American Express vice chairman Ed Gilligan, who headed corporate card and travel operations for 25 years before shifting responsibilities in October, met with BTN editor-in-chief David Meyer early in January and discussed his bullish outlook on business travel.BTN: Does the "new normal" reflect permanent or cyclical business travel changes?
Ed Gilligan: There's no doubt it's a cyclical change. The question is, how will corporate behavior evolve as a result of the lessons learned in the past 12 to 24 months? That is still very much an open question.
In business travel, I'm a little bit more bullish, and I have been for the last six or eight months. I've talked to a number of people in the airlines and to our customers, and my belief is that I've seen this before. What happened in the past year, I've been through four or five times before.
Businesses now have the tools and the processes in place to control their spending quickly and weather the uncertainty for a period, and then—the good news for the travel industry—people have to travel to do business. There's been talk for 20 years about how different elements of technology or process change can replace the need for travel. Some of that has been true and will continue to be true, but my basic belief is that businesses have to spend money to make money. They have to get out to meet customers and see their employees, and they are doing business all over the world.
As soon as that element of uncertainty died down, even though the economy wasn't charging back, it was clear companies had to get back on the road.
I am bullish on business travel, but I do think there are going to be some changes. I don't know if you can call them permanent, but at least for the next few years, there's a much sharper focus on unnecessary travel. There is going to be an increasing amount of high-definition videoconferencing that will take the place of some internal travel, and the whole trading-down phenomenon has occurred. Companies have changed policies, and people are staying in lower-priced hotels and flying more in economy than business and first. It's not clear how that bounces back. Some element of trading down will continue.
There will be less internal travel in this next chapter than there was before, but I think business travel in 2010 is a growth industry—off a weak base, but a growth industry.
BTN: You are not talking about pent-up demand, but a basic business need.
Gilligan: It's a basic need of business to travel, and that's been constant over 25 years.
BTN: Is there pent-up demand that we will see in 2010?
Gilligan: Yes. I think we already are seeing it. We're seeing that companies are getting back on the road. In fact, many smart companies were on the road. The one constant theme was to cut back. There were two ways companies reacted to this, by trading down but keeping people on the road, or just stopping travel. Across our customer base, we've seen all the flavors that exist. There were certain companies or industries that decided that they had to continue to travel and they did it. They just traded down. To me, that's smart.
We've done some work with the National Business Travel Association and the consulting company IHS to try to quantify the impact of travel. We have found that within certain bounds, an increase in spending on business travel leads to an increase in sales and produces a 16 to 1 return: $16 of revenue for every dollar spent. It was intuitive for me, but it was very refreshing to see it quantified.
A lot of chief financial officers around the world are looking for ways to continue to save money in uncertain times. You have to be able to quantify what you are doing. It's an investment a company makes, and the investments that get funded are the ones that have more certain returns. It is incumbent on people in the industry to make sure that where there are facts that we listen to and communicate them.
BTN: Does your optimistic outlook for business travel demand equate to growth in corporate card spending as well?
Gilligan: We are already seeing it coming off the bottom, and we started seeing it in the middle of the year. When we look at all the numbers we published publicly, spending for consumers, small business and corporations are all off the bottom. We are waiting to see what the fourth quarter looks like, but it's clear that corporate travel is bouncing back.
BTN: Bouncing back and recovering are two different things. When do you think we will reach what you would call recovery?
Gilligan: I would say we are recovering. How long it will take until we return to that absolute level of spending of, say, 2007? Will it be a steep rise upwards or will it be a slow rise? It's still one of the unanswered questions. The fact that it's going back up this year makes it a growth industry, but it's still below where it was 18 months ago, but that's a heck of a lot better than it's been.
The glass to me is more than half full. Part of it is just the perspective of having gone through a couple of downturns where it wasn't clear what would happen. We saw the resiliency of the travel industry and of our corporate clients who learned the lesson that travel is essential. That was true in 1997 and 1998 with the crisis in China and the change in Russia and again in 2000 and 2001, with the Internet bubble bursting and 9/11. It was clear in 2003 when the war in Iraq happened. All of these caused a steep drop in spending to happen, and then it came back. They all were kind of V-shaped recoveries.
BTN: Looking internally at American Express, does the placement of the corporate payment and business travel into a direct line to Kenneth Chenault signal a different focus on these units going forward?
Gilligan: No, I don't think so. We just reorganized and Anré Williams, who runs global commercial card, and Charles Petruccelli, who runs global business travel, report to Ken. I think most, if not all other businesses of American Express are under me. We also created a shared services unit for technology and operations under Steve Squeri. I look at this as a great opportunity for both Anré and Charles and for Ken to take a closer look at what's going on with corporate card and travel.
I've been around both of those businesses since 1985. I can't say I was thrilled to be no longer directly involved, but it's a great opportunity that doesn't change one degree the amount of focus or the importance of those businesses to the company.
For me, taking on some of the new businesses and consumer business in the United States, small business, the international consumer businesses and the merchant network—it's a big portfolio. I have a learning curve I've been going through, and I think commercial card and travel are in relatively very good shape. They have their strategy and they are executing well, and it's a great opportunity for Ken to get closer to them. I think he sees it that way too.
BTN: Despite your change in responsibilities, will you still have a hand in it to some degree?
Gilligan: It's like "The Godfather." I keep trying to get away and they keep pulling me back. Of course I'm still involved. I'm very close with Anré and Charles, and probably talk to them more now than I did before. I now have responsibility for businesses that service them.
BTNonline.com WEB EXTRA:Business Travel News' interview with American Express' Ed Gilligan continues below.BTN: There's been a lot of talk about credit card fees as being the next big area for cost reduction by airlines, but no real movement in that area. Do you see changes ahead or is that just a lot of hype?
Gilligan: It's something that's been talked about for 10 or 15 years. The airline industry has been incredibly challenged, particularly in 2009, and we know they were before. They entered a whole new era of challenges post-2001 that they're still in. They are still reeling from this cutback in travel, particularly in premium class travel, and a lot of them were on the ropes this year. They have to continue to find ways to save money. That's a fact, and they continue to look at everything, as any good business would do. When it comes to payment cards, airlines have a love-hate relationship. They love the fact that both businesses and consumers can buy tickets efficiently. They don't have to worry about credit, they don't have to worry about funding, they can just process the transaction and get the person on board. It has dramatically increased the number of people who can fly over the past 20 years by having credit cards in the mix.
BTN: They're even moving to cashless cabins—
Gilligan: Because it increases their efficiency. They don't like the fact that it costs them money. The fact is, the cards exist because they serve the needs of the players in the system. The people who carry those cards get an enormous amount of benefits from those products. They get information, they can finance their transaction, they get visibility into what they're doing. They can get rewards and incentives from using the cards. It works well today, despite the fact that airlines may not be thrilled about the costs of acceptance. Having said that, they haven't come up with a better mousetrap&x2014;not that they're not going to try.
BTN: With the co-branded cards, it seems even harder for them to be adversarial.
Gilligan: Airlines love their co-branded cards, because it's a way to add more value to their best customers and earn their loyalty. It's kind of like the GDS. For 10 years, they were talking about creating the next generation of the GDS. It still hasn't occurred because GDSs play a role. They've negotiated costs and content availability with different arrangements, and they continue to work on that model, but the GDSs are still in existence and still essential to the travel industry. It's similar to the card business: We have to continue to innovate to keep this whole process in equilibrium as a value to customers and to the merchants who accept the card. We have to continue to work that every day. We have to think about where the puck is going and not just where it is today. I think a lot of that is going to involve mobile technology, which I think is the next wave that's going to hit the business travel industry. We're seeing the very early signs of that.
What's different now versus 10 years ago with the adoption of the Internet, is that the adoption of mobile will come far faster because people are using it in their private lives. They're just not using it much yet in their work lives other than e-mail applications, but that's going to change rapidly. Payments are going to be part of that change, so we have to make sure that we are ready for that. I think in the next five years we'll see fairly rapid innovations in that space.
BTN: Expense management is another piece of the business travel equation, and Amex has made several moves in this area including twice buying a piece of Concur, right?
Gilligan: Yes. We owned 10 percent of Concur before they went public about 11 years ago. We reinvested about a year and a half ago. Now we own approximately 13 percent.
BTN: Do you still serve on the board of Concur?
Gilligan: I do.
BTN: What benefit has that seat brought to Amex and Concur?
Gilligan: When you look at how American Express adds value to our customers in and around the whole area of travel and expense management, we provide a whole suite of services from booking travel online and offline to paying for travel, providing information, giving consulting and advice, and helping companies to negotiate and achieve savings across the end-to-end spectrum. The gap we had was in electronic expense reporting.
What we saw over time was our best commercial card customers wanted to be fully automated end-to-end with a robust online booking product, and had an automated product to process their expenses, whether using the same vendor for both or not. We realized this had strategic value, and we didn't want to just be a reseller, but we're not a software company, we're a service company, so we wanted to have some skin in the game with Concur because we believe they are the best provider. We also believed that they were well positioned to be global, so we thought we would either have to compete with them head to head in this space, or we needed to get very close to them.
Now we are all in the same tent together, trying to anticipate what innovation is needed for the future and how to better serve our mutual customer base. I think it's working well. This is our primary offering, and we are working on some joint product development to make it even more integrated for our joint customers. We're going to work with them to accelerate their progress in Europe and Asia in particular, because we have a very good footprint around the world and they are in only the early stages of building that. We can accelerate them, and by owning part of them, we'll participate in their success. Being on the board helps us shape their strategic direction. As a board member of Concur, I focus on doing what's right for their shareholders, but there's a huge overlap with Amex's needs. I can help them navigate through American Express to get support faster and more effectively than otherwise. I think we both will benefit from that.
BTN: Have you seen results from that?
Gilligan: We've done a lot of cross-selling. We've brought a lot of new customers into their pipeline and helped them close some deals. They've actually brought us some new corporate card customers and we're working on product development together. We did the deal right before the Lehman Brothers bankruptcy, so there was a lot of noise when you look back to say, is this going exactly as we anticipated? No, because we have had some external events. I can bring them a certain perspective, and they can open my eyes to a different way of running a company. The operating agreement was struck between Concur and the commercial card business.
BTN: How have you seen the roles of the travel manager and the travel management company change during your first 25 years with American Express, and particularly in the last couple of years?
Gilligan: When you look back, it's a little bit of a cliché, but the only thing that's been constant is an incredible amount of change. It's an amazing industry, and I don't think that many people outside of the industry understand the amount of change around business travel. I remember dealing with some large companies in the late 1980s that had 200 to 300 travel agencies in the U.S. alone, and had no idea what they were doing outside the U.S. That was much more of a relationship industry.
Between companies trying to get their arms around their spending first in the U.S. and then globally, trying to deal with the new technology coming in, whether it's online in the last 10 years or mobile in the next 10 years, trying to deal with the crises we've seen, including 9/11 and the Great Recession, and then overlay a very unstable airline industry, it's a massive amount of change. Of course, the role of the travel manager had to evolve from being one that's relationship-driven to one that is more strategic sourcing, that has to deal with understanding both the business need for travel and the technology available, and is trying to put the pieces of the puzzle together to optimize the company's investments in travel. We see it's on-again, off-again, and the travel manager is the one who has to carry the burden of creating order from the chaos that exists in this industry to make sure companies are getting the benefit.
If a travel manager is unsuccessful, I believe the company ultimately is unsuccessful. Going through a downturn, companies just turn off all their travel to save money, but a year later that company is going to be worse off. The role has changed dramatically, and a lot of the people that I have met over the years have really developed along that spectrum. They are much different today than 10 or 15 years ago in how they deal with the industry and how they do their jobs. A lot of the people are the same, but they've developed incredible new skills that enable them to navigate through this successfully and those that couldn't are no longer travel managers at large global companies.
BTN: It seems that with the advancement of procurement and senior management involvement with travel, skills in communicating with senior management that always were important are even more so.
Gilligan: Yes. Ten years ago, the travel manager just had to have a program in place so that people could travel. Now you have to make sure that you have an efficient program in place that can stand the scrutiny of senior management attention, particularly in challenging times, to make the case of why this company needs to travel, but also how to do it in the most cost-effective way.
Going back to the earlier point about being able to quantify the return on investment on travel, it is critically important that a travel manager understand that and make that real to the CEO and the CFO in ways they can understand, because it is very easy for the CEO to say, just cut travel by 20 percent in the next 12 months. A number of companies have done that, but a year from now they are going to be worse off. Those that have figured out how to keep traveling, but do it at a different cost level with more controls in place, are likely to be more successful. The travel manager is the one who will make the difference and it will show up on the bottom line.
BTN: How do you anticipate business travel management and American Express Business Travel changing in the next few years?
Gilligan: We need to continue to evolve how we add value. It's incumbent upon us now to look out over the next three to five years and determine how American Express can be more relevant to our customers across the expense management categories and to offer a wider range of products and services. Clearly, technology-driven product innovation is a big part of our future across both travel and commercial card to use new tools effectively in the workplace. We can continue to look for pockets that are less well-managed. We'll build things ourselves, and partner with others that are out there.
BTN: What are your top priorities for the year ahead?
Gilligan: Restoring the premium value of American Express for shareholders, customers and the people who work here. The last two years have been very tough, and I think we are well under way. There's a lot of different ways of measuring it, but the value of this company is measured by our stock price. It was $60 two years ago and it dropped to $9 in March. It's now up to $40, so we're rebuilding value. The people who work here sacrificed. We went through reengineering and eliminated a lot of jobs and there was a lot of hardship. We cut some salaries, we weren't filling jobs, no one was getting promoted and we cut back on pension contributions. All that stuff we replenished, and we're starting now to pay back our people for their sacrifice.
Our customers sacrificed as well. We were suffering, particularly the consumer business, from a runaway credit issue. It's a fine balance how you manage credit. We're on a mission to make this a growth company again, to really distinguish ourselves. Banks in general took a very bad rap, and deservedly so, but we don't see ourselves in that company. Even though we are now a bank holding company, we see ourselves as very different because we are a services company. 2010 to me feels like a great opportunity for American Express to regain the high ground by driving value back to customers, employees and our shareholders, and I think we are well along that way.
Ed Gilligan will be a speaker at the BTN/NBTA Strategic Travel Symposium on March 15 and 16 in New York, presenting his views on "Business, Travel and How Travel Means Business Globally."