One-On-One: Amex Exec Sees Organic Growth Ahead

American Express Business Travel senior vice president and general manager of North America Andrew McGraw recently spoke with Business Travel News editors Jennifer Merritt and David Meyer to discuss competition and the travel management company’s latest technology and customer-service enhancements, coming attractions, industry trends and predictions for 2006.BTN: Has American Express felt any effects from recent realignments among mega agencies?

Andrew McGraw: I don't know if one's cause and one's effect. All I know is that we had a good first two months of the year in signing new business. We've gotten quite a few phone calls of interest relative to the global network or changes that are taking place today. It's going to be interesting to watch. If you look at what's happening in the industry, it's due to the fact that the previous organizational structures were composed of various partnerships with perhaps different objectives, different visions, maybe conflicting agendas, and in some cases the harsh confrontation of making the profitability model work. All these companies are going to go through a period of significant change. We're set today in our global footprint and our global network doesn't require us at this point to acquire any more competitors. We're in a good position to service customers around the world and to continue to invest in things that will differentiate us, innovations, things that will continue to improve productivity, and all of the other procurement and efficiency and process improvements that will take place offline and online. It's going to be interesting. We're in a good place from a strategic standpoint and the jury's out, as they say.

BTN: If growth won't involve acquisitions, would it involve only organic growth and winning accounts?

McGraw: Never say never. There may just be a reason why it makes sense for us to do something, but we're not looking to, don't have any intention to, and we just want to focus on continuing to improve and invest on the capabilities that we have today and continue to serve our clients and grow organically.

BTN: Eclipse is a good example of negotiating on behalf of clients for specific travel services. Is that an area of investment or is that organization fairly mature?

McGraw: Eclipse is open for investment. That's something I'll talk more about in a couple of months.

BTN: Amadeus and Sabre this month announced an agreement enabling each global distribution system to leverage the other to access nonparticipating carriers' fares, causing American Airlines to threaten legal action. What's your take on that, and how is Amex's own content mechanism, TravelBahn, progressing?

McGraw: I'm pretty optimistic that the content issues will get resolved one way or the other, and I've said that for a long time. The key driver has been the same from the beginning. If we go back to the DCA agreements that are about to expire, it was always a commercial problem, not a technology problem. Specifically to that issue between Sabre and Amadeus, at the surface level I'd say that it looks good, makes sense and is good for the customers, but clearly from American's interpretation they say that could be in violation of the agreements they have with the GDSs, and they want to control their own content. Back in 2000, when we implemented the TravelBahn network around the world, one of the things we looked at was content as one issue and control, access and flexibility as another, and we wanted a way to manage that. Phase one of TravelBahn was to gain control and flexibility, so we launched our own virtual private network to connect all our offices around the world, and we opted to own all our own hardware and service all our own systems. The flexibility, if it's required, is to move quickly from one GDS to another, so if content were to become an issue on one GDS I have the ability to do that. From that, we launched into TravelBahn DS, and in 2003 we established long-term distribution deals with both American and Continental. No matter which way the American deal goes, we built the right infrastructure to make sure our customers have content, but the dancing and the partnership changes are not over yet.

BTN: So is TravelBahn's U.S. network completed?

McGraw: It's been completed. We connected all of the offices, it's deployed worldwide, so all of the offices have the same connectivity and it's basically a high-speed virtual private network. We created a content access program in TravelBahn DS, which changed the economic model for commercial rates for the airlines for all tickets being distributed through American Express to be more favorable for the airlines and therefore provided access to our customers for the long-term agreements.

BTN: Does American Express pay subsidies to low-cost carriers to make sure its content is made available on GDSs in the United States?

McGraw: We're looking and continuing to look at alternatives as some of the low-cost carriers in the U.S. market become more significant. In Europe it's been a bigger issue than it has here. Without sharing details about discussions and economic and commercial models we might have, in the end we're looking at the customer's need and what's the best way for us to deliver that. It's a little more advanced in some of the discussions that we're having in Europe than in the U.S.

BTN: How is Trackpoint, your traveler-tracking product, coming along?

McGraw: It fully rolled out about one month ago in the United States and it's available in Europe. We're working on Japan, Australia and Asia/Pacific right now. We're in the process of talking to our clients, probably in about 90 to 120 days from now we'll have quite a few clients on it. It has a nice graphic user interface on the front end that allows a manager to see where a traveler is at any point in time based on the booked information. It appears as a map and you can drill down on the region, country, city and then drill down on the travelers in the location. We've been getting a lot of good feedback on it, and in the future for 2006, there will be enhancements to Trackpoint to make it even more valuable than it is today.

BTN: What technology did you invest in this past year?

McGraw: Our investments in 2005 were around the TravelBahn and Gateway applications and distribution of Gateway to our desktop and our counselors. Gateway is a point-and-click program that gives us complete control in terms of the quality-assurance process and was deployed at the front end to counselors. If in fact we need to make that switch off of TravelBahn from one GDS to another, it's seamless and invisible to the counselor. One of the big obstacles to the change was change itself: the learning curve, the training and the ramp-up time in getting a counselor conversant in one GDS to a new GDS. Lastly, it allows us to source for a higher level of customer-service employee in the future, because you don't have to look for people with the nuanced skills of a GDS. It also gives us the ability to house profiles on our own network. The infrastructure allows us to have data inventory within American Express and distribute it to air, hotel and car rental suppliers only that information that's required to complete a reservation.

BTN: What value enhancements did you make in 2005?

McGraw: As business has moved online in a hurry, we at American Express saw an opportunity to really differentiate and demonstrate value by improving the customer-service experience on the telephonic side of the business. We're looking for those transactions that remain on the telephone to be very important transactions, because if you think of it simply, the easy reservations and transactions will be processed in an online environment, so your chance to really exceed a customer's expectations will be those encounters on the telephone.

BTN: When it comes to telephony vs. online bookings, how do the numbers match up?

McGraw: It's interesting because online booking ramped up really quickly. Last year, we exited around 37 percent or 38 percent of all our transactions being online, but I've got to tell you it has slowed down. On a macro basis, the pace of conversion from offline to online has slowed from what it was a few years ago. I haven't seen anything at 50 percent. We'll end 2006—and this is just a guess—in the high 30s: 39 percent, maybe 40 percent, but I don't think the industry on a macro basis is going to get to 50 percent in 2006.

BTN: How did you improve the telephonic side of Amex's business?

McGraw: As an example, we implemented new call routing systems in our offices around the world. Today I can move calls from the United Kingdom and send them to my office in San Antonio. We're really maximizing the network so that we can meet telephone service factor goals—how fast you answer a call when it comes in—by maximizing the resources we have in our call centers. It also gives us more flexibility in business continuation planning in a point of disaster. The ability to move things quickly allows us to provide those types of recovery services in a business continuation process.

We also invested in counselor training tools where we monitor the conversation between our counselor and the client. We have a third-party company that analyzes that data for us to report back exactly how well we're doing and can benchmark that for us against other high-performing service industries. Those are a couple that really affect the traveler themselves, in addition to investing in more upgrades to a more user-friendly portal with more functionally of things that would be important to a customer. Additionally, we brought in an easy voice recognition system, which we also deploy from a customer satisfaction standpoint, to make it easy for customers that don't want to talk to a counselor, but maybe just want to cancel an itinerary.

BTN: How much was the investment?

McGraw: It's quite a big investment. Probably the biggest investment would be all the call center deployments we had: call center routing systems, the traveler counselor monitoring systems, the third-party monitoring of those systems and easy voice recognition system. When you put all those call center investments together, that was a bundle that we invested in. The Gateway is also part of call center and was also a significant investment for us.

BTN: What is your focus for 2006?

McGraw: On the corporate side of the business, we continue to invest in the business model that is focused on global program management, insight and benchmarking around our data sources and providing support for clients around data analysis and benchmarking around the commodities of air, hotel and car and then managing those with technology at the point of sale. Those are the focuses that began in 2005 and will continue to be the focus for 2006. You'll hear more from us in a couple of months on some things that we'll launch more publicly around the corporate savings side.

BTN: What did your largest clients discuss at the Inside Edge meeting in Las Vegas earlier this month?

McGraw: They expressed a lot of desire around security. There's still a large desire for additional help in driving down cost in sourcing air, hotel and car rental. The other is around reporting—there's still a real desire for data. For the past few years, we've invested heavily in global data and accurate data capture so we can claim the data and the customer gets really clean data. We're also looking at adding enhancements to the tool itself. The customers like having the access to the card and travel data. It also gives our clients the ability to identify any leakage in the program.

BTN: What kind of industry trends have you seen develop over the past few years?

McGraw: The trend to globalize has moved down from large multinational companies to the midmarket segment. It's driven by a trend of travel decisions being moved to the finance and purchasing areas of most companies. As it migrates in midmarket companies into purchasing, they're sourcing all other commodities on a global basis because they see efficiencies, cost savings, avoidance and the ability to leverage that spend globally. They're saying, "Not only would we like to do it in the U.S., but we'd like to do it in the U.K., France and Germany, where we also have operations." Before, you didn't see that trend in midmarket companies and it's moving at a relatively rapid rate.

The other is more outsourcing as it relates to air, hotel and car rental, where clients ask us to take on more of the effort to actually provide the analysis by consolidating all their data, benchmarking it and then making recommendations on the various programs that would benefit the company most. Again, it goes to the outsourcing of a non-core function.

In terms of pricing trends, it's a really interesting time because air prices are really continuing to climb. I don't think that's going to change much over the next several months, so in 2006 you'll continue to see price pressure and price increases on the airline side. On the airline side alone, we're looking at 5 percent to 8 percent increases for domestic short haul and 2 percent to 6 percent in long-haul markets. Europe was a little less, somewhere between 1 percent to 4 percent in short-haul and 4 percent and 6 percent for long-haul. It's been probably the best time ever for hotels, just from a pure supply and demand standpoint. Rates are at 7 percent to 10 percent and from the car side as well, both from a cost standpoint. Car rental companies are looking at somewhere between 6 percent to 10 percent. It makes it a very challenging time for buyers when they typically have a mandate to reduce cost.

BTN: Yet, demand continues to be healthy—

McGraw: Demand is healthier than the supply, which is putting the hotels in a unique position. That bodes well for the economy, because there have been some concerns that in the back half of 2006 there could be some softening in the economy. Right now, demand looks healthy. Those price increases will stay and in terms of the overall economy, that could affect demand, so we've got a watchful eye for the second half of the year.