Who is the customer around here anyway?

OK, OK, I know. I said I was going to quit corporate travel and disappear into the mists of travel legend…or something like that. But it is so very hard! I am rather like Frank Sinatra was, or Michel Jordan is, where something happens which triggers off a new reason why the lure of starting again becomes too much.

The trigger for me was American Airlines president Tom Horton and a guest article he wrote for ‘The Beat’ on ‘Customizing the Travel Experience’. Right, it was the expected sanitized statement that had no doubt done the rounds of the AA public relations department before release but it made one thing screamingly clear to me. That is, who American Airlines think their customers are.

They are clearly playing their ‘customer’ card. In fact in a smallish statement of circa 800 words they had used the term (and derivatives) at least 15 times before I gave up counting. Reading the words of the article it is also clear that by customer they refer to travellers and the choices AA are offering these individuals. In contrast he used the word ‘corporate’ once (that I saw) and that was referring to ‘travel agents’ customers.

Does this matter? Is it a simple slip? Or does it show a complete lack of recognition, empathy, and understanding with the corporate travel world? After all, do corporations really want their travellers to have all these extra choices at an extra price? Do they want the lack of control that this brings to their travel policy? Do they want the extra expense taken out of their control for potentially both bookings and ancillaries?

Does it matter that the president of AA still thinks of such a key intermediary as a ‘travel agent’ when the corporate service provided is now Travel Management hence the correct and more accurate term TMCs. This may sound like splitting hairs but is it. Or is it more that? Is it AA demonstrating a worldwide apathy amongst airlines to accept that the corporate world is changing around them?

So what is this ‘customizing’ all about? To me it is about the airlines tweaking the evolving business market to their own advantage whilst ignoring the needs/demands of a major sector of their market. Is that such a surprising thing? Probably not but I cannot bear all this sugar coating around what is actually some very unpleasant tablets. Here are some examples:

We don’t want to pay the GDS any more even though it is the medium of choice for those ‘travel agents’ corporate customers. We do not seem to be able to renegotiate a deal with these GDS so let’s provide a direct product. OK it is not what corporates want but hey, think of the savings, the control, the MI and the ancillary selling opportunity.

We have been badly stung by the inroads ‘no frills’ airlines have made in our markets. Fares have gone down and their shares have increased, but hang on, there is an opportunity here. These airlines have reached critical mass to the point where they have to add more charges to maintain growth and survive. They are not the threat they were and we can now use their weapons against them. We too can offer basic core prices and then bolt on all those other ancillaries to mask the true cost.
It seems to me that corporations themselves are helping (or at least not hindering) such strategies. Corporations seem to like unbundling as it works in other spheres of procurement. But does it work in travel? Ah, that is far more complex and has greater ramifications in the supply chain. Cost has a habit of moving, not disappearing.

I suggest corporates need to have a much greater influence in the travel industry. Their associations need visibly shift away from their suppliers who they use to subsidise their costs through sponsorship and advertising. These bodies need to push their way to the table which is totally dominated by the major suppliers. They need to be heard and recognised.

Suppliers need to understand that the world has moved on and that the ‘customer’ in the corporate world is the company itself and not its employees. Those intermediaries such as TMCs are not simply booking travel agents but an outsourced arm of their corporate customer. Only then will we have a successful transition to a new model.

Can TMC Brain Power Still Save Money?

When I was at the TMC sharp end of the business I was a huge fan of employing clever people and, when possible, rewarding them for success in saving money for both my clients and my company I undertook quite a bit of research which confirmed to me that a good agent could bring an annual savings ROI of between 300% and 500%. Only trouble was that people were so focussed on taking any manpower cost out that they did not delve into the deeper implications of doing so.

Probably nothing much has changed in the last couple of years except that most of these clever folk have moved on to another industry. Headcount has given way to self book and people being employed are more likely to be for the lower skilled fulfilment side of these computer transactions. All cost is rightly under the microscope but is any allowance given to the need for savvy people who can look both inside and outside the box for service and savings opportunities?

As we all know, a booking computer is only as good as what is put inside it. It is also reasonably single focussed and can also be hoodwinked quite successfully when it comes to travel. Who is policing the content it stores? Who is fine tuning it? How often is it audited? Who is recognising the broader trends? This will become even more important soon as TMCs develop and refine their own yield and price capabilities.

I fear for a TMC industry that seems to be losing its own front line brains for the sake of saving a quick buck or two. Maybe someone will look at the same ROI figures that I did in the past and realise that employing smart people with the right incentives is an investment in saving money not just an unwelcome cost.

In some parts of the world there are big shortages of experienced staff as the market recovers. The UK is a good example where TMC stripped their staffing levels to the bone during the recession and now cannot get them back as demand rises. It is essential a way is found to maintain a core of bright ambitious people without having to chop them whenever the market varies. Corporates also need to think about this the next time they scream at their TMC to lower head count. They do not simply pop back when wanted any more.

Anybody Understand the Corporate Hotel Market?

I spoke to somebody last week about the problems they were having whilst trying to organise a managed hotel programme for their company. He is new to this side of the business and could not comprehend the basic issues he was facing. All he was certain of was that nobody really knew what the company spent and whether they were getting good value. Ok they had a corporate card that most travellers used but nobody seemed to be able to tell him any useful spend detail.

He was also concerned that there seemed no simple, coordinated and efficient way of making, changing or cancelling bookings. There were so many different ways and each with varying processes. Some you could book online and some you couldn’t. Some on the GDS but most not. The majority necessitated a call to an agency which cost too much for such a transaction. He correctly identified that these variations contributed greatly to the lack of proper MI. What he wanted to know from me was what the problem is? Why is it so hard to book hotels in a way that gives him as a buyer what he absolutely needs to do his job? I gave him the basics as I saw them and thought you might like to read them too.

The hotel market is hugely fragmented. There are thousands upon thousands of hotel and most of them act individually. Yes there are major hotel chains and yes there are consortiums but even here a large amount are privately owned. Consolidating a programme becomes very difficult when there are so many different players with different systems and different communications methods and language. This differs hugely from airlines which are not only far smaller in numbers but use the same GDS booking platforms and share similar systems and codes however I did warn him that this may be changing soon!

So how should one make a reservation? It would be good to combine it with the air or rail booking but unfortunately the range of hotels in the airline booking systems (GDS) is tiny compared with the market. Add to that the difficulty of being able to use your own negotiated fares or room allocations and it becomes not a very feasible option.
You could connect to the numerous hotel booking web sites but again can you be sure you will be booking your deal and capturing sufficient detail. You might get one-off savings using their buying power but creating a nightmare in payment, reporting and control terms.

Out of frustration and a desire to save fees charged by agencies many travellers book direct with the hotel but is that what you really want them to spend time doing? And then again you could miss out on consolidated MI for policy measurement, security and negotiating purposes. I can understand why travellers or their administrators want to make hotel bookings personally but in my view you can forget about control if you let them do it. It is also very vexing when they find out the hotel GM is spot selling rates cheaper than your centrally negotiated deal. This is another thing that regularly happens in this industry.

I advised him that I can only see one logical way of consolidating all ones spend items together and that is through a Travel Management Company (TMC). There are not that many yet who can provide a true solution and it does not come for nothing so buyers need to be absolutely committed in order to reap full benefit

You basically need to find a TMC that can deliver a system that seamlessly links the GDS booking system to their own separate hotel booking and management platform. This platform needs to directly connect with the main hotel chains and have the ability to store and manage your negotiated rates and room allocations with them and the others. All this, and other services need to be on one customer friendly booking screen. It would also be valuable to have this screen branded to your company not the TMC.

Taking pre booked room allocations at key locations is essential in order to allow the system to confirm rooms to travellers straight away and avoid unnecessary costly and time consuming middle-man phone calls. These allocations when combined with those negotiated by the TMC themselves often mean that hotels that seem full can still be bookable to you. It also results in your travellers have their own company one stop shop that pulls together their whole journey along with bolt on services such as policy compliance authorisation system and communication opportunities.

To me his choice is relatively straightforward. He either does what 90% plus of corporations do which is keep their hotel programme separate from air or go the whole hog and combine the two in an online total travel solution which is only now beginning to become a viable solution. I wished him luck and went back to my hotel room…which I booked myself!

What happens when TMCs become GDS?

It must happen to a greater or lesser extent if American Airlines create a model that succeeds and then gets rolled out across the industry. The only way that TMCs will be able to give their customers what they want will be to direct connect with every key supplier and, as such, become mini specialist GDS in their own right. It will cost them a lot in time, resource and money despite what some AA loyalists say and you can bet your bottom dollar they will want it back with interest.

So how will such an event impact the balance of power in the travel supply chain? I think it will affect it significantly. Obviously the GDS will not simply sit back and let it happen and I am sure there is intense discussion and negotiation going on as I write.
However let us just pause for a minute and reflect on the following statements:

1) Despite airlines best efforts the TMC world still has considerable value to their corporate clients and will be hard to dislodge unless they do all the things TMCs do.
2) TMCs have been preparing their own strategies by building their own booking platforms that can be directed to be very specific on what choices they offer.
3) If airlines direct connect to these platforms they may be stepping out of the frying pan and into the fire as far as power balance is concerned.

The GDS are too darn expensive and working with a defunct, unjustifiable pricing model. I think many of us believe that and I can see why airlines are getting sick of paying sector fees even for cancellations and suchlike. The only thing is that GDS have a value to them and this value may be provided by TMCs in future. If you receive a value you can expect it to cost you as the TMCs will not give such distribution capability away for nothing. On top of that they will have their own platforms overlaying it which will allow dynamic pricing and availability control.

My message to airlines is to look at the broader implications of their actions. Remember how some thought GDS were great to own once. And how ownership, encouragement and support of OTAs were expected to reduce not increase cost. Not a great track record so far so look at your next step very carefully!

The Evolution of Air Distribution – The Story so Far

Now you are going to need to bear with me on this. Blogs are supposed to be brief and incisive but this one won’t. I just think that perhaps too many people assume that everyone knows about air distribution history and, by extension, fully understands the dynamics in play. I am not sure this is the case (why should they) so here is my understanding of how we got to where we are now.

It would take a book not a blog to go into the full detail and rationale so I will content myself and your patience by picking out the key players and change milestones in what will be a summary of what has happened and who are the movers and shakers. I think the customer needs to know the basics especially as they are ultimately paying unless they can do without at least one of the current cogs in the distribution mechanism.

Initially there was not much of an issue. The airlines worked in concert with each other and their supply chain and basically paid for everything required to distribute their product. They paid merchant fees to card companies, commission to agents (no such things as TMCs then) and fees to the GDS. Having picked up all these tabs they then sold their tickets with these costs built in to their fares. All of them did it so there was no problem Simple and reasonably effective in a well regulated, stable and growing travel market where little true competition existed.
As an example (and it varies hugely by area) airlines paid agents 10% commision and between 3 to 30% override, 1.5-3% card fees and 4% to 6% GDS charges.All of that bundled into the end ticket price.

Then things changed. Airlines expanded their route structures and became far more competitive with each other. The first sign of change was when ticket prices started to diversifyfrom airline to airline. In order to attract increasingly fickle travellers a fare differentiation was required. Carriers moved away from simply discounting their standardised global gross fare pricing and introduced corporate nets, yield managed specials and additional one-off deals.In one class alone you could end up with over a dozen fares each with their own restrictions and availability allocations.

The result was twofold. Firstly the ability to interchange tickets between airlines disappeared and secondly the need to mitigate pricing concessions made them look harder at their costs. Their distribution costs to be precise.

They found themselves in a real dilemma. The need to compete and discount was obviously threatening their profits (what there were) and simultaneously two other things happened. Low cost carriers with a totally different price model arrived who had to worry far less about convenience, timetables, airport locations and service which in turn encouraged corporations to view travel in a far more commoditised way. So, on one side they had to compete with carriers with a considerably lower cost base/tariff and on the other, a customer with a much harder stance towards price.

What became clear was that they could not continue paying the full cost of distributing their products whilst competing with new entrant pricing combined with more savvy buyers.Something had to give and what ‘gave’ was the air distribution model. After all, if you cannot beat the no frills airlines and professional buyers then the only option was to join them and challenge elsewhere in the travel merry-go- round.

I think their objectives were a mixture between the sound and the inevitable. The markets had clearly changed and if the end customer really wanted transparency and a lower cost model then give it to them. Whether they really wanted or needed it in the first place is a discussion for another day. Many of the arguments today are revolving around the desire for commoditisation coming head to head with the necessity for flexibility and uniformity of information and access.

There is another key influencing factor which is technology. Part of the reason why the main airlines feel both desirous and capable of change is that, for the first time there are other potential technology solutions out there. That is to say they are there if, and only if, the end users really do expect them to act individually rather than collectively with other provider’s inventory. Hence the current pressures on the GDS who provide all encompassing booking services and charge a high price for doing so. There is no way any individual airline can provide the diversity and product span that a GDS does.

The airlines (individually and at varying speeds) have called time on paying full distribution costs for all services to all customers. Unfortunately I do not see their goal as eradicating such costs. Their objective is to find what they see is the right home for these costs and then try to ensure the savings are not taken away by having to reduce prices to compensate the travellers, who will undoubtedly have to pay. Unless as I mentioned earlier a cog taken out of the distribution wheel. but which one?

So are there any expendable cogs? In some sectors of the market then probably yes. However, only if people recognise what they want and are prepared to accept the consequences and constraints of such. I think the line will be drawn between those corporations that want a controlled, managed and reported programme and others that choose a more deregulated approach where cheapest flights and few management ‘frills’ are acceptable.

If you want travel management you need knowledge and control. In order to do this you need someone to consolidate travel in all forms and package it into controllable chunks from as few sources as possible. At present this is best done through a GDS booking system, a travel management company and a mandated card programme. You take overall control of your travel, accept the price of doing so and form the right balance between value and all the other broader elements that complement your company ethos. Does anybody with a travel programme really want to run around numerous individual online airline sites and compare them when a GDS already does that in a one-stop environment?

On the other side if you want to maximise trip by trip savings there is no reason why approaching the cheapest distribution source and exploiting it until another one comes along is not the right way. To be frank the cheapest booking cost would be by going to an airline direct either independantly or through a TMC which is why carriers like American Airlines, Lufthansa etc are differentiating pricing and availability dependant on where the booking comes from. It does not by any means guarantee that overall trip price will be lower but the reservations element may be.

What I am begining to see happening is that airlines are finally differentiating between varying corporate needs and handling them individually. This part I applaud even though it has taken a long time and has a way to go. They are beginning to see the contrast between travel management and the very different service provided through Online Booking Agencies (OTAs) which, despite all the hype, focus on a different and smaller market that has a different list of demmands. It is this SME market and the OTAs that service them that are taking the brunt of current airline initiatives. The rest will follow.


Before I conclude let me set out the distribution milestones again as I see them:

1) Airlines have mainly eradicated standard agency commission payments but have failed to stop override and incentive payments. Whilst not totally successful it has enabled them to target better those they want to reward to a greater and more productive effect.
2) Agents responded by passing their new costs to the corporations by changing their contracts to management/transaction fees. End result? Most agencies protected their income and some grew it by ensuring remaining income from the airlines stayed with them and not passed on within their client deals. Airlines were forced to reduce prices to compensate customers.
3) GDS/Airline negotiations became far more aggressive. When you look at what airlines have to pay them, even for passenger cancellations and suchlike it is hardly surprising. Some airlines started charging TMCs for certain bookings to gain compensation. TMCs passed these costs on to the corporations but are still incentivised by GDSs which make airlines pretty mad as it is their fees that are funding them.
4) Various airlines changed some of the remaining IATA regulations regarding payment to shorten credit terms with TMCs and escalate penalties for perceived non compliance. A very much hidden cost that again the customer ended up collecting.I find it quite alarming how much cost comes into the chain via IATA and its interpretation of their own rules.
5) Credit/charge card usage has increased because of 4) as individual countries cut agency credit by 50% or more meaning TMC passed on the casflow deterioration to customers resulting in this migration to plastic . Ironic really as this area is very much a top target for airline cost reduction. Cards, like GDS charge wide and varying merchant fees to suppliers and these will be attacked robustly and very soon.

Where will this evolution take us? Airlines will continue fighting distribution costs. Instead of taking them all and then charging travellers through price they will try to dump them and leave the customer to pay separately. Meanwhile they will compensate by offering lower cost alternatives to those prepared to book direct. The battlefronts will be GDS fees, credit card merchant fees, cost of credit, TMC incentives and service deliverables. The customer will get what they say they want which is transparency and a unit price for everything. Currently I do not believe actual cost will go down. It will simply be realigned and will probably go up. If prices go down any further then there will be less suppliers, less choice and devolution not evolution.

It does not make sense that suppliers should pay for everything and then charge a correspondingly high price. Equally it does not make sense that the traveller gets all the bills and tries to negotiate their way out of them. I expect it is the way of the world and will provide yet newer business opportunities but regrettably the same old regurgitating costs.

Direct Connect – The first significant skirmish in a long campaign.

Christmas is supposed to be a time of peace and goodwill to all men but it also heralds the onset of a new year and, in turn, leads to encouragement of change. This can be illustrated by American Airlines who gave TMCs and their clients an early Christmas present of new cost and selected online agencies (OTAs) in particular to feel their power. The OTAs have started to respond with Expedia pulling American from their inventory. Obviously a lot more complex than that but you got the drift?

Immediately both sides are claiming victory. AA say their volume is growing and Expedia say they are not losing business. Meanwhile the travel world looks on at this test case. People really want to see if an OTA (or any TMC for that matter) can successfully move business or if airlines really can call all the shots. Whoever is perceived as the winner may set a radical trend in the industry and possibly change it considerably. Certainly if AA succeeds then many will follow after them

The trouble is that in reality this test of strength will prove very little in the business travel arena. Reason being that companies like Expedia hold only a pin prick of the worlds corporate travel market and the little they have is mainly towards the lower end in company size terms. In my personal opinion what American has done is picked a soft target to start with. The giant TMCs with their giant corporate accounts would be a different matter altogether. A smaller entity with a different client-base and business model is much easier quarry but one which they can get much tactical mileage from.

For instance how can anyone state at this very early stage that they are wining this argument? American says they grew in December. Big deal. This cannot be zeroed down to success in this issue. Growth compared to what? Has not economic recovery got more to do with it? How much of American’s corporate market share is Expedia anyway? Yet they sagely point to some meaningless figures.

I do not think there will be any winner in this but I can say with a fair degree of certainty that the argument is a precursor to major industry change. Is that so bad? Probably not but with all change there is pain attached. Pain moves around the supply chain as quickly as cost and usually goes full circle. The airline will add cost and work to the TMC, The TMC will go to their clients, increase their charges and tell them why. The big corporate will go to the airlines and mitigate their increased cost by demanding compensation through their deal. The model has changed. But has it really and to whose benefit?

Like everyone else I will watch with interest and try to read between the lines to see where this will take us. As for the forthcoming figures and rhetoric? I will take them all with a pinch of salt and suggest you do the same.

GDS/Airline issue. Coming to a head?

This whole issue is not only becoming a little tedious but also beginning to build like a volcano about to erupt. We have had quite a few years of the dormant stage but now the tremors are getting longer, bigger and more frequent.

The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.

Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.

These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.

The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.

There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!

As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.

From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.

So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.

To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.

Can TMCs Really Influence Business? - Deals

OK, so we got to the point where we ascertained that TMC/agents still get incentives from suppliers, albeit presented in a different shape. I also mentioned that, in my opinion, this need not necessarily be a bad thing for corporate customers if managed right. What I did not go into in any detail was a) what these deals are b) how TMCs do (or do not) shift business and c) how such deals could benefit all. So let me address at least one of these points now and deal with the others another time.

What kind of deals?

There are three main types which are growth percentage rewards, net fares that can be marked up and increase share payments.

Payments for growth are usually a percentage of net ticket value sometimes paid back to zero and sometimes just for the growth element compared with previous year. Percentages paid vary enormously depending on supplier size, their importance/share of the local market and their strategic need to buy a way into the region. I have heard of deals ranging around 2% from a big volume airline to 50% from someone trying to make inroads into a market. Such deals are pretty unfashionable now in most primary markets but do still happen in numerous places around the globe especially from suppliers who have no effective systems to measure performance.

As time passed some of the more major airlines started to get concerned that TMCs might simply start doing growth deals with all their competitors as, in a growing market, the prospects of growing volume with everyone was high. Also volume could vary greatly simply by the losing or winning of a major volume corporate account. This ultimately got addressed by airlines ‘red ringing’ the biggest clients which meant their volumes were taken out for volume and payment purposes.

There have always been a few net fare deals about. This is where an airline offers a fixed net price to specific agents who can mark it up by as much as they think they can get away with. These net fares were targeted towards specialist agencies who were involved in markets such as ethnic or tourist travel. In the main the plan was to gain this business but not dilute their yields by exposing such discounts to the corporate market. Nevertheless there has been growing overlap which usually manifests itself by corporate travellers that gets hold of the fare and demands to know why his TMC cannot match it. This has been going on for many years but in recent times some USA airlines have dallied in this area too by offering net business prices to TMCs instead of overrides.

In an attempt to make future deals work airlines started introducing rewards based on share increase. This is infinitely more difficult to measure and depended on the airline itself to produce the results with no way for the TMCs to verify them. Some of these deals became so very complex that it was almost impossible for anyone to predict what would be paid. .Another issue was that, for some dominant airlines such deals were considered by the authorities as anti-competitive and thereby illegal. However these deals are still widespread today.

Most modern deals are far more sophisticated and linked to ‘service level agreements’ (SLAs) although this term is a misnomer in my view. What they effectively do is reward TMCs for performing (or allowing) certain activities. These activities vary from allowing access to their staff, account managers and senior management to shifting share, providing key MI on their clients, promoting the airline’s campaigns and supporting a particular strategy. All such activities are measured and rewarded accordingly. These ‘incentives’ seem to work reasonably well for both parties as the airline usually sees more volume and the TMC gets it’s money in a way that negates them having to pay it straight on to the corporation as extra client income/overrides.

Originally TMCs used to negotiate SMAs with individual airlines but even that has moved on. Now the suppliers are trying to do deals by Alliances rather than individual members. These usually manifest themselves as umbrella incentives paid only if the TMC performs with a certain minimum number of their partners. This way the dominant airline in any alliance group can demand TMC preferred status for their smaller partners that would not otherwise register on their radar screen. Such deals are highly unpopular with most eligible TMCs for obvious reasons and particularly because many airline partners are either unable to provide accurate data or simply not a product they want in their portfolio especially if they clash with another preferred supplier.

Consolidation by alliances is one thing but the ability/desire to agree a global incentive agreement is even harder and suppliers have, in the main, been reticent to do this either with TMCs or corporations. Don’t get me wrong, there are some prototype deals out there but I am highly sceptical of their current value to anyone. After all the airlines still work on a system where they cannot tell their overseas offices what to do as they are cost centres in their own right and have the authority to say no.

Finally I expect to see a new type of deal arriving and it is not a million miles away from the net concept. Well actually it is here now but only in it’s formative state. The arrival of TMC specific fares is here and expanding. In the past, probably as a result of past legacies, airlines have stuck to treating all TMCs the same as each other as far as fares are concerned. This is changing with the arrival of new generation TMC technology platforms that can be very specific about who sees what fare where and when.. This will enable them to drive business to (and from) airlines at the press off a button. Airlines will be able to flex the fares they offer depending on need and thereby have a tighter grip on their yields in a similar way to what they do on their own dot com sites…if the TMC is incentivised enough to support them. As I say, it is early days but worth watching.

This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such deals are supported and how I think all could benefit next time.

Why small is becoming big in Business Travel.

In many of the key driver markets like the UK the desire by TMCs to move back into the SME market has grown and grown without any sign of let-up. A strange phenomenon one might think considering they have spent the last few years actively trying to get them off their books. There must be a good reason for this re-think and of course there is. It’s because of that good old trio economy, technology and supplier strategy. As a result there is never a better time to be a small customer in business travel.

You see the big organisations have lost the allure they used to have. They now become harder to win and are on longer contracts. They demand more and pay less and the suppliers have done their deals direct with them which make the TMC more marginalised than ever. At the same time the TMCs have caught up with each other to the point that a competitive edge to swing an account gets smaller. So, in the main, TMCs get to keep what they have got (especially with the advent of globalisation) and, if they actually lose something big it hurts real badly. It is often more expensive to lose an account than the benefit you get if you keep it, if that makes sense, which is another reason why little moves!

So what is left out there that is flexible, relatively easy to handle yet very valuable cumulatively especially to suppliers. The answer of course is the SME who demand a good deal but does not carry all those bespoke costs of a large client. If you win one then great, but if you lose then it doesn’t hurt much. TMCs can use all those fancy gizmos created for (and funded by) the major clients to provide added value for peanuts to SMEs. The SME also can be a great deal easier to handle in both operational and financial terms and TMCs resources can be flexed to move this business to the optimum point in their structure. Another consideration is that, in a growing market, the big TMC is beginning to realise that today’s SME is tomorrow’s mega client. Finally, TMCs still need suppliers and suppliers want the SME market but cannot afford to go after them so a consolidation point via an agent is very attractive.

So what is a SME supposed to do? Well, if I was them I would shop around. I would be less interested in the transaction fee I was being charged and more impressed in what supplier savings and efficiencies I would get. I would go to the big TMCs and ask what extra value they can give by sharing out some of those big client products benefits. I would then ensure that I would get agreed levels of service continuity and not have my team poached every time there is a staff shortage with a bigger client.

So simplicity, flexibility and small are all beautiful……for now.
The large corporations? If I was them I would sit on my ego and work out how to make myself more attractive and important again.

A different approach to TMC negotiations?

I think one of the most disappointing outcomes from contract negotiation is that between corporations and TMCs. You can practically guarantee that one side or the other, or in time both, are not enamoured with the end results. The corporation wants total priority and service delivery at the lowest unit price whilst the TMC spends its time trying to figure out how to comply whilst clawing back profitability elsewhere in the deal or through caveats.

Another disappointment is that many of these negotiations are so combative. It is almost like trying to play a game of poker where the TMC has to play with his cards face up and the corporation with theirs to their chest. How can you get a good result when the beginning is riddled with various levels of speculation and possibly deceit? There really must be a better way.

I would really like to see such methodology turned 180 degrees. The RFP should be changed to an IFB (information for bidders). This IFB would say ‘look, this is what we think we really want’ and ‘here is a list of the important things in priority. Can you think of anything you could add to improve our service and savings? Here are the problems we currently have and how can you help resolve them’. The corporation would then receive an inflow of pertinent and creative ideas rather than getting a load of bland ‘comply/not comply’ answers to a bunch of sometimes irrelevant questions.

Having narrowed the field down to those TMC that have shown the right level of flair and innovation one could then move on to what they are hoping to achieve from winning the contract in both money terms and ongoing partnership. This would be much better than dragging in a TMC that has been cut to the bone and is frankly going to favour the client that brings more revenue and longevity.

Having now discovered what both parties want it is time to sit down together and thrash out how both can be achieved with as little compromise as possible. I can think of lots of ways to doing this in a way that protects commits and rewards.

Otherwise I guess people can continue what they are doing now. Issuing an RFP the size of a small book to TMCs who will be initially judged on how they answer a bunch of questions that really do not address the real issues. After all, the large TMCs can answer the questions any way they think you want to hear them and are probably already handing numerous Fortune 500 companies who asked the same.

So there we have it. Naïve? Workable? Or both?
Your guess is as good as mine!

Global Travel Programmes – Delivering?

It has been quite a few years now since the advent of globalisation, or should I say attempted globalisation, became the trend. TMCs amalgamated, acquired and re-launched just so they could offer a solution that crossed all geographical boundaries.
Maybe now is the time to asses whether the global travel programme strategy delivered what it should have and if all the stakeholders got what they wanted or perhaps, in some cases, feared. It is a huge subject which won’t be fully covered by my few paragraphs but I really do think it worth some scrutiny and debate as many companies are still considering taking this route.

Was it worth telling so many overseas offices to leave their existing suppliers and TMCs for the much expected global good of the company? Did those companies really gain global benefits and what price did it cost in terms of disruption, relationships and country budgets? Frankly, was it worth the hassle and, if so, can that worth be truly quantified to everyone’s satisfaction. Is there a case for scrapping the concept or is the dream of global control, buying power and service worth continuing with? Here are my initial observations both for and against.

I would argue that from a straightforward procurement perspective the case for globalisation is very weak. This is simply because, like many corporations almost all airline suppliers do not operate the same way and are almost quaintly traditional in their thinking. If you squeeze airlines they will admit that each country has their own cost centre and even head offices have to ‘sell’ a global deal to them. In almost all cases individual global locations can veto deals on the basis that it will create low fare precedents for insufficient regional benefits. Why should my country give a silly deal that will hurt my pricing strategy and bottom line even if it does benefit offices in another continent? This will only be solved by cross subsidisation or immoveable directives.

Interestingly enough TMCs have responded to the challenge much better and have found differing internal ways to solve the problem. They too have a different range of challenges particularly in the areas of common fees, fares, services and product ranges. Different markets have varying capabilities of GDS, M.I, market sophistication and standards and to expect the same services to be available in London as in Laos is simply unlikely and possibly unwelcome.

From a corporate perspective I think there is the same age-old issue between buying a commodity and a diverse service. This one really has to get cracked and I can count those that have succeeded on one hand, with a finger or two to spare. Everyone needs to agree the expected benefits, communicate them and benchmark results. Easier said than done as corporate head offices spending most time looking at what should be the compelling concept rather than the nitty gritty deliverability and cost both financial and practical.

In summary, if it is all about negotiating power I have severe doubts. If it is about measurement of what everyone is doing then O.K. but it may not be popular. If it is about provision of global support at times of crisis like war or volcanic ash then it is worth its weight in gold. Finally, if it is positioning for a future time when suppliers buy into the programme and global subsidiaries do what they are told (for whatever reason) then go for it now.

p.s. I define a global programme as one which covers a corporation in all their operating countries. This is entirely different to a Strategic programme which only covers two/three of an organisation’s main or driver markets. If you look at most companies you will find 80% plus of their travel comes from these two or three areas. I wonder sometimes why some find a need to spend time on the hugely fragmented 20%.

Strategic deals work well, especially between UISA/Europe and I have seen sizeable gains made by savvy organisations. Most airlines can cope with giving deals where there are good new business prospects at both ends of a route.

Airlines and Travel Management Companies (TMC)

I genuinely find it interesting to note that very little has changed over the years despite commission cuts/removal, direct sell and net fares. Airlines still need TMCs to sell their seats and TMCs are still just as much in need of airline funding. The essential metrics remain the same and it is only the methodology that has flexed to meet market changes.

This status quo has not changed despite intense efforts from airlines as they strive to find ways of getting corporations to book direct. The only trouble is they are not TMCs and can only offer individual booking service which represents a fraction of the whole TMC integrated package. Add to this their obvious bias to their own fares and flights and it becomes clear that unless they incur the cost and role change to embrace the total TMC product not much is going to change. It would not take them long to do the math that says it is cheaper to outsource to TMCs than transform themselves. In fact, if they really were smart they would outsource more of their own services, like reservations for example, to TMCs. Some years ago an airline did just that for a short time and discovered TMC staff took more calls and got better customer reaction than their normal service.

The relationship between airline and TMC can be a rather strange alliance. The only comparison I can think of comes from the animal world where the female praying mantis makes love with its mate and then tries to eat it! It can often be very turbulent and can be tracked by just how well the market is doing. When airline sales go up they start thinking “who needs these agents” and the cooperation and incentives go down. Partially as a result their market share starts dropping until they start thinking “hey, we better start being nice to these guys again”. The result is a constant wavy line of highs, lows and then highs again. Some time someone is going to realise that some kind of continuity (say a mid point) between the highs and lows would provide better results.

Some corporations are puzzled that there is still a financial relationship at all despite market changes where they too pay the TMC. I cannot understand this as they are constantly driving down their payments to TMCs so the TMC has to make up the shortfall elsewhere within the supply chain. Also TMCs do all sorts of things for suppliers that have little direct influence on any particular corporation. These can be activities spanning, access to staff, marketing, M.I. and exposure of special airline benefits. Despite this I still think airlines mainly ‘incentivise’ TMC to increase client volume and share and they are right to do so in my personal opinion.

So, in summary, TMCs still maintain the same (or possibly more) margins from airlines despite the onset of fees. The airlines want to stop it but have failed so far. The more corporations drive for commoditisation, net pricing et al, the more these incentives will grow. My recommendation to corporations is to let it happen. As long as you are getting what you need why try and influence other relationships.
I am sure everyone will agree!

The Sleeping Salesman

Becoming a sales rep for an airline was not in my immediate plans. I had a much better idea that involved sex and travel. It was my dad who steered me away from my depraved plans by using his influence to get me into sales and I have never been sure whether I should have thanked him or not. Let me explain.

There were four of us. All good mates, working in the reservations office of British Airways and all with a keen interest in football, pubs, late night curries and the female of the species. The only small things we lacked were money, finesse and charm so one night we sat around a grubby pub table in Hampton and decided something had to be done.

I think it was Roger that had the idea. Why not become cabin crew? Most of the stewards we knew were wealthy and most importantly both gay and surrounded by pretty women in exotic locations. What if we with our heterosexual testosterone fuelled bodies joined up? It would be like a pack of horny foxes let loose in a hen house. Well that’s what we thought.

For some reason my mum and dad was appalled at the idea. They expected their son to become a captain of industry not a global gigolo and they immediately hatched a plan to divert me. Unknown to me they spoke to a godfather I never knew I had who was a big noise in Varig Brazilian Airlines who in turn told his poor UK GM to offer me a job in his sales department. So that is the route I took while my mates had a whale of a time until it became too much for them!

So here I was. It was my first week in Varig and I had been given the area of London SW1 to cover. I was keen as mustard to go out there and tell interested companies and agencies about the sheer joy of flying Varig to Brazil. I think my colleagues were less impressed as everyone bar me seemed to know how I got the job. Anyway, off I went with my squeaky new cheap suit and a shiny black suitcase my mum bought me with the same pride as my first school satchel. Shame it only contained a Sun newspaper and a tube of Toffee sweets.

Each rep had at lest one really big and all important office to visit and mine was a company called Wakefield Fortune (later to become HRG) in Milbank by the Thames. I did not know much about it apart from its importance and that I was to be ‘very careful’ by a helpful and possibly malicious colleague. So off I went with my eyes bright and my wits unprepared into one of the hottest days of the year. Life could not get better than this I thought as I strode through St James Park in the sunshine on the way to what became a very steep learning curve.

The entrance to the office was daunting. It was one of those very old and grand buildings and I marched through it with flagging confidence. The temperature changed immediately from hot to cool and there, ready to meet me was the manager called Peter. He greeted me warmly but in a similar way to that of Count Dracula welcoming Jonathon Harker into his castle.

He was very interested in me. He particularly wanted to know how experienced I was and promised, with a glint in his eye, to ‘show me the ropes’. He explained that it was pointless me walking around the office to speak to all his staff and it would be best if he sent them to see me in groups. He explained he did not have a convenient place to do this so he harmlessly suggested I based myself in the pub across the road and they would come over in shifts. How very kind, I all too innocently thought. It became a late morning, lunch and afternoon I would never forget. Actually that is not quite true because I don’t remember much, but what I do remember I will not forget….if that makes sense?

The first group arrived with Peter as a willing escort. Break the ice he said, buy them all a drink. I started trying to take their orders and Peter said not to worry as Reg behind the bar would be willing to do that and keep a tab for me. Oh what a fool I was. It turned out there were at least fifty staff and they all liked spirits and they were all thirsty. I tried to talk about Brazil but they were all far more interested in football, drinking and the opposite sex which was an amazing coincidence as they are my favourite subjects too.

Suddenly it was three in the afternoon and they had gone. I was sat there in the middle of a load of empty glasses and spilt peanuts with a queasy feeling in my stomach. The beginning of the mother of all headaches was growing behind my eyes and Reg was standing in front of me with a bill bigger than an entire month’s expenses. You bloody mug he muttered under his breath as I gave him all my money and tottered out of the door into bright sunlight. I even forgot the cardinal rule of all reps which is always get a receipt.

My head was spinning and the sun was burning. I started walking back through St James Park trying to rehearse what the hell I was going to say to my new boss. I had enough sense not to return to the office drunk so I thought I would just lie down on the grass for a few minutes until I felt more sober. Sitting on the ground I thought I can’t lie on my shirt because I would get grass stains on the it so I took it off and settled down.

I woke with a jump. Most people had left while I was asleep and there I was, two hours later, feeling like the living dead and probably looking like a corpse too. I then realised I was feeling something on me and, as I lay, there I pushed my chin down so I could see what was lying on my chest. The first thing I observed was that I was badly burnt. Then to my growing horror I realised that what was on my chest was my boss’s business card. The man had clearly walked past and seen me. He had not woken me, but simply left his calling card as a menacing invitation to visit him in his office on my return.

The horror of it. My first week in a semi resentful office and I had spent all my company money, got drunk and passed out in the local park. You prat I thought!
I gingerly got up and put my crumpled shirt back on to cover the worst of my burns. It was then that I noticed that he must have spotted me quite early because my skin under the card was as white as a sheet. In fact for the whole of that summer I went around with a lighter business card shape in the centre of my chest. It took a lot of explaining I can tell you.

Amazingly I survived my experience. Wakefield Fortune and Peter in particular were notorious and my humiliation was seen more as a baptism of fire than a disciplinary offence. Later in my career I worked alongside Peter and gained my revenge many times over!

Who should buy travel? (Part one)

This debate has rumbled on for a very long time and I expect it will continue particularly at this time of financial and strategic difficulty. Suppliers have to earn more and corporations have to pay less to achieve their recovery strategy so it has never been more important that the function in the middle of the pricing debate gets it right. If they don’t we will end up either with less products or fewer customers or perhaps both. The key reason for there being an impasse in this debate is there is no right answer for all the stakeholders. It very much depends on the flexibility, specialist knowledge and skills of individuals concerned.

It is not an easy subject to comment on without rubbing someone up the wrong way and getting called biased to one particular part of the supply chain. Although I was very much a TMC man I now feel I can look back more objectively and hopefully put forward some valid considerations to be taken into account. For example I do not believe this activity should be outsourced to a TMC in the current climate as they will be viewed sceptically by the suppliers and not have sufficient mandate within the corporation. It also has the potential of removing ongoing control of the programme, especially within large organisations and their global subsidiaries.


To understand the challenge and make an informed decision you have to know the key issues. I believe many of you know them so I hope you will bear with me while I ad my thoughts on them. Rather like buying most things the secret is to get the correct blend between quality of product and price. In the travel arena this is easier said than done especially when the product is either a commodity or a service and more likely both. In this environment the corporation needs to look closer at a) what exactly they want to buy and b) how they are going to manage the programme to maximum gain when it starts. A decision has to be made as to who in the company is suited to doing both jobs or if the project should be split into two parts. This is where it mainly goes wrong as one task naturally blends into the other.

If you put the TMC and outside consultants aside for a moment that really leaves just two functions which are procurement and the travel manager. One view is that a buyer is expert at buying a commodity and a travel manager is much better at controlling a service. Having seen both in action more times than I can remember it is very rare indeed to find one person who can lead both functions successfully as the skill –set is so different.


So there we have it. When a buyer says it should be their job they are probably as wrong as the travel manager who says it should be them. In my opinion there are only two alternatives. One is that you go out and find that rare breed of person who can both buy professionally and manage a complex service orientated project. After all travel is a commodity when you buy but turns into a service when you use it. The second option (and best in my opinion) is to form a triumvirate of a buyer, a travel manager and a leader who should be a senior board member with a strong mandate from his colleagues. All three should work together from concept to strategy to buying to delivery. This liaison should not stop at delivery but move forward to ensure disciplines and benefits are achieved.
What about the suppliers? Who should be negotiating what with whom?
I will put forward my views in part two but I can say now that I think it works pretty badly in general!

Into the Unknown

What do I know about blogging? Pass me a postage stamp someone and I will write it all down on the back of it and have room to spare.

Business Travel? Well that is a different matter.
At least I hope so as I have been devoted to that particular industry in one shape or form for over forty years. During that time I have worked for airlines and agencies starting in the filing unit and ending up as Managing Director for HRG UK, the country's biggest travel management company.

So did I learn anything during that time and is it still worth passing on? Do I have any stories that are funny, absurd or maybe even educational. Am I a bitter and twisted old git?! Well dear reader (if you are out there) you will shortly find out as my objectives for setting up this site are:

To comment on issues of the day.
To speak out in a way that was constrained in the past when I had shareholders to consider.
To tell some travel life stories that are in part informative, hopefully amusing and almost entirely true.
To try and answer any reasonable questions where I think I can inform and add value.

So lets see how I get on. I am my worst critic so if I fail I will disapear as quickly back into the ether as I emerged out of it.