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The Internet may not replace traditional travel agencies, but it might force them to offer new services to corporate clients.
Alix Stuart, CFO Magazine
September 1, 2001
With the economy grounded and travel costs soaring, many companies would love to keep their employees home. But American workers continue to hit the road: This year, business travel will reach $110 billion, up from $103 billion last year.
There are new ways to cut costs, however, some of which take advantage of Internet technology and others that demonstrate the power of innovative thinking. Companies will combine these approaches differently depending on the size of their travel budgets, but businesses of all sizes can save substantially if they are willing to take a fresh look at how they acquire travel services.
Many companies are finding that the first stop on the journey to better travel prices is their employees' desktops. More than 20 percent of businesses surveyed by American Express Co. last year had implemented online self-booking tools, and another 44 percent planned to by 2003. The tools, which can replace long phone calls to travel agents, have been around for nearly a decade, but have largely gone unused because of the cultural challenges of implementing a new process, says Kate Farrell, director of global programs at the Association of Corporate Travel Executives, based in Alexandria, Virginia. But they have gained new life now that cost-cutting is a priority.
Cibavision Corp., for example, saves 10 to 15 percent on each airline ticket booked by employees using American Express's online travel booking tool, AXI. Cibavision faces a dilemma that many companies can appreciate: it wants to keep spending flat even though its travel volume will increase. Owned by Swiss firm Novartis and struggling to integrate newly acquired Wesley Jessen VisionCare Inc., which has operations in the United States (including Puerto Rico), Europe, and Canada, Atlanta-based Cibavision must inevitably do some globe-trotting.
"Obviously, we've tried to cut back on travel to the extent we can, and we send fewer people to conferences," says Tim Barabe, Cibavision's CFO. "But with the acquisition and efforts to consolidate sites, our travel volume has to increase."
Savings come from fewer phone calls made to the travel agency (and consequently lower fees), and from employees doing their part to keep costs low. "We're finding our employees are picking the lowest-price fares 9 times out of 10 now, versus only 50 percent of the time before we rolled out the self-booking tool," says travel manager Ron Sharer. Although the company policy has long mandated choosing the lowest fares whenever possible, enforcing that policy was much harder when the list of options resided with the travel agent. Now, employees must type in a note giving a reason for choosing an off-policy fare, which is then routed to a manager.
Such results are not unusual. "Some companies have reduced their average ticket price by 20 percent just by using corporate self-booking systems, and that's before they started reducing the number of travel services they were using," says Carol Salcito, president of Management Alternatives, an independent travel consultancy based in Norwalk, Connecticut.
Web Pros and Cons
With an estimated 70 percent of the market, the leader in this area is Sabre's GetThere, which sells the DirectCorporate and BTS products and privately labeled services such as Corporate Travel Online (which is resold by American Express). Competitors will attempt to differentiate themselves by offering more than a simple booking service, says Norm Rose, president of Travel Tech Consulting Inc. Recently launched Yatra, for example, can be programmed to rank itineraries based on how many more bookings a company needs to comply with supplier contracts, as well as by a traveler's title and trip purpose.
Self-booking tools have limits, though. Most corporate travel managers say multi-leg and international trips still require the human touch, and last-minute changes may inevitably have to go through an agent, at least until mobile Internet applications gain steam. And firms must still pay travel agencies to print the employee-booked tickets, although a few forward-thinking firms have decided to gain travel-agency accreditation so they can print their own tickets.
While many of these products use the Internet as an information pipeline, letting employees go on to the Web in search of great deals may not be a good idea. "Internet travel sites are the bane of travel managers' existence," says Scott Gillespie, a principal and the CEO of Cleveland-based Travel Analytics Inc. Ad hoc buying on the Internet gives companies no easy way to track spending or enforce internal policies, crucial elements in extracting better terms from airlines, hotels, and rental-car agencies. Plus, the one-time deals generally offer weaker discounts than a long-term arrangement would. A recent study by airfare research firm Topaz International Ltd. found that agency rates beat Internet fares by an average of 15 percent (or $90) per itinerary.
But for smaller companies, or those with extremely adaptable travelers, there is some evidence that they're worthwhile. With only six employees who travel regularly, Softpac Industries Inc., in Plymouth, Minnesota, dropped its travel agency earlier this year because the company's administrative assistant was skilled at gleaning low fares from travel Web sites, without the $25 per-ticket handling fee. "She can book tickets in the same amount of time she spent talking to the agent, and still get the best price," says company controller Sean Lawler. And Topaz's study found that Internet bargain hunters could beat agency fares by an average $175 per itinerary if they agreed to conditions like changing carriers midtrip and using alternate airports.
Despite the apparent threat to their business, travel agencies are some of the biggest proponents of self-booking tools, acting as resellers of well-known products or, in some cases, developing their own proprietary software. American Express has a six-person team working with 1,400 clients to implement such products, and Rosenbluth International, based in Philadelphia, says its new do-it-yourself software is "a key aspect of our future strategy."
Why are travel agencies so happy to have the phones stop ringing? Part of the reason is that they see a new and lucrative role for themselves as consultants, helping clients learn to negotiate discounts from travel suppliers and to manage the huge volume of information that powers booking tools. "The majority of our revenues will come from the support services around booking, be it consolidation of data and integration with expense management tools or supplier negotiations," says Rosenbluth chief operating officer and president Alex Wasilov.
Independent consultants are also cropping up; Travel Analytics's Gillespie is one. Companies pay him $20,000 to $60,000 to analyze their travel data; armed with better information, they can save hundreds of thousands of dollars on airfare, hotels, and rental cars. Strategic sourcing of travel can boost a company's bottom line by 1 to 3 percent, claims Gillespie, and almost any company has a shot at such deals. "I've heard of companies with less than a million dollars in annual air-spend getting reasonable discounts from airlines," he says, "provided they can promise to direct more spending to key suppliers and have a strong travel policy in place to meet that promise."
It worked for Schering-Plough. Two years ago, director of administrative services Mike Doran began loading historical travel spending data into Dacoda, a software product from Rosenbluth that handles scenario planning and keeps track of compliance with existing contracts. Knowing the incremental savings associated with switching carriers, Doran says, helped him negotiate more effectively with vendors. As a result, the company saved 17 percent over the lowest published airline fares last year, compared with an 8.2 percent savings the year before.
Bargaining shouldn't be limited to travel suppliers — it's possible to establish new financial arrangements with travel agencies as well. With airlines cutting the commissions they pay to travel agents, those agents are no longer sharing part of that revenue with corporate clients; annual rebates have shrunk dramatically or disappeared. Some companies have responded by forgoing the traditional flat upfront fee for services in favor of an à la carte approach. This arrangement has been a boon for Bose Corp., even though it relies on agents for about 90 percent of its reservations. "Going from a management [flat] fee to a transaction fee let us weed out the services we didn't use, and we were able to reduce the total fee per transaction by about 40 percent," says Gary Polito, corporate travel manager at the audio-equipment maker.
The transaction-fee arrangement has its pitfalls, though. "If someone changes a ticket three or four times, the transaction fees could be more than the ticket," says Sheila Kittle, vice president of corporate travel at Raymond James Financial, a brokerage firm based in St. Petersburg, Florida.
To push the envelope even further, companies can use the shrinking commissions paid by airlines to travel agents to their advantage, by negotiating deeper discounts from airlines on the grounds that they must now pay more for travel-agent services. "The airlines generally won't tell you about this, but they'll do it to stay competitive," says Polito. "And even if the final ticket price is the same as before, the up-front discounts really help with cash flow." In the so-called net deal structure, Bose now gets as much as 30 percent off tickets that previously would have carried a 17 percent discount plus a portion of the agency's commission.
By bringing technology and a tougher negotiating stance to bear on air travel, companies may pave the way for a similar approach to hotels and rental cars. Because reservations for these are often made directly by the traveler, companies have struggled to capture the data necessary to win deep discounts. Software from Concur, Extensity, and other firms tracks such spending on the back end, which can provide negotiating leverage.
Saving money on travel is not just about winning better prices from suppliers, though. Employees can be enticed to join the effort. To encourage workers to opt for lower fares, for example, Cibavision adds $1,000 to the paychecks of international travelers who choose coach over business class, and a 33 percent rebate to employees who forgo direct flights. Those initiatives have saved as much as $4,000 per ticket, netting the company $2 million over the last two years, and giving employees plenty of cash to spend during those perhaps not-so-interminable layovers.
New Tools of the Trade
Companies can cut travel costs and manage expenses with a range of products and serivces.
Sources: Bear, Stearns & Co. estimates; company reports; Factset Research Systems Inc.
|Self-booking||Minimize transaction costs, control at point of service (P.O.S.)||•||•||•|
|Direct connections||Minimize transaction costs||•||•||•|
|Online RFPs and auctions||Maximize price competition, faster selections||•||•||•|
|Airline sourcing software||Maximize price competition, faster selections, realistic contracts||•||N/A||N/A|
|Agency consolidation||Data consolidation influence at P.O.S.||•||•||•|
|Expense reporting systems||Data consolidation, purchasing compliance||•||•||•|
•Good •Moderate •Poor