TQ3's Big Plans Include Launch Of Airline
<B>TQ3's Big Plans Include Launch Of Airline</B>
By Amon Cohen
<I>Bremen, Germany - </I>Business travel's newest worldwide management company, TQ3 Travel Solutions, has signaled its intention to be a truly international player by scrapping supplier relations at the national level. Dealings with airlines, hotels and other vendors now will be handled by the company's three regions--the Americas, Asia/Pacific and Europe, Middle East and Africa--as will branding, international sales and key account management.
TQ3 recently revealed to BTN a set of ambitious plans, as the strategy masterminded by Preussag--the German travel giant that shaped the new company--starts to take shape. Chief among these is introducing vertical integration to business travel, including setting up an in-house airline and developing an alternative distribution channel to the global distribution systems. Also on the technology front, TQ3 is pressing ahead with the introduction of online booking systems in Germany and other parts of Europe (see story, this page).
Although BTN readers will be most familiar with TQ3 Americas, which is 100 percent owned by Maritz Travel Co., the origins and financial backing of TQ3's grand ambitions lie in Germany.
In 1997, Preussag was one of the largest industrial groups in Europe, owning concerns in coal mining, uranium and shipbuilding. However, Preussag chairman Michael Frenzel had concluded that these were moribund industries and that the group needed to undergo a complete reinvention. Frenzel divested all of Preussag's heavy industries and started to research an entirely new sector for his group's deep pockets. He identified travel and tourism as the best option, largely because it remains relatively under-consolidated, much of the business in the hands of a large number of small players.
Preussag's first acquisition in 1997 was Hapag-Lloyd, which owned shipping and transportation divisions, plus one of Germany's largest tour operations. It was rapidly followed by the purchases of TUI--Germany and Europe's largest tour operator--and First, Germany's largest travel agency chain. The initial focus was on leisure travel, but Preussag almost inadvertently had become a significant player in business travel as well, acquiring Germany's number one and two travel management companies, Hapag-Lloyd and First, respectively.
Faced with the choice of making corporate travel a core business or selling it, the group recruited Marc Hildebrand, at the time a 30-year-old fast-rising executive at Business Travel International. "I told them that if they wanted to be successful, they had to do three things," said Hildebrand, chairman of the global TQ3 board and president and CEO of TQ3 EMEA. "The first was to change the business models, because more than 99 percent of clients were on commissions and rebates. The second was to invest in technology to take costs out of the travel process. The third was that they must globalize. I told them that if they did not do all three things, they should sell it."
Having seen the success of an overnight change to management fees on Jan. 1, 2000, Preussag decided to invest in technology and globalization rather than to sell. Technology is handled through InfoTec, a TQ3 sister company, which looks after the IT needs of all Preussag businesses.
Globalization was realized through TQ3, launched in February, with Preussag subsidiary TUI Business Travel and Maritz both owning 45 percent stakes; the remaining 10 percent belongs to ITG of Australia. Hildebrand said Preussag does not wish to buy Maritz or ITG outright, but is interested in establishing cross-shareholdings--a common practice among German businesses. "To get more stability and credibility, a certain amount of cross-equity makes sense," he said.
According to Hildebrand, key priorities for 2001 are winning recognition for the TQ3 brand and cross-selling existing multinational clients, such as introducing German clients to TQ3 Americas. TQ3 also is starting to negotiate multinational deals with suppliers, aided by its newly internationalized supplier relations structure. "Airlines are interested in more business, so if we make sensible proposals, they listen," Hildebrand said. "We are currently talking about a global deal with Lufthansa. It is out of the question that it would give other TQ3 partners the same deal that we have in Germany, but they would get better terms from Lufthansa than in the past."
Hildebrand expects many corporate customers, in Europe at least, to use TQ3 deals rather than negotiate directly with carriers. "In Germany, we are able to steer 55 percent of our volume in whichever direction we want," he said. "They will take what we give them because no matter what they do, a better deal is available through us." Next year could see TQ3 customers flying on an aircraft belonging to their travel management company.
Hildebrand's team is taking a long, hard look at vertical integration, the concept in leisure travel of a single company owning the entire travel chain, including tour operation, travel agency, airline and hotel. At the moment, TQ3 is restricting itself to horizontal integration: exploiting synergies with the other travel interests of Preussag.
As an example, Hildebrand is responsible for supplier relations with scheduled airlines and non-resort hotel groups on behalf of the whole of Preussag, not just business travel. Conversely, selling holidays to business travelers through TQ3 currently represents Preussag's fastest growing area of leisure travel sales.
This horizontal integration soon could be complemented by vertical integration. Preussag already owns 120 aircraft in the shape of such leading European charter airlines as Hapag-Lloyd, Britannia Airways and Corsair. "Our aircraft fleet is the same size as SAS," Hildebrand said. "Aircraft can fly wherever you want them to fly. More and more, we are flying IATA full-fare passengers on our airlines, on, for instance, domestic connections to our hub at Munich. What we are seeing is that if a business traveler has to go somewhere, they don't care which airline it is as long as it is on time and the service is good.
"We also know that on some scheduled services operated by other carriers, up to 70 percent of the passengers are our customers. If the break-even load factor is 70 percent, why not do it yourself?" asked Hildebrand, who added that nothing will be announced this year.
Preussag also is accustomed to distributing airline seats on its own reservation system, which further strengthens TQ3's confidence in its audacious thinking. "We are technically prepared," said Ingo Brandes, chief information officer for TQ3 EMEA. "If other travel management companies tried to do this, they wouldn't have the same distribution and control mechanisms."
Hildebrand is less interested in operating hotels, where there already is plentiful competition in the market and, therefore, less chance to make an impact.