The world's largest travel management companies are increasing their presence in the four largest markets in the Asia/Pacific region by buying out holdings from agency partners, acquiring stakes in other agencies, expanding offices, adding manpower and releasing market-specific technology solutions.
BCD Travel last week completed a deal for a majority ownership stake in its Australian partner, which had been operating as BCD Australia since earlier this year. In July, American Express Business Travel took a full equity stake in its joint venture in Hong Kong to form a wholly owned travel management company by acquiring the remaining 63 percent of its shares.
Meanwhile, HRG has been using Australia as a testing ground for some components of its Super Passenger Name Record and its end-to-end technologies
(BTN, Aug. 13) and Carlson Wagonlit Travel has built its own online booking tools for rail in the Japanese market.
According to CWT, Japan is the largest Asia/Pacific business travel market in terms of volume, but soon will be overtaken by China and India, with Australia following Japan as the top four markets. Although Japan is considered a mature market, its nuances still perplex buyers and require travel management companies to develop technology solutions to aggregate content and drive up online booking rates.
Australia-based FCm Travel Solutions, which recently has focused on expansion outside of Asia/Pacific, also has a strong regional presence while handling some overseas volume for corporations including Reuters, Siemens and Walt Disney. According to FCm regional director for Asia Joseph Kao, the company is developing consolidated reporting solutions, as data still is difficult to aggregate because of the market fragmentation. Kao also said the company is planning on buying the remaining equity in its majority-owned Indian joint venture.
BCD Travel, which has a strategic resource center in Singapore, plans to double its central resource team for sales, account management and consulting services to a total of 25 or 30 employees, according to general manager and vice president of BCD Travel in Asia/Pacific Roger Pfund. In its Sydney-based Australia operation, BCD Travel has six national sales managers dedicated to garnering new business, as well as six account managers. The company has a complete regional staff of more than 200.
American Express bought out its partners in Farrington American Express Travel Services, an agency with three offices and about 300 employees, which was a joint venture between Amex and majority shareholder Farrington Travel since 1999. David Lau was appointed managing director of the new wholly owned TMC and reports to Gregor Lochtie, vice president and general manager of American Express Business Travel of Greater China, covering mainland China, Hong Kong and Taiwan.
Maria Loh, former managing director of the joint venture, will serve as chairman of the board of the proprietary company. The other employees will remain with the company, according to Libby Roy, general manager and vice president of American Express Business Travel for Japan, Asia Pacific and Australia.
"The acquisition is a natural step in our growth plan," said Roy in a statement. "We use a multipronged approach to our globalization strategy via a combination of organic growth, acquisition, joint ventures and partnerships. Joint ventures allow us to quickly grow our business, as they combine the strength of our global reach with local knowledge to service high-growth markets."
The deal gives Amex an enhanced presence in its Greater China region, where business travel sales in 2007 will reach nearly $1 billion, according to senior vice president and general manager of North America business travel Andrew McGraw. McGraw added that the company has more than 1,200 employees in that region, as well as three call centers in mainland China, three in Hong Kong and two in Taiwan.
Attributing regional growth to the influx of midmarket clients pursuing multinational business, McGraw said 50 percent of the company's new midmarket clients are doing business with American Express in at least two countries. "In the middle market, companies are becoming very aggressive with their globalization strategies," McGraw said in July at the National Business Travel Association International Convention & Exposition. "Currently, globalization is on the front burner with middle-market companies."
McGraw also noted that Amex reported a 10 percent increase in year-over-year sales for the first five months of 2007 and claimed a 99 percent retention rate. In the first six months of 2007, McGraw said the company garnered $1.52 billion in new business, and that Advisory Services sales were up 36 percent, year over year.
Meanwhile, Amex also claimed a 50 percent increase in Asia/Pacific account wins, as well as a 10 percent sales increase in the region for the first six months of 2007 as compared with 2006. Roy said the growth has been driven by the launch of market-specific technology solutions, investment in manpower and the rollout of the Advisory Services consulting team.
"The buoyant Asia/Pacific economy is obviously a factor in our growth, as economic growth is the key driver of passenger growth in developing countries," said Roy in a statement. "We have seen the most rapid growth in the emerging markets, where first-half sales increased by 42 percent in India and 32 percent in Thailand compared to the same period in 2006. The sales growth is a result of a number of significant new business wins across a wide range of industries—from finance and manufacturing to mining and technology—and includes ABN Amro in Australia and Symantec Corp. in India."
Last month, Amex also announced a new structure for the region, which is led by general managers in each of five subregions: Singapore, Thailand, Indonesia, Malaysia, the Philippines and Vietnam; Greater China; Australia and New Zealand; Japan and Korea; and India. The general managers will lead day-to-day client management, as well as wholly owned, joint venture and partnership markets and operations.
The company has implemented technology in local markets, including the internally developed Self-Managed Reservation Tool in China, which handles online transactions using the Chinese TravelSky global distribution system.
The Advisory Services consulting division, led by Kurt Knackstedt, also rolled out in the region in November. Amex's Roy said six companies in Australia and Asia have used the consulting division. "We have had a strong response to our business process outsourcing offer, as for many companies it makes sense to outsource the travel management function in such a fragmented geography," she said. "This factor alone is likely to drive uptake in Asia/Pacific ahead of the U.S."
"Because of complexity in the market in Asia/Pacific and the fact that the companies themselves are fragmented and often don't have the same level of scale that they might have in the U.S. or Europe, there is actually greater opportunity for us to add value in the whole process outsourcing piece because we can actually consolidate the information and do the sophisticated data mining to look for potential savings opportunities, which is something that is quite different from the U.S. and Europe," Roy said.
Australia, meanwhile, stands out in the region because of its high online adoption and market maturity in terms of technology and operational infrastructures. Business travel buyers there are primed for a move into the next stage of travel management—the integration of online booking tools with automated expense management solutions, much as some North American and European clients recently have done.
"It's really quite unique from an Asia/Pacific perspective," said BCD's Pfund, who noted that many Australian corporations have adoption rates of more than 70 percent, with some above 90 percent. "Most of the rest of the region is grappling with how to aggregate a very fragmented marketplace from a content or GDS perspective. Australia doesn't really have that problem as much."
While some Carlson Wagonlit Travel clients have adoption rates above 80 percent in Australia, clients there average around 30 percent. That's because of CWT's mix includes government accounts, some of which book less than 10 percent online, and high-touch former Navigant clients who still are integrating with CWT technology, according to Carlson Wagonlit Asia/Pacific COO Berthold Trenkel. "Australia is very much an adoption game now because most clients have online booking tools in place, so it's all about getting the adoption rate up," said Trenkel.
With the Australian economy increasing in recent years, according to International Monetary Fund GDP statistics, CWT's base business growth in the region for U.S-based clients is up 10 percent compared with last year, according to Trenkel. The company has 805 employees in Australia, the second-most of any country in the region, behind India, where CWT has 920 employees in a joint venture in which it recently acquired a majority stake
(BTN, July 9).Although there are similarities between the United States and Australian business travel markets, one fundamental difference is the breakdown of travel-spending segments. Trenkel described it as a four-segment market, with the first tier consisting of $30 million to $60 million accounts of global corporations, followed by a second segment of $10 million to $30 million, comprised of Australia's largest corporations, including CWT clients Telestra, ANZ Bank and natural resource and mining giant BHP Billiton. The third sector is the government, which accounts for 30 percent of CWT's Australian business. The largest segment is small and medium-size enterprises with between $100,000 and $2 million in travel expenditure.
Australian companies have tended to adopt technology launched in the United States and Europe, but several are testing some components of the HRG Universal Super Platform, the agency's Super Passenger Name Record technology
(BTN, Aug. 13). HRG is implementing an end-to-end online booking and expense management solution for Australia's Queensland government via its wholly owned HRG Australia operation, and plans to roll out the solution to other markets by year-end. The initial Australian launch is expected to have 100,000 registered users.
American Express also has launched technology solutions in Australia. In November, it launched American Express Online in Australia, where the company claims that more than 200 corporations are using the online travel expense management platform. American Express said 35 percent of its Australian bookings are online.
Online booking rates in Japan, meanwhile, are at the mercy of a market in which supplier content remains decidedly fragmented. "The biggest thing in Japan is not the high-service expectations—it's getting an online booking tool to work, aggregating all the content that is available," BCD's Pfund said. "It's really hard for us to grab the content and put an online booking tool in place. When you add the cultural piece and the service element, it's very low adoption."
Japan's content fragmentation has BCD Travel considering implementing its recently released Super PNR platform in the region by 2009, according to BCD Travel executive vice president of products, technology and supplier relations Dee Runyan.
"The content is excruciatingly fragmented depending on the country," Runyan said. "Rail is very important in Japan, as it is in some countries in Europe. It is even more complex because, though there is an overarching Japanese rail system, there are actually four individual companies that aren't linked at all. When we need to do a transaction that includes rail, we have to figure out which of their four reservation systems we should use. In addition, there are airline GDSs that are aligned with the two major carriers—All Nippon and Japan Airlines—so there are potentially six for any particular transaction, and none of the GDSs have been able to crack that. We are really feeling that markets like Japan and China, as long as they can give us an application program interface, will be on the list of developments."
Meanwhile, Japan's travel agency commission environment and market saturation also has stunted change in technology implementations. Most large Japanese companies still run their own in-house subsidiary agencies, but "the model has come under threat as commissions have dropped," according to Trenkel, who added that this past year commissions dropped from 7 percent to 5 percent.
"Now most of these agencies will probably break even, and as these commissions disappear, these agencies will have to charge for this service," Trenkel said. "That is going to completely change the relationship they have with their parent companies."
Along with online booking adoption rates being stunted by a culture of high-touch "white-glove service," he said, where paper tickets still are delivered to traveler's desks, key suppliers are a significant factor as well.
"Airlines in Japan have taken a very radical stance, really taking out the entire travel agent channel," Trenkel said. "They do not offer competitive corporate net fares, so in that sense a booking through a TMC does not give you an economic advantage. They only offer the lowest fares on their Web site. A lot of clients have to decide, 'If I want service, I order it on the phone,' and they book via us. If they want to go online, they would transact mostly through the Web site of the carrier directly. With that, obviously, you will lose spend data, and safety and security is not there."
CWT has built its own online booking tools for rail with joint venture JTB-CWT—which has 550 employees—through which electronic tickets are printed at the rail station. The tool is exclusive in Japan, according to Trenkel, who noted that rail travel is the primary method for domestic trips of less than 500 miles and comprises 50 percent of the domestic travel market.
While the rail booking solution provides a slightly less expensive transaction fee, Trenkel said domestic Japanese transactions traditionally don't carry fees, which can create a distorted business proposition between buyers and TMCs.
"Domestic gets sort of thrown into the mix for free," he said. "That means international transactions cross-subsidize domestic ones, which in reality means we need to watch your ratio. There is a cost to serve a domestic transaction, and a client needs to have a mix that falls into certain parameters to make that mix sustainable for us to service them."
(See related chart.)