tcg consulting © copyright 2006, tcg consulting, llp. all rights reserved. changing dynamics in...

TCGCONSULTING

© Copyright 2006, TCG Consulting, LLP. All rights reserved.

Changing Dynamics in Corporate Travel

Current Trends & Hot Topics

Changing Dynamics in Corporate Travel

Current Trends & Hot Topics

Albert Taras, Managing Director, TCG ConsultingDetroit, Michigan – October 13, 2006

TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved.

Agenda• Domestic Market Dynamics

– Airlines– Hotel– Meetings– Security

• Evolvement of Procurement in Travel• What are we really Managing?• Program Cycle• When does hype become Reality?

– Going around the world with Managed Travel

• Case Studies• Questions & Answers


Domestic Marketplace Dynamics• Company-specific programs built on total T&E platformCompany-specific programs built on total T&E platform• Globalization is unique to each organization; what is the

goal?• Agency role is being redefined

– Program enabler– Manage policy at point-of-sale– Services provider– Introduce, manage and support online booking technology &

aggregation of supplier content– Manage vendor contracts

• Aggressive online booking adoption • Sellers market• Meeting, conferences and trade show management is

significant opportunity for cost reduction• Procurement/Sourcing taking an active role in travel

management • Introduction of technology to manage security protocols

and traveler tracking


Airlines

Sources: Air Transport Association, Dept. of Energy, BTN, The Guardian

• Jet fuel at $1.69 / gallon– Down from $2.30 on Aug 1 (and $3.13 on Oct 5, 2005)– Every penny = $195 million per year industry-wide– US carriers have increased fuel efficiency by 23% since

2000

• Load factors are up– 30% more passengers per flight than 1990– Approaching 78% domestically

• Industry lost $35 billion from 2001 to 2005– Only $0.5 billion (loss) expected for 2006– Taxes and fees ($16 billion in 2005) remain an

impediment

• LCC competition– Southwest at IAD, JetBlue at ORD & CLT


Airlines

Sources: Air Transport Association, Dept. of Energy, BTN, The Guardian

• Mergers– Eyeing the results of USAir & America West– United, Northwest, Delta and/or Continental?

• Domestic discounts are increasing– Along with domestic fares (up 11.3% over 2005)

• Alliances are making strides– With a few speed bumps along the road

• Airbus is stumbling– CEO out last week on news of A380 delays / A350 issues

• Boeing is flying– But may struggle to keep up with orders and avoid

delays

• Global climate concerns may impact air travel– UK predicts aircraft to emit 45% of CO2 released by

private vehicles by 2012


Hotel• May be single largest and (growing) T&E

expense category– Trending as highest category on expense report

(approaching air on domestic trips).

• Occupancy close to 100%• Fewer negotiated rates available• Lower discounts amplifying higher rates• Emphasis on incremental revenue and

room nights• Building a program in a sellers market

– Policy complements contracting– Cap management


Hotel

• Dynamic pricing – will it stick?• Reporting and tracking – integral for

decision support• Brand loyalty tied to frequent traveler

programs• Access via corporate in-house online tools• Rates loaded in GDS is key• Global challenge where GDS is not used or

available• Chain agreements to compliment

negotiated rates


Meetings

• Sacred cow…still? Why?• Where does this sit within company?• Significant cost savings opportunity• Requires definition of what is a

meeting• To mandate or not to mandate?• Contract standardization and/or

centralization• Leveraging opportunities with

corporate travel• Use of technology to drive processes


Content

• Increasingly important area that cannot be ignored

• Full content is not standardized• Agency role

– Opt-in OR

– Opt-Out

• Costs to be “pushed” to end-user/buyer/CORPORATE– Is the agency the fall guy…again. – Dusting off the “airline commission reduction model?”

• Are corporate “incentives” a thing of the past?


Security

• Integral part of travel manager’s corporate responsibility

• Is traveler tracking sufficient?• Crisis planning

– Assignment of responsibilities

• Entrance of 3rd party providers• Agency opportunity


• Sellers market• Policy key savings

driver• Contracts complement policy• Rigorous compliance

requirements• Does sourcing

want to stay in travel category?

• Growth of corp. direct contracts• Policy balances

savings• Where does

travel sit?

• Procurement startsto push for category

commoditization• Suppliers resist• Policy is key savings driver• Cost savings not as important as service• Discounts grow

but so do fares

• Soft market/post 9-11• Buyers market• Commoditization

occurs• Airlines “right sizing”• Other suppliers byproduct of soft demand

1990 1995 2000 2005

Involvement of Procurement in Travel


Category Agency Corp. Card

General Ledger

Airfare $2,864, 061

$2,130,613

$3,589,626

Hotel $1,163,617 $1,107,974

$2,091,680

Car Rental $261,054 272,688 $1,652,398

Other NA $993,744 $1,114,100

Total $4,288,732

$4,505,019

$8,560,791

What are we really Managing?


Category Agency Corporate Card

General Ledger

Airfare/Rail $38,577,885

$33,211,739

$39,988,721

Hotel $12,999,813

$9,578,892 $13,310,499

Car Rental $1,288,178

$ 1,266,446

$1,305,754

Other NA $28,478,023

$35,488,767

Total $42,865,876

$73,535,100

$85,093,741

What are we really Managing?


AutomatedExpense Reporting& Reimbursement

AutomatedExpense Reporting& Reimbursement

Travel ProgramTravel Program

CorporatePayment Systems

CorporatePayment Systems

E-ProcurementE-Procurement

Cash FlowManagementCash Flow

Management

WorkflowWorkflow

Policy Administration& Compliance

Integrating Components – Managed Travel


When does hype become reality?When does hype become reality?


• Access to supplier content in light of GDS deregulation– Where will supplier information come from?

• Opening of new channels for distribution– Managed travel– Supplier direct– Unmanaged sites

• Changing role of travel agent– Introduction of new pricing schemes– Program enabler– Manage policy at point-of-sale– Aggregate and display supplier content– Assist in vendor contract compliance

• Local country information• Regional/global consolidation

– Account management & program development• E-Tickets becoming preferred documentation for travel• Failure of multiple airlines; more at risk• Introduction of Low Cost Carriers

Global Dynamics Reshaping Travel


• Suppliers move to eliminate commissions to agency – US ( 1998-2001); Europe (2000-2005); Asia (2002-Current); South America

(limited) Africa (NA)– Suppliers moving directly to corporate– Cost of agency services now a corporate “cost center”

• Corporate leveraging of global spend– Introduction of procurement & category sourcing into Travel Management– Requires meaningful data– Requires some structure, vision, communication, implementation and

compliance management strategy

• Corporate program vision- achieving balance– Cost– Service– Security– Uniformity

• Introduction of technology– Travel reservations-online booking (self-service reservations) compliment

traditional bookings– Reporting– Traveler tracking – Expense reimbursement

Global Dynamics Reshaping Corporate Travel


Going Global ObjectivesWhat are corporate objectives

- Why are you considering global?

• Leverage global spend• Improved cooperation and communication• Policy• Data consolidation• Reduce cost of administration• Managing or expanding referred supplier programs• Security protocols• Streamline insurance• Introduce technology• Expand corporate uniformity

*Travel is often one of the first global program consolidated*Are there other corporate programs that can serve as “consolidation

models”?


Going Global Considerations1. Stages of travel management across the globe2. Cultures3. Language (is there an official company language)?4. Acceptance of technology (are you networked)?5. Local laws & restrictions6. Travel document distribution 7. Use of travel “bookers”8. Rail9. Individual employee compensation which often includes a

company car10.How does merchant accept payment and what is company

preferred payment method?11.Impact of revenue sharing reduction or elimination 12.How will you fund global program13.Some regions of the world operate in a “revenue sharing”

environment14.Program administration & management15.What resources are needed to implement?16.Acceptance and use of technology17.Will senior management endorse and support


Europe Overview• 12 Countries operate with Euro as single currency• Belgium is “EU” headquarters with many US

companies represented by a “head office”• Traditional and flag carrier airlines are no longer

permitted to received government bail outs• Cost of gasoline is $6 or more• Regulations and legal matters are settled via the

European Commission• Distaste for the US Government-but not the people• Fear of terrorism is becoming more wide-spread• Change management is a key concern with

introduction of new programs– Especially those driven top-down– Those with a US centric approach


Europe Travel• Travel Management moves from “North to South”

– Move in 4 stages: • Nordics & UK• Central- Germany, Holland, Belgium, Switzerland• France, Austria, Italy, Spain • Eastern Block & Mediterranean

• Scandinavia often leads the way in advancement and the introduction of technology

• Use of Rail is a major consideration• Singular online booking technology solutions is difficult (may

requires multiple solutions)• Laws often dictate approved reimbursable travel expenses• More than half of transactions are booked by “Travel

Bookers”• Travel policies are often not written “but are understood”

based on company culture• Aer Lingus became the first “low cost” Country Flag Carrier


Europe Travel• Employee compensation often includes a company car• Merchants may not accept corporate card; or

– Pass back merchant fees– Require individual cards – i.e. Ryanair

• 3 distinct languages exist for business– English & internet dominant

• Call centers are associated with “infomercials” and perceived as “low service”– Perception is slowly changing– Centers in lower cost countries- Poland and Hungary

• Airline agreements are typically “net routes” and city pair specific

• Low Cost Carriers are dramatically reshaping market• Amadeus and Galileo have a significant market presence

over Sabre in most of Europe– Except for the UK


Most Common Operational Scenarios

• EMEA– Country-by-country

• On-site• Off-site dedicated• Off-site non-dedicated

– Regional centers• Off-site dedicated

– By language– By currency– By travel management practices

– Hybrid – On-site in key markets


Asia Overview

• Asia represents over 1/3 of the world’s population– Over 235 cities in Asia with population exceeding 500k– 130 of these cities exceed 1 million in population– 34 of these cities are in China

• Developing (poor) inter-country/land based transportation infrastructure– Air transport developing/expanding in some domestic

markets– Inter-country rail network and highway system needs

attention

• Collective growth forecast is higher than the US and Europe


Asia Overview

• Increased intra-Asia trade flow• Growing affluence of Asian middle

class– Many will now travel by air in their

lifetime

• Deregulation of air service • Vision for the creation of a common

Asian economic unit (like EU)• Governments focusing on the

economic importance of tourism


Asia Travel• Multiple stages of travel management

– Leading – Australia, New Zealand– Emerging – China, India, Singapore, Hong Kong, Korea,

Taiwan, Japan– Developing – Thailand, Philippines

• Bilateral agreements required – fragmented market vs. single US and cooperative European markets

• Limited domestic markets except for: China, Japan, India and Australia

• Lack of cheaper and alternative secondary airports• Cargo represents a big revenue generator for

airlines in Asia• Most Asia traffic originate from the US or Europe –

limited reach for low cost carriers


Asia Travel• Agency is trusted for delivering services &

fares– Centrepiece of program– But this is changing with direct supplier

agreements and commission elimination

• Charge card usage is limited– Most counties pay for airlines via agency invoice– Merchant fees and program capabilities limit

corporate card adoption

• Travel “service” is expected and valued• Increasing inter-Asia (regional) business

network• Large population – huge business potential

market


• Asia– Country-by-country

• On-site• Off-site dedicated• Off-site non-dedicated• Call centres (limited)



South America Overview

• Limited inter-continent cooperation between countries

• US currency is the floating benchmark and primary business currency

• Regional terrorism requires unique corporate security procedures

• Majority of travel is international• Travelers are typically sales or senior

management


South America Travel• Majority of continent operates in a commission

environment• Travel agent salary is low which impedes online

booking and other technologies (agent in Colombia earns $300USD per month)

• Sabre and Amadeus are dominant• Use of card is limited to foreign based companies• Car rental is limited; competing against “car /

security service”• American Express and Carlson dominate region

– Large independent agencies dominate country markets; and are affiliating with various networks


• South America– Country-by-country

• On-site• Off-site dedicated• Off-site non-dedicated



Rest of World Overview

• Realities of economy and foreign trade• Penetration of internet and global

commerce is limited– South Africa and the Middle East are

unique

• Health and welfare dominate local concerns

• Local terrorism and internal wars• Corruption and government impositions


Rest of World Travel

• Limited air service– Air travel (in-continent) may require connections

in other continents

• International name brand hotels dominate with penetration of local market hotel chains

• Car rental is limited; most prefer car service• Performing administrative functions would

be seen as “below a manager” – secretaries perform all travel processing functions

• Cash advances are still widely used• Cash may be required to pay for travel


Global Case Study #1 – Profile

• US based conglomerate• Annual global T&E of $180m• 60+ entities operating in 57 countries

– Independent program administrators• Responsibility of US – Corporate

Services without a dedicated travel manager

• Some travel support functions in Asia– Primarily administrative and booking

• Compliance and performance driven via internal financial pressures to perform


• Leverage global spend– Reduce travel as a % of corporate

revenues

• Provide operating entities with options• Present peer comparisons via internal

operating entities and external recognized best-in-class

• Enhance security protocols• Provide mechanism for contract

compliance

Case Study #1 - Objectives


Case Study #1 – Accomplishments• Established global security protocols• Travel councils formed in

– Americas– Europe– Asia-Pacific

• Requires that all operating entities select 1 of 2 approved agencies – Allows for access to preferred supplier programs– Operating entities cannot enter into direct supplier

agreements– All but 1 operating entity is participating

• Reduced cost of travel by– Realized annual cost savings of $16.8 (incremental)– Travel as a % of revenues reduced by 28bp

• Corporate sponsored programs– Airlines, Hotel, Card, GDS, SSR, Car Hire


Case Study #2 – Profile

• US based Engineering Firm– Primary operations in US, Europe & Asia

• Annual global T&E of $52m• Under Corporate Services & Finance

– US maintains full-time travel manager– Council Representation via 5 “leading

countries”

• Growing organically and via acquisitions


Case Study #2 - Objectives• Move to a single global agency

– Agency is “program enabler”

• Introduce global policy• Leverage global spend

– Expand airline & car hire programs to new regions

– Commence hotel & meetings programs

• Reduce cost of administration• Streamline overlapping insurance• Introduce technology

– SSR, GDS, Expense management

• Establish global security protocols


Case Study #2 – Accomplishments• Consolidated to a single agency• Online adoption at 63% (US) of eligible trips within

first 3 months – Australia and NZ at 85%• Reduce increment cost of travel by $3.1m

• Global travel council formed – 1 representative / region plus an executive sponsor – Sub-council in Asia-Pacific

• Annual travel plan – 3 day meeting– Day 1 accomplishment and visioning– Day 2 supplier review– Day 3 drafting of strategic plan and responsibility

assignment

• Corporate sponsored programs– Agency, Airlines, Hotel, Card, GDS, SSR, Car Hire, Security


Travel Management Payment Systems

Expense Management

Assessment Sourcing Implementation Compliance Management

(704) 552-4421 [email protected]

Offices: Charlotte, Los Angeles, Detroit, Chicago, Orlando, Europe, Latin America, Asia

(704) 552-4421 [email protected]

Offices: Charlotte, Los Angeles, Detroit, Chicago, Orlando, Europe, Latin America, Asia

and ROILinking Companies

tcg consulting © copyright 2006, tcg consulting, llp. all rights reserved. changing dynamics in...

Documents