TCGCONSULTING Changing Dynamics in Corporate Travel Current Trends & Hot Topics Albert Taras, Managing Director, TCG Consulting Detroit, Michigan – October 13, 2006 © 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Domestic Marketplace Dynamics • Company-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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Airlines • 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 Sources: Air Transport Association, Dept. of Energy, BTN, The Guardian TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Airlines • 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 Sources: Air Transport Association, Dept. of Energy, BTN, The Guardian TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 enduser/buyer/CORPORATE – Is the agency the fall guy…again. – Dusting off the “airline commission reduction model?” • Are corporate “incentives” a thing of the past? TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Involvement of Procurement in Travel 1990 • Growth of corp. direct contracts • Policy balances savings • Where does travel sit? 1995 • Procurement starts to push for category commoditization • Suppliers resist • Policy is key savings driver • Cost savings not as important as service • Discounts grow but so do fares TCGCONSULTING 2000 • Soft market/post • 9-11 • • Buyers market • Commoditization • occurs • Airlines “right sizing” • • Other suppliers byproduct of soft demand • © Copyright 2006, TCG Consulting, LLP. All rights reserved. 2005 Sellers market Policy key savings driver Contracts complement policy Rigorous compliance requirements Does sourcing want to stay in travel category? What are we really Managing? Category Agency Corp. Card General Ledger Airfare $2,864, 061 $2,130,613 $3,589,626 Hotel Car Rental Other Total $1,163,617 $261,054 NA $1,107,974 272,688 $993,744 $2,091,680 $1,652,398 $1,114,100 TCGCONSULTING $4,288,732 $4,505,01 $8,560,791 9 © Copyright 2006, TCG Consulting, LLP. All rights reserved. What are we really Managing? Category Corporate Card $38,577,885 $33,211,739 General Ledger $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 Airfare/Rail Total TCGCONSULTING Agency $42,865,8 $73,535,10 $85,093,74 76 0 1 © Copyright 2006, TCG Consulting, LLP. All rights reserved. Integrating Components – Managed Travel Travel Program Corporate Payment Systems Workflow Policy Administration & Compliance Cash Flow Management E-Procurement Automated Expense Reporting & Reimbursement TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. When does hype become reality? TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Global Dynamics Reshaping Travel • 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Global Dynamics Reshaping Corporate 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 – CONSULTING Traveler tracking © Copyright 2006, TCG Consulting, LLP. All rights reserved. TCG Going Global Objectives What 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”? TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Going Global Considerations 1. Stages of travel management across the globe 2. Cultures 3. Language (is there an official company language)? 4. Acceptance of technology (are you networked)? 5. Local laws & restrictions 6. Travel document distribution 7. Use of travel “bookers” 8. Rail 9. Individual employee compensation which often includes a company car 10. 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 program 13. Some regions of the world operate in a “revenue sharing” environment 14. Program administration & management 15. What resources are needed to implement? 16. Acceptance and use of technology 17. Will senior management endorse and support TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Most Common Operational Scenarios • Asia – Country-by-country • • • • On-site Off-site dedicated Off-site non-dedicated Call centres (limited) TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Most Common Operational Scenarios • South America – Country-by-country • On-site • Off-site dedicated • Off-site non-dedicated TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. Case Study #1 - Objectives • 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved. and ROI 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 TCGCONSULTING © Copyright 2006, TCG Consulting, LLP. All rights reserved.