U.K. Firm Forms Cost-Cutting Venture With Agency

<I>Walsall, West Midlands</I> - A British company is cutting its travel budget through an unusual joint-venture arrangement with its agency.

The McKechnie Group, a West Midlands-based international plastics and metal components business, formed a venture with Phoenix Travel--a company that derives 65 percent of its business from forming joint-venture travel agencies to handle clients' travel.

The venture, called Phoenix McKechnie, is based at the corporation's head office in Walsall. The two companies share their costs, including staff, computer reservations, communications and office space. They also share the profits from commissions and overrides on McKechnie's $1.7 million travel spend in the United Kingdom.

According to McKechnie group finance director Stuart Moberley, the company made its money back on its investment within 12 months of forming the partnership in 1992. However, despite the financial benefits, saving money is a distant third on a list of three reasons for entering into the arrangement.

Top of the list is convenience. McKechnie's head office previously used a small agency that was 30 miles away in the city of Coventry. Now that the agency is on site, the benefits are immeasurable.

"There is nothing better than being able to receive your tickets from the person who handles your travel,'' Moberley said. "We are 10 miles away from Birmingham, the nearest city, and there are no business travel agents in the immediate area that I am aware of.''

Why not set up a conventional agency in-plant instead of entering into a joint-venture agreement? The answer, Moberley said, is the second major benefit--control.

"The two employees who work for Phoenix McKechnie understand us and our culture, and they know immediately what we want,'' he said. "My experience of in-plants before I joined McKechnie was that the staff changed regularly. Here, they are employed by the joint venture.''

In Moberley's opinion, the ability to exercise this level of control means that the quality of service is very high. "We certainly get far fewer complaints than when we had a third-party agency,'' he said.

McKechnie also is able to exert control in the form of management information. It receives monthly statements of precisely who has spent what on travel. There also is better control over travel policy than a third-party agent could exert. In addition, managers receive pre-trip exception reporting, which helps keep travelers in line.

There is money to be made from joint ventures, although it is not a colossal amount. "It is not of an order of magnitude that we would do it for that reason,'' Moberley said, "but to get convenience and good service at a slightly lower price is a very good deal for us.''

Moberley's list of priorities is slightly at odds with other Phoenix clients working on a joint-venture basis, said agency sales director Chris Renton-Rose. Phoenix has 15 such agreements, with firms including security giant Securicor and the U.K. office of advertising agency Young & Rubicam.

Renton-Rose said that for most joint-venture clients, convenience is in third place after control and cost savings. The convenience factor has exaggerated importance for McKechnie because the firm is not in a city-center location.

One financial benefit of which McKechnie has not yet availed itself is the 75 percent discounts on air tickets that are available to directors of International Air Transport Association-licensed agencies. Several of Phoenix's clients put their most frequent travelers on the board of their joint-venture company so they can exploit the discount perk, which is limited to two tickets per airline per year. Renton-Rose claims this arrangement saves some of his clients tens of thousands of dollars each year.

But there is one problem with using the discounts, which explains why McKechnie has to date not used them: They cannot be confirmed, leaving ticketholders liable to be bumped off flights. "We cannot take the risk that one of our employees might not get on their flight,'' Moberley said.

In addition to putting frequent travelers on the board, some Phoenix joint-venture clients also put their travel manager on the board, usually as managing director, so that they can coordinate activities. This helps managers safeguard their jobs because it effectively halves their salary to the client, with Phoenix picking up the other half of the bill, Renton-Rose said. For those who like titles, becoming managing director of a company also can be a status enhancer.

Phoenix is now looking to export the joint-venture concept and has signed a partnership deal with French agency Transatco. It also is talking to an agency in Ireland and has been approached by several U.S. agencies keen to learn more about the strategy.

Meanwhile, Renton-Rose is encouraging his joint-venture clients to explore what else can be done with their unique opportunity. One idea is for the joint ventures to handle travel for third parties, such as suppliers and clients, and possibly as part of a a barter deal in return for other goods or services.

Phoenix also has a single joint venture with three unconnected companies based on the same industrial estate in East Anglia. Between them, they spend more than $1.5 million a year on travel, which, Phoenix believes, is the minimum amount required to make the investment worthwhile.