A CHRISTMAS MESSAGE

To all my readers: Yes I know you are out there because I read the stats!

No, you are not the best at giving me feedback so please have a go in 2012 as I really miss what you have to say and it keeps me writing.

Christmas Wishes: Oh American Airlines will you please grow up and
stop being so self destructive.

Can members of the travel supply chain think of better
and possibly easier ways of making bigger profits than over the
bleeding bodies of their partners and customers.

Finally? Have a great Christmas and New Year and I look forward
To trying to keep you interested and amused next year.

One last ‘story? I flew to New York last weekend and found myself in Club Class and directly facing one of the most attractive woman I have ever seen. We got talking and I asked her what she was doing.

She explained that she was going to speak at a very large womens society the next day about the sexes and planned to debunk a number of fallacies that people had about certain nationalities. “Give me some examples” I asked and she did.

It is not true that French men make the best lovers. It is the Greeks.
The most well endowed men are not African Americans they are native Indian Americans.
Finally the men most likely to talk women into sleeping with them are not Italian they are the Irish.

“Fascinating” I said. “What is your name” she asked.

“Tonto Papadopolous” I replied. “But my friends call me Paddy”

A London Airport Solution?

I wonder if we will ever get one. Recent discussions gyrate rather like a manic tango. You know how it goes, striding forward only to come to a dramatic halt, a frenzied shake of the head, and then lunging back again.

Everyone with a brain in their head knows a solution has to be found. In truth many also realise that it is nearly already too late to stop the UK slipping down the major trading nations success chart. One thing for certain is the UK should be ashamed of its current airport infrastructure and the inefficiency, inconvenience and downright embarrassment of it all.

Can you honestly see it happening anywhere else in world? I can’t. Even in the most heavily populated countries they still prioritise and act on making sure their airport infrastructure is prepared for the future. Some simply take the flack and build more runways at existing airports whilst some construct huge islands with fast city links. What do we do? We find solutions, discuss them, semi-commit and then back off for socio, environmental and/or political reasons.

Of course solving our air infrastructure crisis (yes it is one) will upset someone be they people, birds, voles or snails, that’s obvious. And of course it will take time which we are just about run out of but goodness me it has to happen. We all know that don’t we. Or there is the other option and that is give up our place as a major global, political and trading nation. Do we want to give that up and resign ourselves to being a second world nation?

So what are the options available to us? There won’t be any more new ones cropping up so, if we do anything it will be one of the following:

Island in the estuary. Great idea and it has been done before in places like Hong Kong. Remember them? They had this overcrowded airport in the city (sounds familiar?) so they started from scratch far enough away to get the lowest resistance and then built a superb city link by road and rail. It cost them mega money but hey it provided jobs, appeased the majority and ensures they have few problems in future.

Expand one of the existing London airports. I guess it would work…in the short term. But look at the charade that was the last attempt to put that much needed extra runway at Heathrow. What a waste of time and money that was. A ‘no brainer’ that turned out to be nothing of the sort. We can be so darn democratic in this country that we stifle the life out of ourselves.

The third option is the one I favour. Why? Because I think it is the only one that could possibly drag itself through the mire of politics and protest. This solution is to turn the airports of Heathrow, Stanstead and Gatwick into one mega hub. I have been advocating this for years but let me remind you.

The key fact that will never change under the current structure is that the vast majority of people want to fly out of Heathrow. This is because of its proximity to London, its interlining capability and its catchment area. Gatwick and worse Stanstead will never match it, unless they link up to form one big seamless interlinking airport. This would need superfast links from each location and its terminals to the other parts of the hub.

Is such a solution practical and what good would it do? Yes, I think it could work. I am not an engineer but looking at what has been done with superfast rail links and channel tunnel connections to London I think it can. What it will allow is the efficient usage of existing runway space plus a spreading of the Heathrow load across a bigger base. The customer will be able to transfer airports as though they were moving from one terminal to another. With minimal hassle and maximum speed. In effect each of the three airports become a ‘terminal’ of the new ‘Super Airport’.

I put this forward again as a compromise not a solution. The solution is obvious and would involve building an airport in the Thames Estuary. The compromise solves a short/medium term problem but will ultimately require new runways being built. Although we could do nothing I suppose. Or is that really an option?

Think I am nuts? Well tell me why and I will publish it. Same goes if you agree.

So Will Airlines go Direct Connect or Not?

Of course some will, but not completely and many will not at all for competitive, budgetary or capability reasons. Will all TMCs link direct to those that do? Definitely not. The customer ultimately will decide and they will have a choice… at a price.

Let’s get down to basics shall we? Firstly there is nothing wrong with the GDS model we have at present as far as the whole chain (excluding the supplier) is concerned. For the supplier it is a frustrating cost of sale that they have failed to negotiate down sufficiently and one they are not willing to pay for any more. In simplistic terms they cannot see why they should pay to enable customers and intermediaries to have a ‘one stop shop’ and besides it distances them from their customers.

So airlines like American have decided that it is time for a change in model. A bit like Lufthansa did in Europe. Enabling technology capability is perceived to be there now so they have thrown down the challenge to the GDSs of negotiating or risk market attrition. However what they seem to have failed to grasp is that maybe the rest of the supply chain is either not capable or unwilling to embrace the direct connect model. Some have too much to lose and definitely little to gain by doing so.

The current dynamics and rationales are both fascinating and disturbing and worth analysis. The market is enormous and with many players in various shapes and sizes. It is also bound up in a ‘cats cradle’ of payment incentives, global market variations and cultural ways of doing business. There are still places on the globe who are transacting business two steps back from what the so called driver markets discarded years ago.

The above does not appear to concern the main drivers of change like American and Lufthansa but they need to remember that they aspire to be global entities yet seem to be applying their local majority market strategies on ultimately all of us. I am certain that, in the current environment this will not work but equally convinced they will be able to do it where they have critical mass. So this means that the world will have to handle air transactions on a more complex multi-tier basis.

So I for one accept that it is going to happen in parallel with the current booking methodology. This means that one can either book direct or through someone else at an additional cost. Cost, of course is the operative word. To book ‘direct’ you will either have to go straight through the airline or through a TMC who has a non GDS link. This will cost the TMC in money and resource as they will need to radically change their systems and they will not do it for free. The airlines will have to pay them instead of the GDS although not so much. The corporations will also want their cut or at least compensation for extra TMC cost.

I do not believe for one second that any volume spending corporation will decide to bypass the TMC because of this new model. What airlines choose not to understand is that a booking (and the cost of it) is not the be all and end all of travel management. In my days in travel management the actual booking itself was just the tip of the iceberg of travel management activity. Will corporations accept the fooling around of their programme just because an airline wants to save their own distribution costs?

To me it is logical that not all airlines are going to follow this path. It is also logical that some (i.e. American) will do so but with a much smaller impact than they might hope for and then only in certain market areas. I think others will watch them succeed or fail before rejecting it or taking into account the mistakes they make. It will become just another option which will bypass the GDS, give further power/income to the TMC and pass a potentially higher tab to the end user. I have said it before but what it will do is turn the big TMCs into mini GDS who will want incentivising while having greater control over airline share.

Finally one needs to ask what the smaller and less endowed airlines and TMCs are going to do. Those that do not have the capability or infrastructure to operate two different main booking methodologies. Sure as anything, they are not going to sit still.
Neither is the GDS. I suspect both will do all they can to bypass American and anyone else who tries it and invent alternative value adds.

As for the large TMCs I expect them to eke out every competitive and financial advantage out of the chaos that will ensue. They should be able to both have their cake and eat it by managing the different options in different regions and using their superior technology. Mind you they too are under a degree of pressure as they are less able than most to turn around to a mega supplier partner and say they won’t play. That could get very messy so I am not surprised they are ‘working’ with American.

I will watch with interest and a high degree of scepticism over what American might achieve. I wonder whether they will see the savings made from GDS bypass fading away in TMC and corporate incentives and market share loss. Maybe they will remember that they used to get a higher yield using the other model. Who knows, but it will give everyone in the industry a wake-up call at least!

COMMENT
I still don't think we've even scratched the surface of how bad direct connect will be for airlines, tmcs and customers Martin

Good Evening Count – Do Come In!

Without insinuating they are all a load of blood suckers I believe that inviting the press to listen to you is akin to inviting Count Dracula around for a nightcap. You want the experience to be worthwhile and enjoyable but there is a chance you will have a pain in your neck and the need for a transfusion afterwards.

Never could this more true than in the corporate travel business as recent events at an ACTE conference testify. They willingly invited journalists in to their sessions, tried to slap down an ‘off the record’ mandate and then were mortified when the press did their job. You cannot hold a very public and very large conference and then say everything (bar what we tell you) is a secret.

Reading about this furore got me thinking about my career as a senior in a travel management company and the experiences I had with the press. They were many and varied and I think they highlighted some of the things that are right and wrong in this particular industry. As a result, here are a few thoughts to ponder on.

Who in the travel industry needs the press? We all do yet we go about fulfilling this need in strange ways. You can take it as a given that unless you deal with them right you can get into trouble. Deal with them properly and you will get all that you desire. Bullshit, dictate or threaten them and you get what you richly deserve. Ignore them and you can start wondering why nobody knows about you.

On the other side the press needs you or they have nothing to write about. Simplistic I know but this is something often forgotten. So if you want to be a player in this industry you have to help them and not throw obstacles, smokescreens and dictates in their way. You also need to tell them something useful, not just the samey releases and platitudes that make you yawn let alone them!

I have never known an industry so selectively secret than our own. Many corporations won’t tell you what TMC they use let alone anything about their travel profile or philosophy. Suppliers only want to talk in sanitised clichés about new products and services but become very reticent when it comes to evidence and case studies. Hardly surprising as very often such products are in their early stages or even a hurried reaction to a competitor’s announcement. Hence the so called ‘smoke and mirrors’ syndrome we have encountered over recent years, Just ask yourself how many of those super duper announcements five years past have ultimately turned into anything worth having.

My own experiences with the press were many and varied and I must admit some of them gave our PR departments kittens. But I can honestly say they were both useful and rewarding to me and the companies I worked for. Why? Because I told them’ like it is’ but in a way that gave us credibility and, hopefully, respect. There is nobody better to have on you side than a journalist who believes in you and nobody worse than one who feels patronised and used.

What advice would I give? The following might help:

Never give a journalist a story and expect him not to use it. It is not in his nature.
Never give them something unsubstantiated and boring and expect publication.
Treat them as the valuable marketing tool they are not as a company stooge.
Stop being so darn secretive. If you got it then flaunt it.
Never treat them or their readers as idiots (American Airlines take note).
If you invite them around do not let them bite your neck! I suggest you try providing high quality ‘blood bags’ of information that are digestible and tasty!

The Beat Live? Boy What a Blast

I have just been reading the agenda and speaker list and boy what a blast I would have if I were there! No folks, this is not an advertorial for this event, more a recognition that at last somebody in the travel world is getting together some smart guys to air critical issues. I hope they do not let us and themselves down by blowing the opportunity to sidetrack posturing and ‘company speak’ to thrash out some alternative arguments.

My time for speaking at such events has diminished either by the lack of an own company to provide travel logistics or concerns about just how forthright I have become since shedding company policy shackles. Either way it reduces wear and tear on my heart and liver but sometimes, rather like my scruffy old jeans, I miss them like this one.

I then started asking myself why I am so het up about not attending yet another industry conference. What would be the one question I would ask if I was there? What would I press speakers about? Why do I think it is so darn important? How much would I lose at the Blackjack table?! Before moving on I thought I would scribble down a few thoughts on the topic I would bring up if I had made it to Las Vegas. You never know, somebody might use part of my thinking within their own contribution.

I would ask airlines to explain the practicalities of how they make their strategic commercial/distribution decisions. Within that who the decision makers are? Who within their organisational management do they interface with (i.e. sales, marketing etc)? Do they factor in the impact and needs of their corporate customers and, if so how and through what channels? Do they consult the corporate customer and who/how?

I would want to know about their policies and priorities. Are their decision makers fully market aware? Do they think they need to be? Does their organisation feel any duty of care to the industry they work in or do they simply focus on their own needs and expect the supply chain to adjust with their changes?

I still find it extraordinary that after all this time even people of my years do not really truly know who makes the key decisions in the air supplier sector. Experience has made me pretty certain it is nobody less than twice removed from customer interface. In fact I am pretty certain that most sales divisions are low enough in the company pecking order not to have much input. If they are being honest they are mainly left to pick up the strategic pieces.

It does not need a brain surgeon to get to the point I am trying to make which is that I believe this market is supplier and not customer driven. This was (perhaps) OK in the past when the industry was heavily regulated but surely not now. Not only do they want to have their cake and eat it but they want somebody to wash up after them…for nothing!

The point of the question is to explore if there is any better way of receiving and giving true consultation between corporations, their TMCs and their supplier partners. I know it is a competitive world out there but surely there is a better modus operandi than the current system of making decisions without true understanding. You only have to look at some of the arguments coming out from AA regarding distribution to see that they either do not understand their customers wishes or choose to ignore them.

Anyway, to those that are going to ‘The Beat Live’ have a blast from me and get some answers!

A Distribution Prediction

Perhaps if you want to understand some of the practicalities of the airlines planned change over to direct connect you could look at the current hotel booking model and how it does (or does not) work. To me the hotel model is where the airline industry is heading. Let me explain.

Money and strategy matters aside the consolidated ‘one stop shop’ offering provided by the Global Distribution Systems (GDSs) is perfect for customers and intermediaries alike. You do not have to go to numerous different ‘shops’ to buy your airline product. Shops that have different languages, booking methods, rules and reporting. It is all there for you in one common language package with little diversity or complication.

Now hotels are totally different and far more difficult to package. Each location can be independent, owned by a chain, part of a consortium and sometimes a mixture. Each speak a slightly different version of the same language and they very rarely sell their inventory through a GDS because they are too expensive. Instead they do their own thing via many different outlets at many different tariffs. Frankly it is all a bit of a mess if you want a properly managed travel programme, particularly as they use differing technology.

So what is happening with hotels now and how does it compare with the current GDS system? In the main TMCs must have some kind of ‘connection’ (either direct or via third party) with key hotel establishments and chains. Some TMCs have created their own databases to hold inventory and information that then gets linked up to the GDS air booking screen. It ends up all looking like one source but contains numerous connection types that range from online links to manual entry.

The TMC has to create room allocation acquisition and management systems that doubtless include room close-out periods and price variations by customer and intermediary. These need constant adjustment and repopulation to remain current.
Ultimately they end up with their own mini GDS for hotels with numerous information flows coming from a similar number of independent sources.

OK, back to airlines. They are necessarily a selfish bunch. They don’t want to pay for the current excellent consolidated air booking system any more. They just want to sell their seats in a way that gives them more power/control and less cost. They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere.

Where might this end up? Some might call it industry evolution but I would call it going backwards. Instead of efficiency and commonality in air travel it will revert back to the hotel model of individual airlines operating at different speeds with different communication methods. They will deal through TMCs who also vary in skill and flexibility. There will be dual pricing and availability depending on which model you book through and which source you use. That is progress?

I am sure the GDS have explored all avenues to find a solution to being considered bad value for money by their airline customers. I have always thought that if they presented and justified their cost more intelligently, reduced prices strategically whilst building in new markets (such as hotels) they might do a lot better for all our sakes Either that or negotiate their wares with corporations/TMCs in a new and different way? After all people will pay if they see a value and surely it is better than the chaotic alternative illustrated by the hotel market?

The smart TMCs have seen this direct connect war coming. In fact you would have had to be blind not to. They have been building what they call ‘super platforms’ and the like in anticipation of it. I predict it is only a matter of time before the mega TMCs connect their ‘pipe’ to the main suppliers in the air and hotel world. In fact it is happening now. What happens then? Are the TMCs going to distribute inventory at no charge? I doubt it. They will most likely become the new GDS of the future but with broader product reach and more control on who the customer uses and at what price.

Perhaps the GDS and airlines need to get there heads together in more harmony or they may end up creating something that compares with Frankenstein’s monster. Built with various industry parts but likely to murder them!


Anonymous Comment:

Brilliant commentary. Mike has REALLY hit upon something important here.

Love the line about airlines wanting more control and less cost, "They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere."

Again, brilliant analysis

Anonymous Comment

As ever Mike hits the nail on the head whilst other so called industry experts have a tendancy to hit their thumb with an oversize hammer. What is being described as more than likely to happen within the industry is in fact already work in progress; and perhaps further down the line than many (on all sides of the equation) would care to admit.

Do we need another Industry Association?

Surely we have enough associations? Do we really need another one? I think the answer is probably no…if those we have provide greater focus on the re-engineering and industry strategies that are developing as I write. But they don’t.

Corporate travel industry evolution is predominately run by it’s suppliers who then create a further strategic reaction across the rest of the supply chain. It has always been so and sadly decisions are made not by the sellers who attend industry conference but executive well removed from them.

In fact I would say the travel supplier strategist liaise as little with their own salesmen as they do with their customers. In addition the airlines have another vehicle (IATA) who are even more removed from the corporate buyer and justify their existence by introducing policy changes that pay for themselves and earn airlines more money. The money comes from tinkering with the rules that were created by airlines for the airlines and are mainly unknown to the other end of the supply chain. Amongst them are things that impact corporates cash flow data fares and rules.

So what is my point? What I am saying is that the whole industry needs to have input and understanding travel evolution and I do not think this is getting any kind of priority by the existing associations. I think there is still too much smoke and mirrors and too little hard information.

Do not get me wrong. GBTA, ACTE et al all provide a useful and valuable service but how deep do they delve into the shadowy world of industry development. I think the trouble is that they have to be all things to all men. If you rely on supplier income from advertising and sponsorship for your very existence can you really afford to challenge your benefactors? Can you really have those suppliers represented at the very core of your own executive grouping? Although I admire these associations greatly for the excellent job they do in their field I do not think the answer lies with them.

So what else is there? I never thought (in my old life) I would say this but the nearest thing we have is Kevin Mitchell’s Business Travel Coalition. For some reason, as a TMC, I found them rather galling but now I have looked closer I realise a developed model could possibly do the job. It represents a key group of large corporations with little or no outside influencers. The problem is that it is not big enough and needs to be more global. It also needs (in my opinion) more subtlety when dealing with international suppliers.

I guess the organisation I am hoping for is a group of key global corporate customers who are strong enough to win serious attention and prepared to invest both brains and power into understanding and contributing to the market they spend so much money in. Could it possibly happen? I hope so. Otherwise we can continue to evolve the way we currently do which is that suppliers such as Lufthansa and American come up with their own strategies and savvy corporations invest in finding an antidote.

You may think I have a point or you might not. May I suggest you take a look at the conference agendas of the major association players and see how little time has been given to the key issues relating to distribution, regulation and other industry developments?

What the Customer Really Wants? – Part 1

OK, I know I am becoming a grumpy old man. As my appointment with the ‘Grim Reaper’ gets closer the more things in corporate travel seem to rankle. For example my pet hate at present is the strap line used by ACTE to promote itself.

It seems the three key things that most attract new and current members are to ‘be smart, be hip and be seen’. Now I can go with the first one but I think there are a few other worthy aspirations slightly ahead of being ‘hip’ and ‘seen’. I mean what is all that about? But I digress!

My diatribe today is all about ‘the customer’ and what they truly want. Now this is not easy as, depending where you dip into the supply chain, you get a different definition of customer. It becomes clear that each definition of the customer is more linked to who we want them to be rather than who they really are.

If you go to an airline like say American they are likely to say the traveller. Go to an international corporation and they would say we, the company are. Go to a TMC and they will say either or both depending on who makes the decision to appoint us and who has the strength to get us sacked. Go to the GDS and they will say ‘we buy/sell segments from and to airlines and TMCs so we don’t need to know.

Now let us assume for one moment that the traveller is the decision maker. In many cases this is fact. They may get influenced either strongly or weakly by their budget holding employers but hey, they can usually find a way around that. So what do they want? Simple you may think but I contend otherwise.

If you read the papers, magazines etc what everyone is interested in price. How do I get this cheap, who can give me the best price package, how can I get lower fares but better perks? The low cost carriers came along and thrived by undercutting the big established boys and the glory of cheapness became a reality. But hold on a minute, those low cost flights were on high density short haul routes and every time a transatlantic model was launched it failed. Does that say something?

It says to me that people are prepared to put up with most kinds of discomfort on little commuter routes but not when they are going any distance. Then the cabin gets cramped, the service poor and the food practically inedible. But despite all this the media and corporate hype is all about how all travel should be cheap and fares stripped down to their component parts.

The result is that although the truth of low fares is that they are in reality getting less available, the call for them is getting greater. It is also now on all routes not the one hour local shuttle service. So how do the mainstream airlines cope with this demand? They simply give the customer what they think they want in a base price but ‘nickel and dime’ the price up on ancillaries. Result? They are probably better off because they have also stripped out a load of service costs.

Unfortunately these extra services that have been removed out are the very things that differentiate them in the market place. They have also had a major impact on how they are perceived by ‘the traveller’. To me British Airways is a fine example of this although there are many more. BA has shed cost like a snake sheds skin. With all these customers supposedly wanting lower prices they either had to re-register as a charity or strip to the bone. They chose the latter and it is bearing dividends for them…in the short term, as the backlash is growing.

My mood was not improved last Sunday when I was reading the Sunday Times Colour Supplement. In it there was an article that was hugely critical of British Airways and its Heathrow hub. It self righteously condemned BA on everything from staff attitude to catering. I did not get a proper traditional English afternoon tea one interviewee bleated; another was depressed about meagre snacks and miserable staff.
Come on guys, you killed the airline BA was in order to create the one you say everyone wants.

BA simply charged too much for the modern world to stomach so what did they do?
They made themselves competitive by taking on the unions to reduce overheads, shed unprofitable routes, cut back on catering, and started charging for previously free services. And what do we do now they have become lean, mean and cheaper? We criticise them and mourn the demise of those dear little things we took for granted.

So is there a moral behind all this? I think there is. And the answer, in part was in the final paragraphs of that idiotic article. The piece listed all the things that passengers are supposed to want from an airline like BA (most were what BA used to do) and then it said on behalf of the traveller ‘We’ll pay – provided it’s good’ Wow!

So the traveller wants service after all? Maybe it is not universally about price? Could people really be prepared to ‘pay – provided it’s good? Your guess is as good as mine but in the meantime I suggest we could all take a good look at what we are turning this industry into and whether we are willing to pay to put part of it back together again – if it is good.

READERS FORUM

I would really like to hear more from you!

Reason being that I want to know if what I write is worth reading.
I am not actively seeking compliments (although they would be nice) but also comment/criticism too.

So if you are pleased, annoyed or anything in between please use the comment facility on this or any of the relevant blogs

I would also welcome statements an particularly questions and suggestions on any topic. Is there anything you want me to write about?

Also I have kind of slowed down my industry blogs but I am thinking of starting again out of frustration that nobody seems to be resolving the main issues. What do you think?
Be watching out for you and you are welcome to remain anonymous if you wish
Take Care and thanks for reading.
MIKE

RESPONSE to Who is the customer?
You bring up great perspectives in your comments Mike. Any business worth its salt can tell you who their highest yield customers are and who drives the decision making process for that customer. The TMC and the corporate travel department are key and if you don't count meetings and incentive travel, corporate travel makes up 25 percent of all travel in the US. When booked through the TMC, the average yield is significantly higher than when booked online direct with the airline.
With the order of so many new aircraft announced this week, you would think that American would be planning ahead on how to fill those planes profitably.
~ Chicke Fitzgerald, Founder and CEO, Solutionz

And

Excellent!
Warm regards,
Kevin Mitchell
Business Travel Coalition, Inc

Mike
I went through your blog today, read many posts and I found it very interesting and well written.
Keep up the good work
Kind regards

Daniel



Daniel Zetík

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.

Combined Airline Deals – Good or Bad?

I was surprised to read that one of the new British Airways/Iberia/American Airlines triumvirate had stated that the market can expect combined corporate deals within the coming few months. Astonishing really considering alliances have been finding reasons ranging from anti trust to market difference to avoid doing such a thing in the past. However, if they now go ahead it has the potential to impact the market as significantly as direct connect.

Let us assume such deals are going to come on the market. What will they look like? What benefits or otherwise will they deliver? What value (if any) will they bring? And was it worth globalising ones travel programme for? Here are some of my thoughts which I must emphasise are my own and not shaped by what anyone else has said on the subject.

There will be a clear set of obstacles for the airlines, not the least of which will be coming to some mutual consensus. None of them will want to dilute existing yield particularly in their own market and they all have their own regulatory rules to abide by. For example BA and Iberia cannot fall foul of European competition law and AA has to live with its own US legislation. There is also an imbalance in that Iberia is based in a much smaller and less corporately mature market than the other two with less to contribute in key business areas.

The biggest obstacle is that of desire/willingness to combine commercial strategies particularly between AA and BA who are still deadly rivals for the same customers. Admittedly they will be very interested in being favoured with onward traveller connections but the core routes (and yields therein) are equally vital to both. However they will be interested in marrying their main services and ancillary connections together to best economic effect hence you can understand why Virgin and others tried to stop this happening.

If they are really serious about coming up with joint corporate deals (which I still doubt) what will they look like? I think they will follow the models used by some alliances with TMCs. I explained a bit about this in my blog in June last year under the heading ‘Global Travel Programmes – Delivering? Here it is again:

a) Initial deals will not be very different to now except there will be a bonus if you have arrangements with the others too.
b) An overall separate umbrella deal will be introduced over and above individual ones. This will be linked to growth.
c) The above will then start being modified so that you only earn if you achieve certain targets on all participating airlines.
d) The overall deal will be tightened to the extent that you have to put all participating carriers in your programme whether you wish to or not.

Eventually you may get one complete deal but it will be riddled with conditions and caveats as they all really do operate differently in different markets and different cultures and customers. You will not say get the same deal with BA as you get with AA and then both of those will be different to Iberia. And you wouldn’t want to either.
Call me an old cynic but I have said it before and will no doubt say it again. These airlines are not coming together to offer better financial packages to customers. Why should they? They are combining to win more customers and greater economies through linking services, connections and cost. The customer should get a better overall package but not necessarily a cheaper price. This is really just a much improved version of code sharing or alliances and you will soon see service harmonisation and rationalising happen.

In saying all this I believe it to be just the start of a journey towards meaningful global deals. Airlines saw commission reductions, net pricing and unbundling as ways to improve profit and look where that got them. If market pressures grow they will have to broaden their commercial offering in the future.

Travel Evolution is not just about Technology – Right?

I always thought technology drives most change and the travel industry is no different to any other business in this respect. I assumed that the reason for travel evolution being so painful was that new technology had been so scarce for so long that now it has arrived people are overdosing on it. However unlike the pharmaceutical business nobody has tested products, understood the correct dosage or learned how to deal with adverse reactions.

Already you can look back over the recent past and see all sorts of corporate travel wonder solutions that have not actually delivered in accordance with their hype. Many were unsuitable, unrealistic or simply did not work but they all looked damn good on paper. Apart from any basic flaw there seems to be something in the way of success and I think I know what it may be.

The plain truth of it is that whatever new initiatives come along they will only be embraced if the various key players in the supply chain want to make it happen. Like the old saying that you can take a horse to water but you cannot make it drink the same goes for managed travel programmes and compliance. You still cannot get somebody to change their mindset unless you force them or justify your actions and I see precious little of either going on.

You see there are many people, either through tradition or personal experience, who still view travel as a service experience rather than a commodity. And whilst there are different suppliers of varying quality, frequent flyer programmes and individual timescales and demands there will always be service choices needed. When you think of it most corporations are insisting their employees undertake personal risks and comfort challenges with very little research into safety and standards. How do you know the airlines you have chosen are safe and comfortable? Cheap yes…but. A question that could soon be asked by lawyers in regard to ‘duty of care’.

It is not just the traveller who still has a perception that service is important. You can often see this ‘malaise’ in some suppliers and a large number of TMCs. I suspect they are getting so frustrated that service is not being given a value by typical procurement that they will continue to reduce it to a minimum like the low cost carriers. Why bother creating a value and service differentiator if nobody is interested in paying for it.

For so long the travel industry has been built around giving good service and being rewarded for doing so. Travellers too want to know they will be safe, comfortable and that somebody will be there for them if something goes wrong. Those buyers who focus mainly on unbundling, constant cost reduction and commoditisation need to take note.

My answer to my own question is yes, technology is key to the future but only as an enabler not as a solution. Pick your target end solution that matches your company ethos and then look for the enabling technology. I have seen so many people commit to unproven technology to try and solve an issue they did not really have. What is more important is service and solutions and if you embrace the need for the former to deliver the latter then all you need to do is choose the technology to enable it to happen.

My 'Greatest Hits'

It has been a year since I started my blogs and I just had a look at my stats to see which ones of my 80+ posts recieved the biggest 'hits'. It was pretty close but I found the top ones from both my business and humour blogs and am pleased to reproduce them now for those that missed them. They are about TMC/Supplier relationships and a catastrophe I endured in an Australian toilet!
Here they are

Can TMCs Really Influence Business?
Part 2 -DealsOK, 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 past 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.

My Life in Toilets – Part 1
Yes I know…a strange title but stay with me.
In the process of writing these blog ‘memoires I started to realise how often the word ‘toilet’ was coming up. This sounds odd to me too but I began to realise that toilets had played an important (albeit traumatic) part in my career over the years.

Some of you who may have read my rambling will remember how I fought an Australian in a Sydney W.C. and a large female attendant in a toilet next to the Paris perimeter motorway but these are just small skirmishes in my war with public conveniences of the world. I have fought with and in toilets across all continents and I feel I owe it to posterity to clear my conscience now as I lurch towards my twilight years. After all, how many people can say they have lost business, ruined relationships and been arrested whilst simply trying to relieve myself.

My most disastrous first memory was when I got arrested for indecent exposure in Perth, Western Australia. It was an awful misunderstanding. I had flown to the other side of the world to visit my then girlfriend who had been ‘forced’ to emigrate with her parents a few weeks previously. I travelled on airline staff tickets and it took me two sleepless days to make the journey. I found her address which was in the suburbs of the city and presented myself on her doorstep unannounced. Her new boyfriend answered the door!

What has this terrible tale of a jetlagged and broken heart got to do with toilets? That came later when she, her new boyfriend and her parents felt obliged to take me along to a dinner dance they were about to leave for. I was clearly as welcome as hem aroids .We sat at a big table with huge flagons of cold Swan Lager in the middle and I sat and watched the lovely Sue dancing with her new love so closely that you could not squeeze a cigarette paper between them.

There was nothing for it so I turned to drink. After consuming one flagon by myself I felt the most excruciating need to relieve myself so I stood up and made my way unsteadily across to the corner of the room where the toilets were. It was all a blur to me but apparently I first went into the ladies and got ejected. I went through another door which said ‘MEN’ and there was a further plain door on the left going into the toilet itself and another on the right that provided access to another entertainment room.

By this stage I really feared I was not going to make it in time so I started unzipping and preparing as I walked. I was out and ready as I turned right and fell into the other function room where they were celebrating a golden wedding. There was uproar. One of the people there was an off duty police officer and he immediately pinned me to the wall, read me my rights and arrested me for indecent exposure.

He phoned for back-up and a car and marched me out onto the pub forecourt whilst I continued trying to pull up my zip. The zip got caught (some of my male readers may understand the pain) which made things even worse. To cap it all they would not let me go back in so I had to pee against the wall which added another charge to my sheet.

My lovely ex and her family knew nothing of this until they got a call from the police station and an order to come and collect me. By this time I had been able to explain my jet lag, tiredness and misery and they took pity on me after having a good laugh at my expense. Needless to say I was disowned by my reluctant hosts who drove me to Perth Airport where I spent the night in the departures hall.

Whenever I go back to Australia I always wonder if one day I will stand at the immigration desk and this arrest with reason will flash up on the screen. So far so good but there is more to come in ‘Toilets 2’ the sequel!

Travel Services – Buying is just the beginning.

I have encountered many of what I would call classic buyers in my career selling travel services. By that I mean very professional people who know exactly what they want and how to get it at the best rate. They are well practised in procedures and buying protocol and have a clear plan. Good stuff, but is it enough? I do not think so.

I think there are better deals to be done and improved return if two other abilities are learned and brought into play. They are presentation and selling skills. Buyers should know how to buy but there are often other considerations that come into play when buying a service like travel. For example unless you really are going to issue a mandate that is capable of monitoring and enforcing there is likelihood you could lose 20% volume from the programme. You will also probably be buying from people who are frankly not up to dealing with professional buyers. This brings me back to selling and presenting.

Most travel suppliers are becoming more and more cynical and suspicious about the ability of buyers to deliver volume negotiated in travel deals. They are now starting to hold back a little and only give the best package to those that convince them they can deliver volume where there mouth is. The most mutually successful deals I have seen are where buyers are able to ‘sell’ their ability to deliver in a way that has credibility. I once helped a buyer create their own volume delivery agreement which they gave to a delighted supplier and got a fantastic market leading deal.

The deal itself is the beginning not the end of the project. There are numerous ways people can get round a policy and I have seen them all. I could write a book about it! However many loopholes can be closed , or at least made harder, by the ability of the buyer to get to the right internal audience along with a strong sponsor and present their case. To me this is more important than the deal itself.

I have always tried to tell myself that to be successful I should out-sell the salesman and successfully communicate how clever I (the company) has been. After all if you have used you selling skills to get an exceptional programme you might as well you communicate the benefits to ensure everyone knows and acts upon it.

There is so much talk and activity around apps, social networking et al. perhaps if we used some of these fast developing tools to focus on compliance and rationales then companies would have greater control and diminished leakage. A better ROI than repetitive tendering and programme changes to keep a leaking travel bucket full.

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!

Getting back to basics with business travellers

How much does the average business traveller know about travel programme management? I would argue strongly that the answer is very little which is a problem. How much does the average travel buyer know about the practicalities of using travel to meet individual traveller’s needs? Again I would argue very little except for their own particular experiences. Is this a healthy state of affairs? No.

It has always vexed me how little time and effort is spent educating, briefing and convincing business travellers of the rationale used when creating a travel policy. How can a company expect their travellers who obviously know their budgetary and practical travel needs better than anyone else to follow a policy that seems diametrically opposed to their objectives. Should they be told simply to do what they are told? Or should they have the company policy fully explained and justified.

I am not talking rocket science here. To start with one could get down to basics. Key travellers and budget holders should be approached and asked to explain any reasons why they have issues with the policy and invited to ask specific questions to illustrate these concerns. This will bring out the usual range of arguments about why certain airlines are used, why prices vary so dramatically and why can they not simply go out and choose the best fare for their own budgetary and travel needs.

These arguments are the underlying reasons why most corporations have significant known (and unknown) travel compliance issues yet very little is done about it. The average company seems keener to go out and negotiate prices with suppliers than undertake possibly more productive internal ‘housekeeping’ through communication and collaboration.

Here are a few basic example answers to basic questions that might provide surprising results if travellers understood why certain things are done that way:

Q: Why do I have to use agent X when if I book direct with an airline or use another agent I might get better?
A: The company as a whole needs a total picture of its spending and location of travellers for safety, security, financial and procurement reasons. Part of our contract with agent X ensures we get all this information and support in order to maintain control and drive improvement. Any bookings made outside the programme are lost to the company and weaken its ability to support the individual and corporate needs of all stakeholders.

Q: Why am I made to use certain airlines and certain fares when I can possibly go out on my own and find something better?
A: When the company negotiates these deals with airlines it looks at the total annual requirement of the group. It agrees fares that will be available throughout the period which represent significant discounts and other benefits. There will be occasions when lower fares will be possible but availability will be strictly limited and restrictions will apply. By going outside the programme and taking these one off individual discounts it will weaken the company’s ability to get greater benefits for all over a longer period resulting in higher cost. The overall benefit to the company of a negotiated deal is far higher than the occasional individual saving
Q: I went to an overseas conference and found other delegates who travelled on the same plane but paid less for their ticket than me. What’s going on!
A: The likelihood in today’s market of any person on a plane paying the same as another is very small unless they were booked together at the same time or booked on a fixed price. Airlines shift their prices constantly linked to time before travel, numbers booked and historic data. For example there is no such thing as a standard price on a low cost airline. That is why it is best to book early when fares are historically cheaper.

Q: Why should I pay fees to agent X? I could do it myself much cheaper.
A: The fee to Agent X is not just for making your booking but for a vast range of services provided by them to you and the company. These include back up, management information, billing, account management and a raft of others. All this is lost to you and the company if you book outside the programme to everyone’s detriment.


These roughly drawn up examples hopefully illustrate the need to communicate with
travellers to explain that the company is not totally mad and has valid reasons for
requiring their compliance. I bet that if you asked your travellers these questions they
would not give the same answers! After all, how can you expect people to do what
you ask when you don’t explain why? Surely a better way than introducing a mandate
and trying to enforce it on an incredulous traveller.

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!

Better to never have something than see it taken away?

I wrote a few comments in my blog not that long ago about corporate entertaining. I tried to both entertain and inform but there was one particular argument I tried to put across. It was ‘never give someone something and then take it away’ i.e. once you invite someone somewhere regularly and then stop the reaction is worse than the initial benefit. This is exactly what is going on in travel at the moment but in a much broader sense.

Have you wondered why ‘low cost’ airlines like Ryanair manage to sell tickets much cheaper than say British Airways? Simple you might say, Ryanair is much more restrictive in timetable, booking conditions, departure airports etc. Plus they do not have the enormous cost infrastructure the big global giants have. Of course you would be right but it is far more than that, which brings me back to my entertaining analogy.

Nobody gets anything from a low cost carrier unless they pay for it. They never have and never will. What you get is a low cost and a menu of add on prices for everything from bags to card payment to seat reservations. That is the key reason for the low lead price and they absolutely depend on income from ancillary costs.

The big airlines are the complete opposite to this. Their prices are historically all inclusive but now they have to change rapidly to stem the flow of lost revenue to their new ‘low cost’ competition. So what do they do? They start looking at every distribution cost they incur and try to eradicate them. Things like free card usage, credit periods, use of agents and access to special fares. They will in fact ultimately end up pretty close to becoming low cost carriers themselves which is, to me, as worrying as it is welcome, in fact more so.

So the national airlines are starting to take away things they used to give away. Well actually they never gave them away. Instead they built the costs into those high prices they cannot compete with these days. As I implied in my heading, taking away something people are used to breeds discontent and intransigents. Pity the poor big airline, they are getting attacked for taking things away that their low cost competition never gave in the first place and get kudos for not doing so!

The travel world can be a cruel place sometimes. You only have to have a look at what is going on between all the supply chain intermediaries as the pain of this particular change is going on. Have a quick look at the rest of this blog if you want to see what I mean.

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.

What does a hotel brand really mean?

Does that seem a weird question? Probably so but what I am trying to say is, does the logo over the door actually mean, or importantly guarantee anything? Is it saying ‘This is a Hilton, Holiday Inn, Four Seasons or whatever and this means you should expect and get what that brand markets?

This question is borne from spending many years trying to truly understand and make sense of the hospitality industry. It is a vital sector yet commentators and industry bodies barely notice it when compared to say airlines. What does make it so very different? And why should anyone need to care?

I think the difference is ownership hence my original question. You see there are quite a few different ownership scenarios within a single brand. Because a hotel displays say Hilton over the door does not mean it is owned by Hilton. Very often it is owned by someone completely different but Hilton has the management or marketing contract to run it and is employed by the owner to deliver an agreed profit. They are an employee of the owner and have to act accordingly.

So what I am saying is that if you negotiate with a hotel chain you may not be speaking to someone who has absolute control over policy, inventory or pricing with all their properties. Hence you can find yourself in a position where various properties opt out of some commercial agreements which are good for the whole family but not for them. It is a bit like a global TMC who has to sacrifice profit in one location to deliver a good deal in other countries. Most TMCs have had to come to terms with this but I do not think hotels have.

The issue becomes even more convoluted when you are dealing with hotel consortiums. These are mainly pure marketing organisations where hotels (of a certain comparable quality) link their properties to an umbrella brand in order to take on the big boys and achieve global coverage. Again, this does not mean that such consortiums can tell these hotels what to do as far as pricing and inventory is concerned.

Probably still the most influential person in any hotel is its General Manager who can, and do, instruct their reservations office to close out heavily discounted negotiated corporate rates if they think they can sell for more. Even worse for the bigger corporations is when their travellers tell them that the hotel ‘price at the door’ is cheaper than that negotiated by their procurement department. Sounds familiar?

Another side effect of confused and disparate ownership is the woeful lack of management information you get fro the hotel industry. The only really useful thing IATA does for airlines is it provides a standardised language and reporting base that is essential for meaningful information. Hotels do not have this type of global format hence they all do things in different ways. You really would be shocked by how little they know about their customers and what they spend.

So what am I trying to say? I am advising all buyers to find out exactly what control/ownership of key properties a chain or consortium has. Maybe you should insist on key contract clauses like last room availability and lowest price on the day. Perhaps require countersignature by the GMs of the main hotels confirming they understand and support the contract. Finally, why not think of ways to make your oh so wise travellers become willing watchdogs by actively encouraging them to test the system. You know how they love it so!

By the way, I have mentioned a few hotel brands in this post. This has been purely for general illustrative purposes only and does not imply that I was refering directly to them.

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 dispute. 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.