World View: Bulk Up

By BTN / April 11, 1999

World View: Bulk Up

<H3>Mega Heads, Bethune, CT100 and Midsize Buyers Attend BTN's CTW</H3>

New York - The topic of bulk buying took center stage as the heads of the nation's six largest travel management companies faced attendees at Business Travel News' Corporate Travel World show last month. The mega heads also discussed how they handle the middle market and use technology to meet business travel buyers' needs.

Following the lead of American Express, which already has experimented with bulk purchasing of inventory on Continental/Virgin Atlantic codeshare flights to London, WorldTravel Partners-BTI Americas CEO Jack Alexander said bulk buying is "something we are looking at seriously right now." At American Express, too, "You are going to see us do a lot more over the next couple of years," said president of Corporate Services Ed Gilligan. "We are going to have to risk some of our own capital if we are going to save money for you."

The consensus of the panel seemed to be that managing the bulk purchase of hotel inventory would be easier than airline seats. Maritz Travel Co. president and CEO Mike Boland said hotels were a "better frontier" and "more flexible." Gilligan agreed, noting that American Express has bought some hotel inventory in Canada and the United Kingdom, and now is bringing the concept to the United States. "We are trying to experiment on every front we can," he said.

In the online booking arena, Alexander said that only about 3 percent of its customers are coming through its ResAssist online booking system, but the system is handling "tens of thousands" of availability checks each month. Gilligan noted that in the real world about 20 percent of tickets are bought directly from the airlines, but that number jumps to 40 to 45 percent on the Internet. He predicted that sales from all corporate online products will total $100 million to $200 million this year, while it is still easier and quicker to pick up the phone, and suggested significant growth will take another two to three years. In the meantime, Amex customers are averaging "six to eight looks per book."

Still, Boland reiterated what a number of travel managers testing online booking have found: That average ticket prices booked by travelers and travel arrangers are far lower than those booked by trained agents. "Suddenly lower fares are right there staring them in the face, so fares are coming in roughly 30 percent lower on electronic transactions," he said.

The agencies also have been experimenting with videoconferencing as an alternative to travel. Said Boland, "Our job is managing the whole cost of travel. We're really talking about what we call Value on Investment or VOI and we are recommending videoconferencing."

Carlson Wagonlit Travel's new president and CEO Jon Madonna, the newest member of the mega agency CEO panel, which also included Navigant CEO Ed Adams and Hal Rosenbluth, took a stab at what makes up fair travel agency compensation. "The best possible contract asks how we save the full spend and how you reward us for that," he said.

Gilligan said there should be different forms of compensation for tickets versus other value-added services. "I see the unbundling of our business starting to occur, and even on the transaction side we're going to have fees for VIP servicing, call centers and interactive transactions," he said.

Looking to the future, Boland predicted that the impact of the new Airlines Reporting Corp. Corporate Travel Department designation (see story, page 1) will soon lead to a new form of travel outsourcing, using different agencies for different business functions. "There are going to be clients out there a year from now that buy one of those services from one of us and the other from another," he said. "As our mindset changes, some of us are going to get better at one thing than another."

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Corporate Travel World keynote speaker Gordon Bethune, chairman and CEO of Continental Airlines, used his time at the podium to respond to the proposed passenger rights legislation wending its way through Congress. "I talked to Rep. Bud Schuster (R-PA) about his bill, regarding the provision to give passengers some money back when the plane's two hours late," he said. "I told him that when the cop at the Lincoln Tunnel says, 'Stay where you are,' you don't get money for that. That's how it is for us and Air Traffic Control. We don't make money sitting on the ground, and if we don't get your bag there, we pay a contractor $25 to get it to you. We don't need an incentive to improve that, and we don't need Congress to say it's against the law to run out of fuel in midair either."

Noting that Congress itself probably logged more complaints last year than Continental did, Bethune said that the proposals will cost consumers an additional $19 on every one-way ticket.

On the subject of electronic ticketing, he predicted that when 80 percent of the airlines' revenue comes via e-tickets-- "I'd suspect that it will be within five years"--they'll start charging for paper tickets. At Continental, an early proponent of e-tickets, 40 percent of revenues now are generated that way, he said.

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The Corporate Travel 100 Summit--in which about 50 companies benchmarked fees and practices--kicked off with analysts predicting better negotiating opportunities in the upscale hotel market and lower profits in the airline industry. Sean Hennessey, director of PricewaterhouseCoopers' Hospitality Consulting practice in New York, projected more supply in the upscale hotel segment, which could mean better deals. The counter-argument remains true for midprice hotels, where buyers may encounter a tough negotiating season. "Emphasis has shifted away from the midprice and limited service segment," he said. "That will give corporate travelers more chance to negotiate with the upper upscale."

Commented Rick Johnson, Wal Mart Stores Inc.'s travel services director, based in Bentonville, Ariz., "It was a little alarming to see the upscale corporations continuing to see development. If there's a slowdown with the midprice, we will see the prices go up." Louisa Brown, Cigna's travel operations manager, also was surprised by the prediction and its consequences. "We really started to move away from the upscale brands to the midprice chains," she said.

On the airline side, meanwhile, Paine Webber managing director Sam Buttrick noted that airline profits have dropped by 10 percent, as "corporations are doing a pretty good job of controlling their travel."

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In one of the more contentious sessions at the show, panelists debated whether the industry and the technology are truly ready for direct connections that link online booking systems and vendors without going through the global distribution systems. Oracle eTravel's vice president of product marketing and business development Rick Lifsitz presented some dramatic savings estimates, contending that corporations today end up paying $60 more to fund the traditional distribution model, with the GDS getting $15 and the travel agency getting $45. A direct link would cost just $1.50 and the travel agency would receive a $10 service fee, so the corporation would end paying just $11.50.

Elmer Baldwin of Via World Network said the direct connections he's put in place for parent Andersen Consulting are saving at least 50 percent of per-transaction costs. However, Seth Perlman, president of Automated Travel Systems in New York, argued that direct connections will end up costing more,. He suggested increasing the usage of online booking systems is a better use of travel decision makers' time.

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A panel on the art of the airline deal stressed the importance of good data, strong travel policy and willingness to work with a minimal number of carriers as key to a successful partnership. Kevin Iwamoto, airline and car supplier manager for Hewlett-Packard, suggested that travel managers "take ownership of the contract" by checking that the discount is being used, making sure travel agents are educated about contract details, and tracking and measuring results. Ideally, they also should set a timetable for regular performance reviews, added Monisa Cline, Continental Airlines' director of national corporate sales.

Corporations and airlines should see themselves as partners in a long-term collaborative relationship, said Michael Whitesage, president of the Prism Group Inc. in Albuquerque, N.M. Iwamoto agreed that such a partnership with United Airlines gave H-P leverage in dealing with other Star Alliance carriers. H-P contracts 60 percent of its air volume to United under a five-year agreement, which it publicizes, along with information about its two other preferred carriers, through a monthly newsletter sent to its 35,000 travelers and on its corporate Web site.

When signing contracts, Whitesage cautioned, travel buyers should beware of committing to a higher market share than they actually can provide. "Many contracts fail because the airlines pad share requirements, setting the bar higher than a company can fulfill," and in fact half of all contractees do not live up to their end of the bargain, he said. Poor data also may play a part in volume shortfalls, as when there is no record of refunded tickets.

Though the airlines themselves exacerbate the problem by demanding more and more market share each year, travel managers must stand firm in holding to reasonable goals. Sometimes, it's possible to deliver more by beefing up another geographical segment, or looking at some other aspect of the company's air travel.

Two new trends in airline negotiations are channel pricing, where corporations pay differently for tickets booked online versus through an agency, for example, and single-source bids, in which companies ally with a single preferred vendor, achieving a status similar to "most favored nation."

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After delaying a mandate of its online booking system once before (BTN, Jan. 26, 1998), Thomson Consumer Electronics will institute the policy May 1, said worldwide corporate travel manager Cindy Heston. On that date, all of its 2,000 travelers will be required to book single-destination trips through the Worldspan TripManager system "as their first attempt to make a reservation." Since April 1, agents have been "soft selling" TripManager to travelers calling in for single destination trips.

The harder approach follows on the heels of an incentive program launched in December to help users get comfortable with booking their travel online, in which Thomson targeted secretaries. "In the third month of the incentive, we increased usage from 12 percent to 25 percent," Heston said. Next on the agenda is a travel management reporting product, which she hopes to install in the next 90 days.

Dorian Stonie, manager of corporate travel for VeriFone Inc., the Santa Clara, Calif., Hewlett-Packard subsidiary, said he expects to see savings of $450,000 a year from the Internet Travel Network online booking system, based on average ticket prices that are running 15 percent lower than traditional bookings. Usage rates by ITN travelers are running at 61 percent. Stonie said it will be three to five years before online booking leads to a direct reduction in agent headcount, though Heston said her existing staff is handling an additional $2 million in volume.

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Two travel managers shared their experiences with electronic hotel RFPs, offering different views on standardizaton and customization. Like many first-time users, Sara Isaacs, senior associate of travel systems for PricewaterhouseCoopers in New York, encountered some problems. "It seemed like a simple matter to request this electronic data," she said. "But when we got it, we didn't know what to do with it. We should have talked to the tech people first and found out what format we needed."

Isaacs used NBTA's standardized electronic RFP, which standardizes the format, but not the data. Some firms prefer to download the information into a customized database while others drop it into a commercial database. "It's actually not a one-size-fits-all process," said Fran Linton, Starwood Hotels & Resorts director of travel for the North America division. "It's about creating a standard and adapting it. There's definitely room for customization." Buyers can select certain fields to be downloaded into their databases rather than using all of the data, she noted.

PricewaterhouseCoopers introduced its first electronic directory this year after downloading the data into an Excel file and exporting it to Lotus Notes. Next year, she said, she only will need to update the rate portion of the file because most of the hotel information will remain the same.

One problem she encountered was the inability of overseas properties, especially in Latin and South America, to provide the electronic data. Many still fax their information back to her.

Another option is to develop a program in-house, as corporate travel administrator Malcolm Teixeira did for Chicago-based BP Amoco Corp. (see story, page 1).

With an electronic RFP, "Information is provided in real time, anytime and anywhere," said Dan Geller, president of WizBizWeb in San Rafael, Calif. "There won't be a need for faxing information or confirmations because people can see which hotels filled out the information."

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With almost 75 percent of all off-site meetings planned with less than 90 days of lead time, according to a recent Meetings Today survey (BTN, March 22), booking is a complicated business for corporate buyers and hoteliers alike, said a panel of both.

"We're less meeting planners than meeting reactors today, since we're always playing catch-up," said Barbara Cummins, meeting manager with PricewaterhouseCoopers of New York. "I would like to see more leniency in attrition clauses, because often I'm still trying to figure out who's going to show up."

There are methods for dealing with the lead-time crunch, though. "You need to have strong national sales contacts, because it's surprising what's available in remote areas," said Michelle Rubin, manager of meetings and special events for Champion International Corp., Stamford, Conn.

Dean Altvater, director of national accounts for Wyndham International, said hotels are likely to be more flexible in the short term with buyers who deliver large volume. "If someone's bringing $1 million or $2 million to our chain annually, we'll negotiate despite the late date," he said.

Paul Dolce, director of sales for the Hamilton Park Executive Conference Center in Florham Park, N.J., said the facility's occupancy situation rules the day. "It's chaotic for a hotel or conference center if a short-term meeting is dropped in our lap, but it's also a great source of revenue," he said. "It comes down to how badly do we need the business at the given time."

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In a session on net fares and transaction fee pricing, consultant Mark Walton told buyers to focus on net fares because airline commissions will continue to fall. While less than 50 percent of corporate travel buyers have such agreements, Walton said "I don't know of one reason" they would hesitate to take that approach.

Meanwhile, Harold Seligman, CEO of Management Alternatives Inc., said more of his clients are going the net-fare route. To cover the travel management costs once supported by agency commissions and overrides, he suggested the Airline Reporting Corp.'s travel agency service fee program (TASF) as a way to allocate fees to individual travelers. The program is designed to allow ARC and the travel agency to charge a fee through the credit card billing process, billing individual travelers along with their ticket. "With each TASF transaction, ARC gets a fee of 3.5 percent or a minimum of $0.70 per transaction, which is applied only the transaction fee," he said. The minimum TASF charge is $500 per transaction. The travel agency also can charge its fees directly to travelers' credit cards, effectively taking ARC out of the equation, Seligman said.

Pfizer Inc. travel manager Phil Dunphy noted that since ARC is owned by the airlines, TASF program fees are really just "another fee coming from the airlines."

Times Mirror Resource Management Co. travel services manager Betty Lucero said that in May the corporation will launch AXI companywide, putting the tool on its Web site and plans to roll out an automated T&E product in July or August. Lucero said the company has not yet migrated to net fares on the airline side but does have some net hotel agreements. Times Mirror has come a long way since beginning its consolidation in 1993--going from using 80 to 100 travel agencies to one agency and card supplier. It published one companywide travel policy Jan. 1.

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American Express One will be marketing three online booking systems: "an Internet Travel Network private label product for companies with air volume under $500,000, E-Travel for medium-sized customers and AXI for large companies," said Scott Tarte, who heads American Express One, the new unit for midmarket customers (BTN, Mar. 22). He said 25 percent of Travel One customers have E-Travel, but only 5 percent are online bookings.

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One Corporate Travel 100 travel manager told BTN he has found the answer to winning compliance among meeting sponsors with his new centralized meeting planning and purchasing program: "I picked the planner who does the most meetings each year and put him in chrge of the unit. Not only does he have the most to gain, but no one else can say he doesn't understand what planning meetings is all about."

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At the CT100 hotel benchmarking session, one especially hot topic was the trend of adding access charges for local and toll-free phone calls. Some travel managers said they attempt to negotiate away those service charges, but with only marginal success, and one said that despite the no-surcharge clause in his hotel contracts, he still finds fees being charged when he double-checks travelers' portfolios.

Starwood Hotels & Resorts is researching a flat package price, such as $5 per day, for all phone calls, said vice president of global corporate sales Paul Gottwald.

Coverage of the CT100 air, hotel, agency and card fees and practices benchmarks will appear in an upcoming issue.

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