting services at Akamai Technologies in Cambridge, Mass.

"I think booking systems barely meet our needs today," said Cyndi Perper, director of corporate travel services at Invensys. "We need to see all inventory; our travelers are demanding it. It doesn't make any sense anymore, not that it really did before." Many concluded that, as Cindy Heston, Thomson manager of corporate travel worldwide, put it, "It's up to us to push the airlines and say we don't want a multi-tier solution. We need to explain through contract discussions that it's not acceptable."

No one would say buyers should not talk to their suppliers about such issues, but CTW's tech visionaries suggested that for the vendors, there's no turning back now. "Fragmentation will get worse," said Eastman Group's Richard Eastman. "As that happens, the buyer has to manage the repackaging of information. You need solutions that allow you to go across multiple channels."

Much like earlier speakers who related the TMCs to major carriers and the online agencies to low-cost competitors, Eastman said information is moving to a point-to-point model at the expense of the hub. Put another way, the "multisource" Internet is edging out the "single-source" GDS mainframe. "I'd guess the GDSs won't be here much in 10 years and probably will be much smaller in five years," predicted Eastman. IBM Business Innovation Services principal Declan Boland, dueling with Eastman in a debate about the future of technology, was not as aggressive. "Long term, it's probably true, but I don't think mainframes will go away that quickly," said Boland, whose company created the mainframe technology in use by most travel reservation systems. "We do see an increasing shift from mainframes to small distributed networks."

Small, Midsize Cos. Feeling Left Out

"The aggregate volume of the midmarket cannot be overlooked anymore," Taro Pharmaceuticals corporate travel manager Robin Buzzeo said in a panel on amplifying midmarket volume. Companies with under $12 million in air spend have, by and large, felt they have not been getting the same opportunities as larger companies when it comes to vendor negotiations. This common thread ran through the midmarket and small business panels at CTW.

Panelists said that such hotel vendors as Marriott only have negotiated with smaller companies on a property-by-property basis, which has made it difficult for small and midmarket companies to leverage consistent rates and get the better deal across the board.

Partnership Travel's Earl Foster, while moderating the panel for midmarket companies, said that as a company gets bigger so does its sophistication in negotiating. Yet, Courtney Linley, contracts administrator of the Firemans Fund, said she is facilitating stronger negotiations by leveraging volume across sister companies. "We're trying to make supplier relationships enterprisewide so that all segments can benefit more," she said. Although the volume of the respective companies remains small, reciprocal piggybacking on related organizations has been a critical tactic in delivering volume to national vendors.

Winnie Romanoff from C.E. Unterberg, Towbin said her company selected a smaller agency so that it would be "the big fish in a small pond." Romanoff said this strategy has given the company the highest level of attention and service available to them from its TMC and has led to building stronger relationships with suppliers. Other panelists stressed that giving suppliers accurate volume predictions and strong loyalty has helped foster good relationships, stronger negotiations, and better contracts. Paul Hoffman, Tzell Travel Group vice president of business development, agreed, saying, "Information is king," and that many smaller companies have not yet taken advantage of reporting technology, which he emphasized was a fundamental component of solid negotiations.

~For more Corporate Travel World coverage, see BTN's April 28 issue.