American Express Business Travel and Carlson Wagonlit Travel declined to comment on what they called a "rumor," but sources corroborated scuttlebutt stated by HRG chief executive David Radcliffe at The Beat Liveindicating CWT and Amex as little as a few weeks ago broke off their latest merger talks. Radcliffe at the conference also discussed HRG's position on M&A activity among travel management companies, as well as the past and future roles for these firms, formerly known as travel agencies.
Asked when the big four TMCs would consolidate to two, Radcliffe joked, "Tuesday. Is that good?" Then he continued: "Well, I know the CWT-Amex one is off again. That's the third time in my lifetime now."
Radcliffe questioned the potential value of such a move. "In any industry, in any cycle, you've really got to look at the advantages and disadvantages of merging, buying, selling, whatever," he said. "The TMC market is no different. If there's more to be gained by merging than not, then clearly you put merger on the table. But if you put aside the economies of merging finance departments, IT departments, etc., strategically--in international terms--Carlson, Amex and HRG already are up there on every international bid. Quite often, BCD brings its part there. I'm not sure what we would bring the client by merging. Each of those players has sufficient influence in each market. Each has already got a network, which in some places they're trying to reduce--such as in the North American market as technology bites--so I'm not convinced there's this Earth-shattering benefit to be had, and that's before I get to the differences between some TMCs. Some are driven more by volume payments from suppliers than others. You could dent one strategy by bringing another one into it. I'm not saying it's off the table, but I don't think it's next Tuesday. It is easier for some to do than others, and there's more desire for some than others."
For HRG, "We're back on the opportunistic table, really. We have ridden out the recession we think fairly well, and we have some very loyal shareholders who have ridden it out with us and they're now asking, 'What are you going to do?' Whether that means the big four or down the food chain, I don't know."
HRG between 2005 and 2007 acquired agencies in the United States, including Executive Travel, Robustelli World Travel and Sea Gate Travel. The additional coverage in the region was warranted in large part because HRG's Business Travel Internationalpartnership with BCD dissolved.
"We took a conscious decision not to buy everywhere in the States," Radcliffe said last week. "We reckoned that with good people and the right technology, there would be a time in the States when you don't need to be everywhere. So do we need to buy in a geographical area? No. Would we buy in terms of getting benefit? Yes, but I'd need to see the shape and value of that. Do we need to do anything? No. But we are not good at standing still, and we want to do some more."
The advent of online booking and "touchless" servicing has changed the nature of travel management companies, Radcliffe argued.
"I think the days of the 'TMC' per se are numbered because it's just one element of what we do," he said. "What will happen is, you'll find travel service-related companies in the space. The base, which is transactional fulfillment, is still a bedrock. But that's not what we rely on for profitability. It's really the range of services in between--the benchmarking, data provision, data analytics, consultancy and also online expense management capability. So you have all these things, which have less and less relation to our original service. It's just as much a change as when we lost commission. It's just a change, and we need to evolve or die. We're not afraid of it.
"People ask if the small guys will be driven out. I don't think so," he continued. "There will always be specific roles for different services. We do far more than fulfillment and if you look at some of the pricing in the market, everyone knows that transaction fees for touchless really don't make any money. You only make money when it's touched on that basis. If HRG is doing its job properly, we're taking out a lot of the base transaction and giving it to the client. We're saving our client cost and part of that cost is ours, because we no longer have the fulfillment cost attached to it.
"Change is easy. It's letting go of the past which is the problem," Radcliffe added.
Meanwhile, although the technology orientation in North America is gaining in acceptance globally, it does not mean worldwide markets are homogeneous, he said.
Globalization is "getting easier," said Radcliffe. "Our business is driven by large corporations and, at the moment, the cycle is going towards more running across global or international markets than it is toward regional ... you have to be pragmatic. If that's how the market is going, it's our job to fit into the market.
However, he told his audience, "I am fairly frequently afraid by how little some people over here think about what happens outside North America. You read about all the North America-centric technology, the North America-centric procurement strategies ... and yet you only have to leave North America and half of us don't understand the language across the world, we get tied up in different legal systems and that's before we get into the local country cultures. So we forget those at our peril. The balance in HRG is how to make a profit from a client running across those countrieswhilst at the same time giving an excellent service that now is frequently still different. Don't get me wrong: You've got companies going to two or three centers across the world, follow-the-sun policiesas well--and we've got those--but they are" the minority.