 1995 Summer ACTE Quarterly: President's Message | Net Fares | Travel Manager's Industry Roundtable
TRAVEL MANAGER'S INDUSTRY ROUNDTABLE
AQ: In the ethics seminar today one of the questions raised was whether the travel industry is less ethical than others--specifically about questions like accuracy in stating volume. Does exaggerating about volume still go on? Hanna Murphy: I'm not sure how much of it is intentional. The more savvy and computer literate you are, you can better track the volumes. Everybody knew that years ago we couldn't track well at all and that at the end of the year [suppliers] didn't even know if you gave them what you promised or not. AQ: A number of corporations claim that at the end of the year they go to reconcile their production with their agreements, based on their card data. But the airlines claim that the production the corporation is stating is higher than they're showing. Have any of you experienced that?
Elaine Triggs: Absolutely. I don't know if it's how the airline is tracking, but we can see exactly what we're placing with each carrier, and the Fred Swaffer: I think they have the data. I just don't think they have the capacity to convert it. We reconcile our ticketing volumes on several carriers, and there are a few with which we've had significant discrepancies--like 25%. You wouldn't expect travelers to be changing airlines to that degree. You wouldn't expect that much breakage in tickets sitting in people's desk drawers. We've actually tracked tickets from birth to death and found that if the traveler went to the airport and upgraded using his frequent flyer miles, the ticket with the tour code--the code the airline uses to track corporate volume--got discarded or voided because the gate agent is too busy to copy it. AQ: On to commission caps--and what the ramifications may be. Armand Le Compte: I think the most immediate drive will be toward net-net fare negotiations of one kind or another--mileage-type fares or city-pair fares. I think transactional fees or management fees will become more prevalent. I don't necessarily agree with what I'm sometimes hearing, that we'll be going back to the old ways of doing business where we'll add staff to process travel. And I don't know that the outsourcing trends are going to change that dramatically--my company certainly isn't leaning in this direction. AQ: What response has senior management had? Do they understand that travel may get more expensive very quickly? Nancy Bruner: I think so. In my case I have support from senior management from the top on down. Swaffer: I don't think that's a true assumption, that travel is going to be more expensive. I think it's going to be less expensive. I know that the loss of commission rebates will cost the company 3.3 million, on a base of 10 million, so it's about a 30% reduction if I don't counterbalance that with negotiated upfront discounts. That has to be the strategy, to counterbalance the reduction in commission revenue. But if we're getting the rebates after the fact, whatever the commission rates were getting, the company has paid transportation tax on it, and that's simply foolish. I think Step 2 is going to be net fares, and I think that's going be inevitable. AQ: One way to look at commission caps is as a way to reduce the costs of distribution. Another is as a way for airlines to raise fares. How do you see it? Gary DiVincenzo: Probably a combination of both. I personally feel it's a good thing for the industry. We'll be able to establish stronger relationships with suppliers than we have in the past. The relationships will be established where they belong: in clear direct lines with suppliers, without necessarily dealing through travel management companies. Murphy: We're certainly positioning ourselves on a transaction basis. I'm very excited about this. We will be opening up with suppliers, we will know more about their business, we have also developed our standards which we expect them to meet. We're not benchmarking one agency against the other for productivity; we benchmark them against our own productivity. This is an eye-opener for them because nobody expects an agent to do more transactions than are standard in the industry. We say, we do x number of transactions in materials management, why couldn't you do it in a ticketing environment? We are now using agencies as a supplier vs. a partner, because now we're paying them for every service they do for us, which we do for other commodities, too. LeCompte: We'll see more of a proliferation of 'abc analysis,' the activity-based cost analysis of transactions, and a review of the value of each and every process. AQ: A lot of travel managers validate their existence and the value of their programs using savings parameters as a benchmark. What I'm hearing you saying is that that's going to change to what this is costing per unit.
Swaffer: You said that travel managers have hung their hat on the savings they produced. That's one side of the job. I think the dangerous thing would be to hang your hat on DiVincenzo: I think the impact of this issue on travel managers is it's forcing us to broaden our scope in managing travel. No matter whether you have a million three or $130,000, you have to start to looking at the whole process of travel, the expense management, how efficient our travelers are. My company now seems to be more open to my exerting myself in other areas that may relate to travel that I might not have had direct responsibility for. Like automated expense management systems. AQ: So what role will technology play in this transition--especially the point of sale technology? Will you see more investments made by your corporations? Or will you still count on your service providers to supply it? DiVincenzo: We've got to jump into some sort of technology program, like an e-mail based reservation system. I guess it depends on the relationship with the travel agency, if it's a management-based fee or transaction fee. With the former it becomes our responsibility to reduce the agency's operating costs, and the only way to do that is to reduce the number of employees. The only way to do that is through technology. E-mail res systems are therefore a top priority for us. Murphy: I have mixed feelings about e-mail reservations. Several of our operating companies use them . . . but I'm almost convinced that it's just not an efficient way for an executive to spend his time. The old way took less than10 minutes. Now it's half an hour to 45 minutes. That adds up if you have 100,000 guys doing it. Swaffer: We have every system known to man. Some people are using e-mail, some people resist it because it's not very user friendly. At least not at this point. I think the reality is we're going to end up with a whole bunch of different systems in place. Hanna's point is very valid. We're not really reducing those productivity costs. We're shifting them. Bruner: What we've found with e-mail is that if the reservation is a simple one, say someone's going to Toronto every week and they know the airline they want and they know the time, then it's very productive. But if they want to search for some other schedule we're finding what you're finding. DiVincenzo: Maybe you only look to use it for 30% of the population that does do routine trips. I don't really believe there's anything out there yet that's simple enough to provide as a solution to the whole productivity problem. So maybe e-mail will get better as time goes on and the market drives it. LeCompte: Another related issue concerning technology is do we buy it through our agency or take direct ownership of it? Right now the decision I'm making is to buy it. Granted I'm dependent on much of my agency's technology. In the future perhaps there will be other opportunities. Triggs: I have to agree with you. Three years ago we actually owned our own agency, and when we made that business decision to outsource, one of the reasons why we did -- like so many corporations worldwide --was to concentrate on our core business. We were as a result looking for a relationship with a company that was an expert in the travel business and offered the technology we knew we needed. DiVincenzo: Technology may become the major source of agency revenue, post commission caps. Triggs: I've got a question I'd like to throw out. Do you find that your partners truly have an understanding of what their costs are? Swaffer: They'll have to learn them pretty quickly. Triggs: I have found that they really do not know. And I can't justify going to a transaction fee relationship when they don't even understand their basic costs. Swaffer: I don't want to know a supplier's costs line by line; that's their business to manage. They've got to find a way to make a profit at that but they better know what their costs are and build in their profit to start with when they make their competitive bid. Murphy: We wanted to go into this endeavor carefully, and we had to do it worldwide, so we're talking about 168 countries. We got a team together of our v.p.'s of auditing, human resources, even real estate; they all wanted to participate in reviewing the agency's costs. One of our agencies wanted to do this because they had never benchmarked with another company except another agency. We have gone through this process many times, involving benefits, direct and indirect expenditures, what does your office cost compared to ours 2 blocks away. Why have a supervisor for every 10 agents by one person when we have an entire department of 45 people in our company supervised by one person? The whole experience, and the whole dialogue that followed, opened our eyes. AQ: What's the next buzzword after transaction fees? LeCompte: Purchasing groups. As net fares proliferate I think you'll see a lot more of them. It's always been a hot button for me--I've often wondered why agencies, with their size, can't collectively negotiate a rate that's more beneficial than I can? Of course I know the answer--they're feeding the override line. DiVincenzo: Even though hotels and airlines are really looking to increase market share, when you go into a consortium they're going to be discounting something at the rate we were going to get anyway. Swaffer: I think that's the fallacy, that bigness is more powerful. I think agencies have been trying to put volume together and negotiate. I think the fallacy with this is they don't control any piece of that volume. The corporation does. So I think the negotiating can be done more effectively by the individual company. As for the next brouhaha; it'll be net fares. That'll happen within the calendar year. Murphy: The next buzzword for everyone in the industry is agency productivity and efficiency. The focus will be to get them as lean as you can. LeCompte: One possibility is similar to the corporate aviation arena; standard industry fare levels, a four-tier fare structure which could have interesting connotations if it were done on a mileage basis. Swaffer: I think the mileage-based model has the problem of not providing the airlines the ability to focus on city-pairs where they need to get some emphasis. To pay the same mileage fare between San Francisco and Boise that you would pay from San Francisco to Denver doesn't suit their needs. I've seen at least one proposal that was mileage based, but the mileage rate was so high it was useless. DiVincenzo: I still think there are going to be city pair involved. LeCompte: Perhaps a combination--with certain cities beyond the scope of the mileage sector. I think there could be some interesting negotiations. AQ: Whoever has the best info will win? DiVincenzo: Whoever can demonstrate the ability to move market share will win. Murphy: Market share at the time of the week that they want it. Some hotels won't give you the preferred rate if you're out of your Mon-Tues-Wed pattern and you want to come Thursday. The airlines aren't that sophisticated--yet. When they do--that's going to be scary. AQ: I'll play devil's advocate. I haven't been on a plane with empty seats in months. Why should they negotiate with you at all? Murphy: They want the business on that Thursday. LeCompte: One negotiation that might take place is bulk purchases, prepaid at a steep discount. Murphy: Like hotels with contracted rates. We have hotels in Germany where we contract for 20,000 room nights a year. And if we don't fill them that's too bad, Siemens will still have to pay. I think the airlines will be a little bit more demanding of us--it's not going to be a buyer's market in the future. LeCompte: I wonder if some airlines would be willing to do some kind of a preferred deal on flights that leave early in the morning or late at night, whenever the masses aren't there for them. And if we got really good pricing would we be able to sell this type of program to our company travelers?
Swaffer: The key is: if it's not a LeCompte: It has to. Which leads us to another question: Is the travel absolutely necessary for their business mission? Are those particular flights necessary for their business mission? AQ: Discuss travel management issues in the short term--the changes, the shifts, how will they change your jobs, and the job of managers. LeCompte: I think we need to be retrained, those of us who are not in strategic areas. We'll have to educate themselves, learn more about finance, P & L statements, negotiations, technology. I think travel managers are more valuable than ever--contrary to some opinions that they will disappear. Bruner: Top management looks at the our role much differently than they used to. To have a dialogue with a CEO just a few years back would not have happened. Expectations from management are now very focused. That travel manager better know what he or she is doing, and better have the answers when asked the questions about trends or issues. Swaffer: I think the travel manager's role is recognized in my company, and probably was early on, because they have given me the resources to get the job done. That's a real luxury. What do I see in the next 2 years? I think we've done a pretty complete job in North America and Europe; we still have not really scratched the surface of Asia/Pacific. That'll probably be our closest frontier, followed by South America. It is up to us to market our successes in the company so that management is crystal clear on the value we bring to the party. DiVincenzo: I think there's an opportunity for us not only to look at airline costs or hotel costs but perhaps even partnering with other divisions that have travel-related responsibility --the expense report people, the auditing people --and try to surface other savings opportunities and greater efficiencies. Murphy: For us it's a little different. I believe Siemens will never get an online travel management group. We are a pure purchasing oriented company. For me things won't change; it'll just be a larger territory--more global. Triggs: Since I took on the responsibility for travel management at Parker senior management has been totally supportive of the role. I have a finance and accounting background, and they recognized early on that that's what was needed in the position. As for the future, it's a matter of trying to bring added value to the travelers, who are my customers. We have 85 divisions in the U.S. and about 40 in Europe, and it's a matter of understanding exactly what it is that they need to get their job done, to help them travel the most effective and efficient way, so they can go out and make money for the company. In my role, I'm going to be working closer with the vendor, whoever that is. It may be something as simple as taking advantage of their FedEx rate. I'm trying to be more proactive in my role. I'm trying to get info to senior management before they ask the question. And make sure that what they're telling them is information that's vital, and you know how it's impacting your organization, your culture, your operations. AQ 1995 Summer ACTE Quarterly: President's Message | Net Fares | Travel Manager's Industry Roundtable
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