Unbundling Travel Now Offers Flexibility In Future

<B> Unbundling Travel Now Offers Flexibility In Future</B>

By Tom Wilkinson

<i>Tom Wilkinson is president of the Travel Management Group, an Alexandria, Va.- based travel management consultancy. </i>

Conventional wisdom has long held that consolidating and outsourcing travel to a single agency is the "best practice" for purchasing and managing travel. Travel agencies create significant value by managing the front-end reservations

and the back-end data management aspects of consolidated travel programs. Usually agencies have "bundled" these services with advice and consulting, in what is called an "outsourced" travel program. All of this creates value by helping corporate clients to lower travel costs.

One way or another, clients pay agencies for these services, although non-travel managers frequently lose sight of payments which are buried in rebate arrangements. Regardless of the mechanics of fee versus rebate agreements, agencies justifiably view their compensation as well-earned.

Developments in the industry and in technology pose new challenges to this traditional model that potentially are more far-reaching than the slow-burning phenomenon of online booking. One is the Airlines Reporting Corp.'s new Corporate Travel Department (CTD) designation.

ARC is sanctioning corporations going "into the business" of providing their own travel services. The idea appeals instinctively to managers who have always wondered, "Why can't we do this ourselves?"

Traditional adherents of best practices quickly answer: "Because only a travel agency has travel management as a core competency."

A number of hands-on travel managers are starting to re-examine this logic. They are starting to see important opportunities for cost reduction because they can take more direct responsibility for their programs. The greater availability of in-house back-office and management reporting technology will empower managers interested in achieving these goals. These systems are not revolutionary from a technological perspective.

While client control and ownership of data may revolutionize travel management, companies that collect, analyze and own their data will have, de facto, a profoundly different relationship with travel agencies and other travel suppliers. For example, it will be easier for them to change or use multiple agencies. It also will be easier for them to manage multiple distribution channels like online booking systems, or direct connections to suppliers, in conjunction with agency relationships.

Management reporting software, when linked to a data warehouse, can even consolidate data and produce a new generation of sophisticated reports from multiple, hitherto incompatible, sources, including charge card, agency and internal financial systems.

Companies that control information will be able to break apart the traditional bundles of agency services: (1) operations, (2) data management and (3) consulting. "Unbundled" pricing is not new. However, unbundling this core value proposition will radically change the underlying business relationship. It will allow, or force, companies to take a hard look at the cost of, and value received for, each aspect of agency services.

Financial models show that managers who commit the time and resources to develop greater independence can realize significant net savings for their companies. Savings come from lower transaction costs and different vendor relationships.

Managers who control their own reporting processes also can provide enhanced management information that highlights opportunities for savings. By increasing direct controls over their total travel program, they can more easily seize other opportunities, like direct connections with air, hotel and car rental vendors.

Once the bundle is untied, customers have more options for providing key services, and each option has a variable price-value ratio. For example, a company might decide that an agency adds the most value by managing the front-end reservations process. It might ask the same or a different agency to integrate and report on data from multiple sources. Or the company might collect the data in-house, and retain a third party to produce and analyze reports.

The value of the agency management support today varies from company to company, and depends on the specific situation of each program. Factors that need to be evaluated include the experience and resources available to each client manager, as well as the specific service configuration and requirements of each program. In an unbundled relationship, clients will be able to control the cost and amount of the service it receives.

Companies that take ownership of data management and reporting will evolve into new relationships with agencies and other suppliers. Filing for CTD status is not a prerequisite. Agencies need not view this as possible Armageddon. While several companies going down this road have decided to hire staff for reservations, CTDs can continue to purchase specific services, or subcontract personnel from an agency.

Agencies often will be able to return higher margins or more specific "menu-based" services than they do on the total bundle.

Restructuring travel management programs and agency relationships will not be easy. New systems and skills must be acquired. Multiple contracts must be sourced, negotiated and managed. This new approach is not for everyone.

Many companies manage their agency relationships effectively and receive excellent value. Yet the availability of independent data management, and to a lesser extent the ARC Corporate Travel Department, is creating new options for some firms and travel managers.

As always, there will be a limited number of pioneers at first. Many more companies will rethink their options if (when) airlines reduce commissions to the level of the cost of agency service bundles. As always, the future will be much kinder to those who have thought through these issues and taken steps to provide flexibility.