Reporter's Notebook: Hot About Alliances

<B> Reporter's Notebook: Hot About Alliances</B>

<I>New Orleans</I> - Congressman James Oberstar (D-Minn.) kicked off the Association of Corporate Travel Executives' tenth annual conference here with a message as sizzling as the local 95-degree heat: "Something is wrong and the airlines better fix it before Congress does."

Standing, ironically, under the banner of keynote sponsor Star Alliance, Oberstar's statements brought home for business travel buyers just how serious Washington is about tinkering with the rules governing airline competition--and set them buzzing for most of the three days to follow.

"I'm not for reregulation, but I hope this doesn't end up as an autopsy of our late friend, competition," Oberstar said. "If American's and United's respective alliances are consummated, the airline industry will quickly dissolve into two." He also urged travel managers to make their feelings about airline regulation and competition known to their elected representatives on Capitol Hill.

In a follow-up interview with BTN, Oberstar said that corporate travel managers ought to be preparing their case by comparing "the prices you are paying today with some fixed cost in the past, including hub versus nonhub, points where there is competition and points where there is not, and points where there is an established carrier and points where there is a new entrant," and bringing the data to the attention of their legislators.

"Travel managers are in a position to have a real impact on the DOT, DOJ and Congress," said the Congressman,"by showing where the inequities are and the effects of the lack of competition. And you should be able to do that." Neither ACTE nor NBTA has been an active lobbyist for corporate travel interests on the Washington scene, Oberstar said, adding, "that is something I have challenged ACTE to do."

In response to Oberstar's keynote, Joe Laughlin, director of business markets for Star Alliance member United Airlines, quipped,"We sponsored the breakfast, not the speech."

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Much of the talk at ACTE was of technology, globalization and direct connections. In the very week that Republic National Bank became the first corporation to officially be designated an ARC-accredited Corporate Travel Department, a panel of travel agency heads, moderated by BTN's executive editor Mary Ann McNulty, addressed the value their businesses can add to the travel management process, as well as the challenges facing travel managers, the effect of the approaching new European currency and the movement to electronic commerce.

Hal Rosenbluth acknowledged his family owned company may indeed go public this year. Carlson Wagonlit Travel president Travis Tanner said CWT is very close to implementing its own direct connections to suppliers. And American Express president of corporate services Ed Gilligan noted a trend among corporate customers toward mandating service guarantees in contracts, stressing the message that service is as important as savings.

On the electronic commerce front, the panel addressed the relatively slow adoption rate of online booking and reporting tools. WorldTravel Partners CEO Jack Alexander, who has 50 corporations using the ResAssist booking system, said that only about 5 percent of transactions are automated. "The interfaces come quicker, but we still have a ways to go," he acknowledged. Gilligan said e-commerce has really started to take off in the purchasing arena, but is definitely slower on the travel side. Still, he noted, "By the end of this year, $1.5 billion of business travel will be over the Internet. And by the end of next year that number will be about $3 to 5 billion."

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Now that some of the pioneers in automated booking solutions are documenting savings from lower ticket and transaction costs, they're sharing ideas on incentives and the possibility of mandating use of the technology. Cheryl Hutchinson, corporate travel manager for American Management Systems Inc. of Fairfax, Va., said she's been awarding upgrades or other perks for travelers to those using the automated booking systems she's been testing, Internet Travel Network and American Express' AXI. Others spoke of free tickets or extra frequent flyer miles they are considering to entice travelers to use the technology. At The World Bank, travel chief Angie Attena said she asked agency American Express to track how much money the organization was leaving on the table by not mandating use of the system and the lowest fare. "We're in an environment where we have to look at mandating if we're to lower our costs," she said.

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Expect car rental rates to be on the rise, given the nature of the keynote speech given by William Lobeck, president and CEO of Republic Industries' Automotive Rental Group, which owns National and Alamo. "Car rental is a real bargain," Lobeck said, noting that over the past 30 years airline shuttle fares have gone up from $20 to $200 and average corporate hotel rates have risen from $18 to $245--but average corporate car rental rates barely doubled, inching up from $17.70 to $37.50. Lobeck also noted that each car in 1988 cost $11,400 and brought in $8,100 worth of revenue, or 71 percent of its cost. In 1998, however, cars cost $18,800 and bring in $11,100, so car-rental companies recoup only 59 percent of their cost.

On the service side, meanwhile, Lobeck told BTN, "We think we've found the secret: The business traveler will not tolerate a wait. But technology will enable us to push up utilization and still maintain our service levels."

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Many veteran business travel buyers at ACTE X, including association president Earl Foster, seemed to have been taking part in a year-long musical chairs ritual. Wearing new badges at ACTE were former Texas Instruments travel team (and ITN beta-testers) Colleen Guhin, now global travel manager at Motorola Semiconductors, and Richard Wooten, now at Monsanto; Betty Ryan, former Monsanto travel manager, moved to American Express. University of California Berkeley travel manager Terri McVickers took on Aetna's travel management job, which includes expense processing oversight. John Guarneri wore a Bayer badge for the last time as he prepared to take on travel management duties at ARCO. Lucent Technologies' acquisition of Octel prompted former purchasing manager Allan Brenneis to join Visa Corp. in a similar position, while travel manager Patrick Hall continues to search for a new position. On the supplier side, former BTI Americas senior vice president Candace Sneberger is now with Via World Network and Travelogix vice president Pamela Nussbaum links up again with Jeff Hoffman at Worldspan.

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Harold Seligman, CEO of Management Alternatives, ran a packed one-man seminar about net fares in which he pronounced his continued support: "From my vantage point, net fares are certainly the way to go for most corporations." Without naming names, Seligman took aim at the critics of net fares--often travel management companies and the airlines. "The carriers were responsible for net fares' lack of success in the early stages because they didn't offer the full commissions," he said.

Seligman pointed out that net agreements can work for companies in all kinds of situations, although "it's not all wine and roses," particularly the transition from profit to cost center. Some examples from his client base included: one company in a hub city that has $0.5 million in tickets on nets; a company that is not using a travel agent for its 15-18,000 annual tickets on the Delta Shuttle, but instead uses the Shuttle's smart card; and a New York company with $60 million in air spend that within 12 months shifted from 70 percent of its business on one carrier to 80 percent on a second carrier after introducing net fares.

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Business has been good for most companies attending the ACTE conference, which generally have been increasing travel despite skyrocketing air, hotel and car rates. Still, a seller's market resulting from restricted capacity growth by business travel suppliers has been driving buyers to try to cut costs. BTN asked a few dozen of those attending ACTE for their projections of how long it will be before the current economic picture is likely to change.

While most expect the next economic downturn to occur at the turn of the century, a couple were in complete denial that such a thing could happen. "The days of downturns are over," said one. A few of the most pessimistic said it already had begun, with the Asian flu and planned additions to capacity, while many others expected the economy to catch the millennium bug.

WorldTravel Partners CEO Jack Alexander said that even if Corporate America and the travel supplier, telecommunications and banking communities are able to overcome all Year 2000 hurdles, he questions the federal government's ability to surmount the problem. He also doubted that the infrastructure in other countries will be ready in time.

More optimistic than most respondents, hotelier Fred Kleisner, president and COO of Starwood Hotels & Resorts, The Americas, said he was not expecting a downturn until after the year 2000. Warning that "economists have predicted 10 of the last four recessions," Kleisner said that gross domestic product and hotel demand have been apace in a straight line graph for several consecutive quarters.

Meanwhile, buyers and suppliers agreed that the airlines will make the next cut in commissions soon--and many said very soon. Several savvy travel management professionals said it will occur in a matter of days or weeks, in time for the National Business Travel Association's annual meeting in Orlando in August. Most predicted a cut in the third or fourth quarter of this year, and the rest said it will come by the end of next year.

While nearly everyone expected the next cut to amount to two or three points, respondents were split on how low commissions eventually will go: most said 5 or possibly 4 percent but a handful said they saw commissions for business travel going away entirely as net fares become the industry standard.

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At a breakout session, US Airways senior director of distribution planning Shafiq Khan noted that the carrier spends 14 cents of every dollar it earns on distribution, and said that if corporate customers help trim that figure through the use of self-booking systems, e-tickets, direct links and direct settlement, "we want to share those savings with you." Accessing flight information is the most labor-intensive and costly piece of the process, he said, accounting for 6 to 8 cents on every dollar. About 40 percent of US Airways tickets are now electronic, and each one saves the carrier $1.20 over the paper version.

At Continental Airlines, use of e-tickets, currently at 38 percent, is expected to hit 50 percent by year-end, said director of electronic commerce Chris Frawley. The carrier is "bracing for a big e-ticket expansion" as it focuses on adding interlining capabilities next year.

THISCO, meanwhile, is developing a link that will allow meeting planners to quickly and easily find and reserve room blocks for small groups, and is working with at least one corporate cutomer on booking their hotel reservations directly in hotel inventory systems, bypassing the GDSs, said John Davis, CEO of THISCO's now-public parent, Pegasus Systems.

Corporate travel managers, meanwhile, increasingly are accepting electronic ticketing as major airlines step up their efforts to drive usage. In an informal straw poll, 12 out of 20 travel managers said they see the growth of e-ticketing as a positive development and encourage their travelers to purchase them--with four out of those eight formally encouraging the use of e-tickets in their travel policy. Of the remaining eight, three cited traveler complaints associated with interlining and international service as serious obstacles.

A staunch supporter of e-tickets, Lt. Col. Keith Harrison, travel manager for the Canadian Department of Defense, said he has seen direct financial benefits resulting from the reduction in paper handling. Canada's DOD, whose new agency contract with American Express--to be implemented next month--includes e-ticketing service, has spent the past two weeks briefing its travel coordinators on working with the paperless documents.

For other buyers, the jury is still out. "E-ticketing is a good concept, but all parties need a single standard," said a travel manager for a large pharmaceutical company. "An indirect benefit of e-tickets would be the doing away with an onsite agency, which would lower the cost of tickets for corporations."

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Colleen Guhin, now of Motorola, and P.J. Steeby of Rosenbluth International shared ACTE's 1997 President's Award, and Pamela Witt of Rosenbluth took home the award for Business Professionalism. Herman Mensink of Philips Electronics N.V., new ACTE Europe regional committee chairman, received the Industry Professionalism Award.