SatoTravel Reorganizes, Downsizes, Cuts Costs

<B> SatoTravel Reorganizes, Downsizes, Cuts Costs</B>

By Sarah Welt

<I>Arlington, Va.</I> - SatoTravel claims its cost restructuring plan has nothing to do with industry rumors about a possible sale. But the aggressive strategy the mega agency has undertaken with the new year will likely place Sato on surer footing and a fairer playing field with the rest of the industry.

The initiative has the company looking to reduce its overall costs by $15 million over a six-month period.

According to COO Denise McShea, who has been at the helm of the cost-restructuring operation, Sato has been able to reduce its expenditures by consolidating many positions in its corporate office. Improved productivity standards in field operations also have made a difference.

"We have maintained a very reasonable cost structure in our military and government operations, but our productivity levels were lower than our standard in the commercial division," McShea said. The commercial division at Sato accounts for $300 million of its business.

Because the commercial side of Sato is relatively new, there was a "duplication of overhead positions," McShea said, including spots in the areas of information technology and human resources and training. McShea and her senior management team rewrote job descriptions to streamline and combine functions and eliminate positions. To date, the company has reduced its total workforce by 170 people.

Sato also has been successful in renegotiating some client contracts. McShea said at least half of its accounts on the commercial side have agreed to a reduction in commission rebates.

Government and military accounts are a different matter, however. So far Sato has been unsuccessful in getting the federal General Service Administration accounts to agree to reduced rebates. As for switching to fees, while McShea said a couple of accounts on the GSA have considered it, on the whole, "fees are not something they are interested in."

The travel management company has promised contracting officers to review all accounts on an individual basis. "We had a meeting with the DOD a few weeks ago," McShea said. "They are putting together the analysis" before meeting with Sato.

If the two parties cannot agree to terms, Sato may not be able to continue servicing the DOD account. McShea said Sato "has told them very clearly that we would have to reconsider whether or not their business is something in which we will be interested in the future if there can't be a mutually beneficial relationship."

Sato also is trying to get a renegotiation clause in its DOD contract--an initiative DOD is fighting. However, the company remains hopeful they will reach a resolution. "This is a must-have for us to be able to go forward," McShea said. Eighty percent of Sato's business is military and government accounts, and of that figure, 25 percent is with the GSA.

The agency also has been cutting costs by renegotiating some of its lease spaces and closing some administrative offices. In Europe, it is looking to close its European service center in Frankfurt, Germany, and move to a smaller space in the area.

McShea said that the second round of commission cuts has leveled the playing field with other travel agencies because "we've always operated at a disadvantage," since Sato does not benefit from override agreements and as "an airline owned company, the expense expectation has to be a lower percentage than what they would give the travel agency in a commission. We have to be a lower cost distribution or there is no value for them."

The decision to restructure came down from the board in December, and McShea, formerly general manager of military and government operations, then assumed the newly created position of COO. Replacing her with the new title of director is David Maxwell. A new contract also has been signed with Michael Premo, Sato's president and chief executive officer.

One industry insider said Sato's cost reduction and reorganization could be an attempt to get its financial house in order to position the company to be acquired.