Travel management professionals from three multinational corporations at the National Business Travel Association convention here in August explained how their organizations measure airline program savings. Though each has had to consider mergers and acquisitions that expanded travel footprints, "there is no one right or wrong methodology for savings," said Reed Elsevier global travel director James Sisco, during a panel discussion. "It just depends on what works for your organization."
Bank of America has been managing travel for 25 years, said senior vice president and supplier manager Doug Debaltzo. According to his presentation, the company measures three types of travel savings. Demand savings is generated by spending reductions outside travel management's control and largely influenced by economic conditions, budget cuts and departmental restrictions. Productivity savings is driven by the activities of the travel services department--including implementation of policies and operational controls--and can come in the form of hard- or soft-dollar benefits. "Last is the transition savings," Debaltzo explained. "We have been in perpetual acquisition mode--Merrill Lynch most publicly and recently, Countrywide last year, and Fleet, LaSalle and all the other banks that we have brought into our organization." Transition savings, according to his presentation, is generated through "leveraging additional spend and/or travel markets, driving best-in-class operational results and normalizing travel policy."
The hard-dollar savings that follow M&A, Debaltzo continued, "are generally going to be incremental. Also, they are generally going to be a one time kind of event; maybe it's a rebate off the travel programs."
Such M&A also complicates savings analysis. "Merrill Lynch is a much more global organization than Bank of America was, so all of a sudden we are finding ourselves comparing average international ticket prices to London versus average ticket prices to China and many other destinations in the Pacific Rim," Debaltzo said. To account for that, Bank of America established annualized baselines for common city pairs. "That way, we normalized travel patterns and have taken out any of the extraordinary fluctuations," he said.
Overall, Debaltzo aims for a sustainable savings methodology that demonstrates the value of the managed travel program. To do so, the company examines North America and international airfare indices provided by its travel agency and compares the monthly and yearly rates of change for typical business fares (the metric it uses for "per unit cost") versus its own numbers. For example, if the index for a given month shows a 4.3 percent decline in typical business fares and Bank of America achieved a 5.3 percent reduction, "we are allowed to claim credit for the difference.
"If you take pure average ticket price comparisons year over year, it is absolutely not a sustainable model," Debaltzo continued. "In a year like 2009, I could demonstrate tremendous savings for our organization--in the tens of millions of dollars in the air space--but come 2010 or 2011 when the economy rebounds, when the airlines and demand and supply pretty much are at equilibrium (if not going the other way), when average ticket prices start going up again, what are you going to do? Are you going to show a loss to your organization? Is the finance person going to allow you to claim negative savings? That's just never going to happen."
That said, "the business still needs to know--for budgeting purposes as well as to compare business units--what we spend this year over last year, what our actual ticket prices were this year over last year."
To foster transparency throughout all travel reporting, "we engage finance early and often, and we actually have our finance partner partner with the travel team," Debaltzo said. "He attends most of our airline savings meetings and most of our travel agency quarterly reviews. Instead of it being a scenario where we walk into his office and report to him quarterly on what happened and then selling the program over and over again, he is an active part of the group."
Brewing Up Savings At Miller Coors
At Miller Coors--a joint venture established in 2008 between brewing giants SABMiller and Molson Coors spanning six continents--each savings category "had to be defined so that Wall Street would accept it as synergy savings," said strategic sourcing manager Pamela McTeer, who manages "over $600 million in T&E spend" for the company. "Travel actually fell in the area of 'refining sourcing requirements' and really reengineering the process," both internally and by leveraging greater volumes suppliers.
According to McTeer's presentation, each of four metrics had to show "marked improvement year over year," including savings yield for each preferred airline (savings from negotiated discounts as a percentage of total spend), average ticket price, cost per mile and percentage of flights on preferred carriers. A report card with those metrics is shared quarterly with senior leaders "and it's very interesting how competitive they get," McTeer said. "No one wants to be the bad person on this list with the lowest amount of savings."
McTeer said another key is "communication to the sales guy. Every dollar in cost is equal to six six-packs of beer. Now that's a lot of beer to sell if I am starting to have a million dollars in savings left on the table because [travelers] are not using their preferred suppliers in the right markets."
Disseminating Travel Data At Reed Elsevier
Savings at Anglo-Dutch publisher and information company Reed Elsevier, according to Sisco's presentation, is calculated by adding profit and loss savings ("new business or commodity sourced for the first time") to "mitigation savings" (resulting from negotiated programs) to determine cash or the "gross value of savings delivered on purchased goods or services."
Said Sisco, "the majority of all travel savings is recorded as mitigation savings." P&L savings, he added, only is valid for 12 months, "because after 12 months it's going into that next year and you really can't take the same credit for the same deal in the second year."
For example, "We acquired a new company under our large organization under the Lexis division, and they had some programs out there but were primarily related to the small-business programs," he explained. "We were able to bring them onto our full-blown negotiated discount programs, and it showed true value on a quarter-over-quarter basis."
Reed Elsevier encourages travelers to use preferred airlines and pushes discount coverage to as close to 100 percent as possible. "There are carriers out there that don't discount some of the real low buckets, but I continually push them and tell them they are not competitive," Sisco said. Other areas of focus include promoting advance purchasing (the company generally finds lower ticket prices when booking at least seven days in advance); examining class of service (though Reed "doesn't have a culture that allows us to dictate" that all travelers fly economy); and increasing online booking adoption, which cuts agency transaction fees but also generates airfare savings. "The online price for our top 25 markets [in the second quarter of 2009] was 13 percent lower than picking up the phone," Sisco said, referring to "visual guilt" and "the extra step" of requiring online bookers to input "the reason why they might be taking the higher price."
Monthly exception reporting "is critical," Sisco said. "It's amazing some of the reactions we have gotten from the CFOs and the divisional stakeholders. They say, 'Someone really could change their schedule by an hour and the spend is $1,000 more?' That is happening everywhere, every single day and we are now pointing it out."
Reporting also includes quarterly packets of seven to 10 pages showing historic, geographic and divisional spending comparisons. "At the end of every quarter, I calculate the savings in conjunction with the travel management company," Sisco explained. Once numbers are reviewed and approved by finance leaders, savings calculations are recorded in an internal system called the Global Procurement Pipeline.
~ Lauren Darson contributed to this report