Suppliers Court U.K. SMEs
<B>Suppliers Court U.K. SMEs</B>
By Amon Cohen
Small and medium corporations in the United Kingdom are benefiting from a surge of incentives being thrown at them for the first time by airlines and other travel suppliers. Several carriers have been offering financial and other inducements, and British Airways is launching a portal aimed specifically at small and medium enterprises (see story, page 1). Meanwhile, American Express is extending a loyalty program to corporate card customers in the United Kingdom, after rolling it out in France, Germany and Sweden; and an online travel agency called Travelstore.com has set up business with the express intention of cornering the European SME market.
There are various reasons why suppliers are suddenly fêting SMEs. Part of it is that the economics of targeting this sector make much more sense through e-commerce, which lowers the costs of distributing and marketing to thousands of smaller customers. "These are people to whom it has not been worthwhile for the airlines to send their sales teams," said Bill McFarlane, managing director of Travelstore.com and formerly president and CEO of U.S. travel technology company Aqua Software Products.
However, suppliers also are beginning to realize that SMEs are inherently valuable customers. Amex estimated that European companies in the sector spend $30 billion each year on travel and related expenses, accounting for 30 percent of their indirect operating expenses. The figures are growing: The single European market is making commuting around the continent a more common experience for smaller as well as larger companies.
Established carriers also are responding to the strong growth in low-cost airlines, such as EasyJet, Ryanair and Go, which claim that up to 40 percent of their passengers are business travelers, principally from SMEs.
Furthermore, airlines have been doing their sums again and it is dawning on them that SMEs are lucrative clients, said U.K.-based travel management consultant Ian Flint. "They have realized that the large corporations are making them reduce their prices in return for only small commitments to increase business which are often not honored anyway, whereas they perceive that smaller companies are grateful for anything they can get," Flint says.
One business that has been offered incentives by airlines for the first time is Catlin Holdings, a firm of insurance underwriters in the City of London with an annual travel spend of $400,000. "We have had much more direct contact with airlines recently," said Pam Howlett, personal assistant to the chairman, who doubles as travel manager for Catlin. "The airlines seem to think that travel agents' days are numbered and are wanting to talk to us directly."
Meanwhile, Amex is helping airlines and other travel suppliers to target this elusive sector with its Partner Corporate Loyalty Programme, which pays annual rebates from selected vendors to corporate card clients without their own negotiated rates. Amex claims the program saves clients up to 21 percent on air travel, 7 percent on hotels and 10 percent on car hire. Airline participants in the United Kingdom include Air France, Alitalia, British Midland, Delta Air Lines, KLM and Virgin Atlantic, and there are also four hotel groups and three car rental companies.
Rebates are paid to clients annually based on their spend with the participating vendors through their Amex cards. Some rebates are a straight discount, others are based on incremental business and some are a mixture of the two. Management information is provided on a quarterly basis.
The program is aimed at companies with a T&E budget of anywhere between $50,000 and $7 million. It has been running in France since 1998 and Germany since last October, but Amex said it was unable to provide any clients for BTN to talk to about their experience of it. However, Kaveh Atrak, Amex's European head of strategic partnerships, sees the corporate card as an ideal vehicle for suppliers to incentivize SMEs. "It is generally difficult for travel suppliers to tap into this market but we can do it for them because we have the tracking mechanism inherent in our product," Atrak said. "It is the collective purchasing power of our customers which makes this possible."
New Internet travel site Travelstore.com also is hoping to improve the leverage of SMEs through aggregation of their spend. It has started to negotiate its own deals with airlines and also has formed a partnership with eZoka.com, a European online bulk purchasing site for the sector.
Travelstore has built its own booking engine, which currently runs off Galileo. It bought a medium-size offline business travel agency, called Amersham Travel, earlier this year and is looking to expand into France and Germany.
McFarlane believes the lower costs of Travelstore's low-cost environment will make travel management viable for smaller companies. "A lot of companies have been well below the radar screens of airlines and also of travel management companies," McFarlane said. "They don't have the same defined travel patterns as larger companies, which are frequently flying on internal business between their different offices and plants. We are starting to aggregate volumes on some routes and leveraging negotiated discounts on a contractual basis. It is early, but I am encouraged by what I see. Put all our medium and small clients together and the sector begins to make a little more sense for the airlines."
Travelstore is on the acquisition trail and plans to buy more medium-size travel agencies.