Loyalty Cards – What value?

There have been a growing number of reports recently about airlines reducing the number of ‘ex gratia’ cards negotiable within corporate agreements and I have no doubt whatsoever this will increase in future. There are a few possible reasons for this trend.

These cards started as a way of keeping the loyalty of regular travellers by giving a range of benefits from comfortable lounges and ‘free’ flights to priority for upgrades. They became a major instrument for wooing business people away from their competition, and possibly company policy by making the travellers feel special in a rapidly comoditising market.

Some corporations hated them and went to great lengths to try and cancel out their allure. A few tried with little success to confiscate the travel element (miles) for company use. Others took a different view and used the attraction of these loyalty clubs to underline and support the use of their chosen policy carrier. It was then that such awards became a significant beneficial component within corporate deal negotiations.

So all of a sudden airline loyalty clubs became valuable to corporates and a tool to sweeten a change in policy. This whole change thing became a great deal easier if you were able to hand out membership cards with substantial benefits to key travellers. As important were the top tier cards which appealed to status conscious senior executives. These Platinum/Black/Premier cards were usually allocated in very small numbers and linked to the company’s volume potential. Often you would see joint CEOs scrapping like alley cats as to who should get ‘The Card’ and TMCs being pestered to broker more of them.

Much of the above still happens now but the mood of the airlines is changing for a number of key reasons. Firstly the number of cards at high status (gold etc) has grown alarmingly causing lounges to become too full for comfort. The cost of these lounges and other benefits has risen correspondingly whilst their exclusivity has declined. I have been in some lounges which are busier and noisier than the seats outside them.
Equally there are fewer seats available for purchase with loyalty points which can cause problems.

The airlines in their quest to reduce distribution costs are now looking very closely at the value, and importantly, the cost of these schemes. They have gone from seeing these clubs as less of a marketing ploy and more of an out of control overhead. As a result they have identified the value and put a budget cost against it. This means that every time an airline salesman gives a card their budget gets debited accordingly. They now have to manage this cost in the same way that they do discount pricing and other overheads.

This state of affairs has reduced the number of cards being awarded within deals. Incidentally the same thing works within the airlines themselves. Senior airline management are having their own travel cards downgraded too and they are probably just as aggrieved as the corporate buyer. The problem is that if you take something away from someone it has at least twice the effect as giving it to them in the first place. What you never have you never miss!

I guess what everybody will have to realise is that if you drive mainstream airlines to behave like, and compete with low cost carriers you will see the continuing decline in such ‘luxuries’. Also, if you manage to finally be successful in mandating policy to your travellers then the need for such loyalty inducements disappear anyway.

A Christmas Tale of Travel Distribution – 2

Cast of Characters:

Air Schizophrenia Services (ASS Air) – A major airline from Never Never Land.
Pass it on Travel (Past Travel) - A neurotic TMC who misses the old days
Scrooge Global Inc (Scroogey Inc) - A global corporation that hates travel budgets
Vera Merchant Fee ( VeraCard) - A credit/charge card that does not add up
Online Travel Agency (Ollie OTA) – Illegitimate love child of Air Schizophrenia.
IATAmania (Colin Cartel) - An airline association that interprets
the rules as they go along.

Globally Dysfunctional (Gordon GDS) – A misunderstood much maligned cog in
the Distribution wheel who nobody wants to pay

(Again, a work of absolute fiction and all the characters are simply a result of my overactive imagination)



It was a quiet peaceful Christmas Eve. It was mainly quiet because half a teaspoonful of snow had landed on the tarmac at London Heathrow causing the entire airport and access road infrastructure to go into meltdown and stop completely.

ASS Air barricaded himself in his office, switched off the passenger information announcements and tried to turn his mind away from the groaning, lamentation and anger coming from those selfish passengers in the departure hall. After all he had given them foil blankets so what were they moaning about?

Finally he decided to think back over the last year and consider what he might do in 2011. He tried to focus on all the fun things and the new friends he had made which lasted about 20 seconds so he then moved onto the progress he was beginning to make on distribution matters. He had quite a busy year in this area but he considered it mere positioning for what was planned for the coming year. He would show those vultures (I mean ‘partners’) a thing or two.

He started ticking off the successes and failures of the past. He congratulated himself for his success in transferring a major chunk of his own selling costs down the line. Who would have thought it could be so easy! Just put the squeeze and expense onto Past Travel and watch them ricochet onwards to Scrooge Inc. Job done! Except Scrooge being a savvy customer had let it happen in order to commoditise and claw back.

He was however beginning to understand Scrooge a lot better. It was difficult to start with but when he realised that old Scroogy played by different rules and was not impressed by his arrogance he found more subtle ways to play him at his own game. He discovered that as long as the up front price made Scrooge look good he could tinker away with the ancillaries rather like those ‘ghastly and common’ No Frills guys do.

It had been a shame about the black sheep of his family. After the wild euphoria of creating his very own online travel agency Ollie OTA had ultimately disappointed him. Now he had to try and undo the damage by putting him down in as humane way as possible. So off he had gone with his ‘content club’ and bludgeoned poor old Ollie as if he was a seal pup. Trouble was Ollie had a tougher infrastructure than he realised. ‘Memo to me’, he thought. Get in touch with Colin Cartel in IATA land and get him to come up with some kind of ‘creative’ rule interpretation to help me. After all good old Colin will do exactly what I say if he knows what is good for him. I am after all his boss.

That left just VeraCard and Gordon GDS to sort out. Both were thorns in his distribution sides but he was beginning to make serious progress. All he had to do was close his eyes to what travellers want and appeal to Scrooges desire for cheap nets and he would be nearly there. Vera would be much easier than Gordon. All he had to do was introduce a premium for using Vera (preferably higher than she cost) and watch old Past Travel do the rest. Scrooge would have to accept, especially if his competitor chums followed suit and they sure would like they always do.

Gordon GDS is another prospect entirely. Yes, Gordon is as anti change as he is and yes, he wants it all his way and yes, Gordon wants to increase his wealth not to diminish it. But like AssAir, Gordon does not appear to be able to come up with any more positive solution than more deep-seated intransigence. “Everything must change”, they cry, but not me! So Gordon hides behind the walls of Fortress Full Content while poor old AssAir tries to bash it down access brick by access brick. Meanwhile Scrooge and Pass It On shout for him to stop before they get hurt by the aftermath..

What a lovely time of the year Ass Air mused as he snuggled deeper into the ego massage machine chair that had been installed behind the double-locked steel door of his airport office. Have those damn passengers stopped snivelling he thought as he eyed the lovely looking ‘humble pie’ his cabin crew had cooked for him. No, he thought, I can always eat that when I absolutely have to and it will be Spring by then.

He reclined his lounger into bed mode and drifted into a blameless sleep.’ Oh what fun I will have next year’ he thought in his last moment of consciousness. But then he had a terrible dream. It involved all his antagonists sitting with him in a room sponsored by corporate travel trade associations and he was being made to cut a deal that would be fair for all and serving to the travel community.

But that really would be a fairy story

A Christmas Distribution Story - Timmy TMC

I wrote this sweet little story last Christmas and it is back 'by popular demmand' while I write the next one about GDSs which will be out in a few days.

Tales of Timmy TMC and his search for value– A Christmas Pantomime and work of utter fiction!

Timmy was sad. He had just returned from Agencies Anonymous and admitted to all of them that he was a TMC. He was looking for help to cure this terrible affliction but all the other sad souls took one look at him and agreed he was clearly past his sell by date and revoked his membership.

It had all started so very well for Timmy those years ago when his two benevolent uncles, Colin Commission and Oscar Override, used to send him cheques for doing very little. However recently, having used him for their horrible data mining purposes, they walked out leaving him a penniless orphan. Then even stranger things started to happen as his few pals started disappearing, changing their names and, worst of all, reverting to cannibalism and eating each other up. The stress of it all got to little Timmy and he started wondering if there would be a future role for him in this wacky and homicidal travel supply chain. He was sure he was useful but a little bit sketchy on the detail.

But Timmy was made of stronger stuff and knew, with a little sage advice from his supply chain colleagues, he would discover his value. “I know” he thought. “I will go and see my dear old benefactor Client Hardup”. “Sorry Timmy” said Hardup whilst absently massaging his EBIT, “but I have lost all my profits. I gave them to a nice man from the Fat Cat Investment Bank and he said they had been magiced away by millions of little elves wanting to feed their sub prime mortgages. However he also said that he was prepared to travel the length and breadth of Las Vegas to get it back if Timmy could donate a ticket”. “Sorry” said Timmy “I don’t get free tickets and upgrades any more. In fact the last ones were those First class round the world tickets which went to Mrs Hardup when she coincidently won your office grand draw”.

Hardup was sorry for Timmy. He remembered the days when Timmy used to give him good service, rebate cheques and upgrades. “Go and see my two sisters Pammy Procurement and Charmaine Cheaper-Thanyu” he said. “They may think of something valuable for you to do, although don’t hold your breath as I have just cut their travel allowance again.

Now these two girls hated each other something ugly. Charmaine thought she could do and get things better than Pammy. Pammy thought Charmaine was an undisciplined tart hawking herself around the web without any thought of the infections she could catch like cancellation flu and card chargeitus. The only thing they had in common was they both thought they could do anything better than Timmy who, to them, was an unnecessary downward pull on their sagging assets. They had enough budget stretch marks between the already.

Poor old Timmy. Little sustainable income and not the sharpest pencil in the commercial box. He trudged back to his lonely BTC and implanted himself in front of his PC. He aimlessly rubbed his mouse even though his fairy god mother had warned him his eyesight would be impaired when POOF! Out from the PC sprang the GDS Genie. “I will grant you one wish” she cried. “oh Genie” he wailed “You have told everyone that you know everything so please tell me what I need to do to find my value and make Pammie and Charmaine respect me like they used to when I bribed them.
“Blooming Heck” said Genie, “that’s a tricky question. How should I know? I have enough problems of my own dealing with that terrible ogre Amerimonster from IATAland. He wants me to get my sectors off for next to nothing. And then there is that green monster Olearymouth. He has been clambering down his beanstalk lately threatening you, me, in fact everyone he claps eyes on. So don’t bother me with your pathetic questions! And leave that mouse alone.”

Timmy was shocked and saddened. He had tried his colleagues, his clients, suppliers and even a fellow intermediary without a sniff of finding his value. Off he wandered into the pre Christmas recessionary gloom. Even his Blackberry had stopped talking to him and his Mobile phone, instead of saying “how are you” when switched on now said “Book Direct” instead. It was almost enough to make Timmy give up and become a consultant like everyone else.

Just as all seemed lost a jolly faced lumbering giant in a Santa outfit scooped Timmy up, clutched him warmly to his chest and squeezed him tenderly by the throat. “Giant Major Airline Timmy wheezed”. “Never fear Timmy” boomed Major. “You can trust me and I will look after you just sign this binding agreement and all your troubles will be over - well at least for a month or two”. “But that is what you said last time” said Timmy, “before you started smacking me about”. “Now, now” said Major “let’s forget about the past”. “That is also what you said last time” replied Timmy.
“NOW SEE HERE” boomed the Major with an inscrutable look on his face, Have you got any other options?

“Oh Major” said Timmy, “it is so good to be home. I’m hungry. Got any commission?!”

And they all lived happily every after – Or did they?

You don’t get ‘owt for nowt’ in travel distribution.

For those that do not speak Yorkshire English that means anything for nothing and never has that been truer than in corporate travel. The only trouble is that this is exactly what many stakeholders are trying to achieve with alarming and inharmonious results.

Now people sometimes call this the pain of change or evolution but I think it is much more basic than that. I believe very little is changing other than people trying to offload cost to others as they rightly (or wrongly) believe that it no longer belongs with them. This has only recently started because now they cannot increase their charges to absorb this expense as the end customer wont stand for it. Lead price now seems to be everything so everything has to be stripped to the bone. This type of commoditisation is fine if you are prepared to do without something but not if you still demand your content, your credit, your data and all.

So everybody tries to find cheaper and more self serving alternatives. Some even see it as an opportunity to make more money by separating out a product and charging more for it than it costs. For example those suppliers who are now charging extra for GDS booking options and credit card usage. Is the price they are currently paying more or less than what they are going to charge the rest of the supply chain who want these services? Just look at TMCs and you will see how many turned a potentially disastrous commission cut into a more profitable business model.

I think we all have to go back to basics again and ask ourselves what we want and essentially, what we really do not need. Having done this we should look at all these component parts and ascertain who is currently paying for them and whether we could do it cheaper and more efficiently if we took control and accountability ourselves. I definitely think TMCs could play a broader role in managing these costs for corporations than they do at present. They are after all supposed to be an outsourced consultancy arm of their clients.

The travel distribution model is in a mess and stuck in a previous era. Low cost airlines and commoditisation completely shook up the market but the original infrastructure still remains despite attempts to shift it. Cartels like IATA still hold sway and bodies such as ACTE/NBTA/ITM have not really yet driven constructive dialogue to broker a badly needed repositioning. To my mind these groups need to get together and call a proper summit on these issues which would surely be more constructive than the same old glad handing bi annual conferences.

Everyone is in defence mode. Some people’s idea of defence is by attacking first. Others try the old head in the sand technique favoured by Ostriches. Most have tunnel vision. We need some clear thinking before we all end up as aggressive poor sighted flightless birds!

BA dispute – Pride and promises

I did not think I would be commenting on this subject again but, instead of fading into apathy and compromise it is back again. BA made another of its final offers and the union involved was expected to ballot the cabin crew. But the unions did an about turn and has delayed the ballot despite admitting that it was the best deal they could achieve through negotiation. Why? Because I believe they think it would be too damaging for the union.

The crazy thing is that the main disagreements that caused the strike have mainly gone away in that BA has won the essential core of disputed issues. All that is left is the argument concerning staff travel perks. What is the problem? Well, in précis BA gave advance notice that all striking cabin crew would lose these perks. From what I understand the union went to the crew and told them to take no notice as they would get the concessions back for them within the dispute settlement. Partly on this basis enough of the crew voted to strike.

We now have a very large, proud and, in my view, arrogant union that promised something they are having difficulty delivering. Initially BA said a firm no to any kind of renewal of perks to strikers. They pointed out that they told the union at the time they would not move on this once the discounts were forfeited. This silly issue involving a reasonably small number of cabin crew now reached a disproportionate level of intensity purely because the union had dug itself a big negotiating hole and jumped in it. A perfect example of the expression ‘pride comes before a fall’.

And then BA relented. Well, not exactly relented but at least came up with a compromise of sorts. They offered to give the perks back to strikers. But there is a catch as they were not going to give this up for nothing further in return. BA have demanded a guarantee of no industrial action for at least 3 years and also any current legal action by the unions to be stopped.

They then went further to say all strikers would lose their seniority status for these discount and standby tickets until 2013. This is quite ‘serious’ as seniority and years served determines where you are in the queue for these tickets. To places like Barbados there can be scores of crew standing by. In fact, on one memorable occasion BA had to send a 747 to Barbados purely to pick up stranded standby staff. The strikers do not want to lose their status but BA knows that this is the only thing they can do to appease all those majority of staff who did not strike. After all these loyal staff would be pretty mad if they saw the strikers getting away with it by winning this point.

So, the soap opera continues. The argument that led to the strike have to a great extent gone. Instead a bi-product of the negotiations may cause yet another strike possibly some time in March 2011. At least Christmas is safe…I think. The union will ultimately ballot the staff once more but will not recommend the latest BA offer which they are now saying is “a step too far.” This sounds a bit different to their earlier comment about it being “the very best available through negotiation”.

What a fuss over a few cheap staff tickets. However daft I do not see where resolution will come from without a major and damaging stand down by the union. They know that this is no longer really about tickets. It is about the credibility of the union movement in the UK. What a mighty hole they dug for themselves over such an unimportant argument

GDS/Airline issue. Coming to a head?

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

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

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

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

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

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

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

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

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

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

A Take on AA Distribution Issues

Isn’t the American Airlines distribution blog interesting? No I mean it without the slightest hint of sarcasm. Obviously it is a propoganda vehicle for getting their point across to all sectors of the market but it does make some good and credible (albeit biased) comment on this key issue.

I find the language they use fascinating as it mirrors their strategy at this particular moment in time. For example they are currently referring to TMCs as ‘Travel Agency Partners’ so one can assume that the very zigzag line that represents their TMC love/hate relationship must be on the ascendancy as they focus on those dastardly GDS. No point in having a go at TMCs and GDS at the same time.

The only downer I have on this blog is that it fails to identify or even pay any lip service to the broader issues and seems rather 'me' centric. What their corporate end customer’s true needs, objectives and arguments do not seem to get much coverage. Perhaps if they focussed more on these and put forward some proposed solutions for debate it might help both their cause and the industry they work in. Mind you this might become a double edged sword as their arguments would need to be compelling.They would also need to think outside their own box which they and most major airlines find far too vexing.

Let me try and give you an example. In the last of their blogs I read on ‘The Beat’ they were trying to say that TMCs choice of GDS was predictable and closely linked to their original owning airline. This is a far too simple assumption and somewhat dated. TMCs choose GDSs for much broader reasons than that although, in the past, there is more credibility in that argument. Now it is more a matter finance, other non air products, trained staff availability, support, global reach, and yes, full content and fares. The GDS have exploited their broader strengths in the markets they were dominant in to maintain that position. They provide things like broader choice, comparison and ancillaries that airlines don't.

Corporates demand that their TMC is kitted out with a booking engine that can provide a total regional and global focussed product for all services including that continental train or local hotel. The TMC responds by searching for a system that meets as many of those demands as possible and then bolts on any extras through their own technology. Preferably a one-stop shop covering as many core products as possible. Not just American Airlines bookings. They need to do this cost effectively and as seamlessly as possible.

What the corporate and their TMCs do not want is to find airlines who cherry pick what fares they put on which GDS thus depriving their travellers from the best prices, availability and choice. Any airline who does this is basically saying that they alone will decide which booking system you will use. Even worse some then impose fee penalties on those TMCs and corporates who have the effrontery not to comply.

So the distribution battle is getting hotter. AA in their blog, are now talking about a test of ‘global’ reach with the GDS. It reminds me of a ‘dare’ game I enjoyed with my friends in the playground all those years ago. I cannot see much benefit for the customer while these two forces slug it out and I am not sure either would come out without a very bloody nose.

Meanwhile what is the TMC doing? Are they just sitting their in a ring side seat or in the corner of their favourite with a towel and gum-shield. No, they cannot afford to do either and you will find the bigger ones are already building alternatives. Their issue is that direct links with numerous different suppliers (there are hundreds, perhaps thousands of them) is a poor but increasingly necessary option to the current few well chosen interfaces, but they need to do it.

One very likely scenario for the future will be the further development and release of these mega multi linked TMC platforms. Sounds familiar? Yes, such an entity is currently called a ‘GDS’.What will that do? It will enable TMCs to put (or deny) whatever content they want in front of whoever they want to see it. It will give them power. It will enable them to go to suppliers and negotiate deals and incentives.Deja vu?

So by trying to destroy one type of GDS the airlines will be creating other, possibly stronger ones. The same way they found removing TMC commissions meant they had to charge lower prices. Good luck to them. I suspect they will need it!

Just how much would you disclose?

For some time various corporations have been asking their intermediaries exactly how they make their money and what positive impact their company’s business has on their income. This interest has expanded further and bodies like the Institute of Travel and Meetings (ITM) have been calling for Travel Management Companies (TMC) to provide a ‘register of interests’. The request is made within its report on ‘Remuneration and Transparency’, the second part of which has recently been published.

The chairman of the ITM said “Our goal at ITM is to create better relationships to further professionalise this industry for the benefit of all” Baloney! How would disclosure of confidential business agreements do that? I would suggest perhaps it is more about checking that their intermediaries are not making extra money out of their client’s business and not trying to influence client behaviour in the process for their own gain. Let’s not be coy about this.

Some of you may have read my blogs on how TMCs still make money from the suppliers. This can be viewed in two main ways. Either ‘Why not, they do a lot of work for the supplier and should be rewarded for it’ or ‘If my expenditure is earning extra money from the supplier then that belongs to me’. There are strong arguments for both points of view but first lets look closer at the mechanics and principle involved.

Let’s say Platt Inc has a considerable air spend and much of it is with Air Limey. He suspects that his TMC not only has a commercial agreement of some sort with Air Limey but also a better one with Yank Air who is Limey’s biggest competitor. Platt Inc has a fee relationship with his TMC where any direct income should be credited to him and it is also in his interest to ensure that Yank Air is not going to be offered to his travellers even though it might earn extra money for the TMC. Shame about the mistrust but ‘I demand Disclosure’ he screams.

First there is a principle to be addressed. Any such agreements are usually made under strict letters of confidentiality. They are often agreed only on the basis that any benefits remain with the recipient as suppliers clearly wish to delineate who is being rewarded and for what. Their view is that they already incentivise the end corporation so why do so again. Also there is one big question which is, apart from the confidentiality issue, what right does any commercial company have to demand their suppliers and intermediaries provide company sensitive and strategic contracts that encompass their whole business and not just that one organisation.

From a more practical perspective what would such disclosures reveal? There are as many different deals out there as grains of sand but here are a few of the more prevalent features.. Most are built around a Service Level Agreement (SLA). These were introduced at the time of commission removal as a more targeted way of ensuring suppliers still got what they needed now that particular payment had gone. The core of such agreements are about paying for all the things they used to get like access to staff, account managers, basic client information etc. A payment is fixed for this section and followed by others that can sometimes be linked to performance in overall volume and share. Within this the supplier may include benefits such as special competitive fares, sponsorship and partnership opportunities.

So, in many cases volume and share do come into it so some corporations still might say they deserve a slice of that even though the contracts clearly do not allow it. But, for the sake of argument let us look closer at this because it might not all be one way traffic. For example Platt Inc discovers that its TMC has a deal with both Air Limey (AL) and Yank Air (YA) and both of them involve incentives around growth (AL) and share (YA). They sit around the table to discuss it.

From Platt Inc’s point of view it is simple. According to the data they flew 500 sectors on AL last year and they want the incentive. The same applies for YA where they know they must have sent at least 80 travellers but only have booked revenue (not actual flown) to measure the exact details.

Ah says TMC. Firstly Mr Platt Inc you may not know it but you have been ‘red ringed’ by AL. this means our contract says your volume can be used for measuring performance but not for payment. Not only did we not earn money on you but your year on year performance was down so in fact you cost us on what rewards we did get for other customers. By the way similar will apply to YA. We cannot track your true flown revenue but even if we did it will do no good as we signed another corporation who pulled our share higher than your likely achievement.

I hope you are still all bearing with me but I wanted to demonstrate exactly how big a can of worms such disclosures can be and what lack of earning potential there is. For every ‘winner’ there will be ‘losers’ and if I was a TMC I would simply devise a system to negate such nonsense that would ultimately offset any losses by gains.

So the questions are do you really want to dig and delve into other people’s business. Do you trust your business partners so little? Is it really worth the pain? Does anyone honestly think such activity ‘will create better business relationships’? Well certainly the chairman of ITM purports to think so. I can but disagree. What about you?

Data Provision - Sounds easy?

There was an interesting blog recently called "Stairsteps to Heaven" written by Scot Gillespie and I identified with it very closely. He eloquently expressed the frustration of us all as to why it seems so difficult to get even the most basic data in an accurate, efficient and user-friendly way.

I agree with Scot that surely the travel industry should be able to provide decent data and goodness knows there is a huge amount of the stuff floating about. In fact a day rarely passes when some new data mining tool or MI gizmo does not get an airing. The tools are not the problem and probably never were. The issue is the quality and clarity of the initial information that goes into them and the ability of those who manage what comes out of other end. Yes I agree that the travel industry is large but I am afraid it has not matured very well as it still uses out dated, diverse and badly coordinated systems at the supplier end

Take for example a company that sends it’s travellers across the length and breadth of their own country and all over the world. Their travellers sit on planes, travel by car and rail, stay in hotels and need to comply with a travel policy built around the optimum use of resources at the best prices. But what is the right policy for them? How can it be best optimised? How can you be truly sure it is being complied with? Obviously this company needs both the data to make informed decisions and someone to interpret the data in order to provide quality analysis and recommendations.

The first port of call has to be the origin of the data and how it can be placed in the right format into the right data warehouse. This is where the issues start. Why? Because each supplier uses systems different to each other that were created many years ago and not built for export into other systems. They also interpret their own data differently with respect to prorating sector costs of tickets that contain more than one airline, commission rates and, more latterly, ancillary charges. Many tickets do not have the true price (or in fact any price) on them due to corporate deals etc.

The hotel industry is far worse and they have to split out more cost to get down to basic bed price. There are literally millions of hotel and precious little fiscal commonality. Even the big chain hotels can be misleading as they are not all owned (and therefore consolidated) by that brand company. You will also rarely find them consolidated in any GDS as GDSs charge too much.

Rail too is a law unto itself with vast numbers of different train companies and tariffs for the same journey as well as more sectors and low prices than all the others put together. Car hire and ferries ditto.

OK, so you may have to accept that it is virtually impossible to have totally clean data in the same format from the same source but there should still be value in trying to get travel consolidated. For instance you have the GDS and all the other companies created for this purpose. Trouble is many global organisations use different GDS in different countries which still need to be brought together. Another key airline only source (and possible solution) is IATA and ARC who are the companies that do all the pulling together and reconciliation for the air suppliers across the globe. This possibly has the best data in the sense that it is standardised. The algorithms they use and the assumptions they make are quite scary but at least like for like.

I am really quite surprised that more effort has not been made to explore this source from a corporate perspective. Maybe it is because IATA was formed by the airlines for the airlines and I am not sure of their overall willingness to open up such transparency. You see this data is being sold and used within the airline community already A bit worrying really but airlines can buy from IATA enough to identify what deals a corporation has with a competitor right down to traveller numbers and price paid.

I think the solution such as it is lies with the TMC. They are the only intermediary within the chain that does enough to bring together all the elements. The big ones are already well advanced in devising systems and frameworks and have the capability of working with all players…at a price.

So, if the happy day comes where you have enough data to work with reasonably accurately. What next? Well I think even now corporations have spent far too much on getting the data and far too little on interpretation and use of it. In the modern day I think it far more important to get a TMC to provide a data consolidator/analyst/strategist than a standard Account Manager.

So my brief conclusion? You cannot get truly great data because, whilst the systems are there, the initial information is not available in a manageable format. You can however pick up the best bits (mainly air) and compare like with like. But before that make sure you have a professional who is fascinated by data and able to read it and make recommendations.

Finally I think organisations such as NBTA, ACTE, IATA and the like should spend less time on conferences, self justification and money making and more on working together to create a global multi-disciplined solution

Can TMCs Really Influence Business?-Switch selling

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In my last two pieces on this subject I explained that airline suppliers still incentivise TMCs in the belief that this will bring them greater volume and share despite the inroads they themselves have made direct with the corporate sector. Also because some fear what they may lose if they don’t as they get denied access to TMC bookers and account managers if they are not ‘in the programme’. I also explained how the shape of these deals has changed in order to react to the removal of commissions and subsequent new style management fee and transaction fee contracts.
But the real cruncher is can TMCs really move their business around between airlines and if so what impact could this have on their clients. Over the next few paragraphs I will give my honest opinion on this vexing subject and hopefully come up with a few things for you to consider along the way. Like all responses to difficult questions the answer can be ambiguous as there are so many different TMCs with varying degrees of ability and strategy so I will focus on what I see as the more professional of the grouping.
Obviously the choice of supplier is by no means only dependant on the whims of the TMC. The corporations have deals themselves that they expect their TMC to support and then we have the traveller who sometimes ignore both. In fact the travellers also have their own ‘deals’ with airlines known as frequent flyer points, upgrades, and lounge access to name a few. However the power to influence travel choices by the TMCs is growing as the market changes and they become more of an outsourced arm of their customers. Ironically many of the actions taken by airlines to remove some of the ‘rewards’ they paid to TMCs (commissions etc) is creating an increase in their ability to influence airline choice.
Getting down to basics here are just some of the ways TMCs can and are moving business.
a) The SME market mainly buys on price and has few direct deals of their own therefore the TMC can choose which suppliers and fares to put towards them.
b) The arrival of online booking tools is giving TMCs a greater ability to select what to promote and exclude those they do not.
c) There are still surprisingly many people out there that seek advice and recommendation about airlines and their services and the TMCs can control what their people say far better than they used to. If a supplier is denied access to bookers then what chance do they have?
d) TMC account managers play a far bigger (sometimes unique) part in what supplier goes into their client’s programme. By working closely with a partner airline they can ensure that they offer the best package of benefits. This should end up in a win/win situation except the supplier ends up having to dig deeper in their pockets to reward all parties.
e) Corporations tend to pick two suppliers on their main routes. For example on the UK/USA sector it is most unusual not to have a two carrier policy to keep both sides of the Atlantic happy. This gives the TMC a superb opportunity to switch sell playing one airline off against the other if they choose to do so. And all this within policy.
f) Another growing area for flexing and switching is unbundling of fares. This creates an opportunity for a savvy TMC to translate true costs of journey in a proactive and rewarding way. The more airlines complicate things the more opportunities arise for the middle man.
g) As mentioned in my previous piece the top TMCs are developing their own platforms so they can choose what fares and services find their way to staff, booking screens and self booking tools. This kind of dynamic pricing will create such a sea change in TMC control and selling ability that airlines may have to think again about their distribution strategies.
h) The decision by many corporations to allow their travellers to ignore set policy and choose best fare on the day provides a further opportunity.
In conclusion I am certain that TMCs can influence business and more than ever before. I would however add that I do not think this should be too worrying for corporations. Yes, TMCs do get incentivised by airlines but hey, if they weren’t you would be paying more so I suggest that ‘sleeping dog’ should be left to lie. After all you still hold the ace card in that the principal way to move business is to offer the best price and product and no TMC would be daft enough to forget that. In the past one could move like for like business but now it has to be cost justified and done with the knowledge of the corporation who still calls the shots.
I hope you found this interesting or at least thought provoking. I plan to write a further summary on where I think all this is going. I think you will be surprised by some of it!

Travel Compliance – So very easy.

After 42 years in the business and 3 years out I am still aghast that almost all corporations I meet and hear about have not been able to crack the compliance issue. By this I mean their directors, executives and workforce being given a travel policy and complying with it.

I cannot really see the point of building a technology and service infrastructure, buying new innovation and deeply detailed specifications only to fail in the most basic and obvious areas of communication and buy-in. You can have the smartest schemes, the keenest deals and the best online and offline support but if you do not tell people what you have done, why you have done it and got the unflinching support of ALL your board then there is very little point for the time and effort put into it.

To me it is so glaringly obvious that, before anything else, the fundamental communications groundwork must be in place. This should include:
a) What you are doing.
b) Why you are doing it.
c) What will be achieved?
d) A clear rationale for change.
e) Unequivocal evidence of executive management support.
f) A total mandate from the man at the top.

All this as a minimum should have total distribution to existing travellers and new entrants to the company. It should be kept alive by updates, progress reports, competitive performance tables and possibly even a ‘bad boys’ list.

There also has to be two areas that MUST be addressed and the both have equal importance as, without both, you will get nowhere. Firstly you have to clearly answer all the criticism and arguments against compliance before they are ever raised. This is easy as everyone should know what they are. They will range from ‘what if I find a better fare’ to ‘the timings offered were all wrong’ to ‘it’s my budget and I can spend it as my business demands’

The last comment raises the second biggest issue which is managing the cost, savings and credits of policy compliance. If you cannot do this one then I doubt you will move forward from where you are today. The answer could be anything from internal ‘incentives’ to central budgets but you must find it.

So there you are. Easy! No I am not being flippant, it should be easy. After all, if travel is really that commodity you buy then it should be treated like computers, software or anything else you purchase and get the same type of compliance. Then and only then can you move on to all the aids and gizmos available to keep the policy fresh, interactive and easy to follow.

Can TMCs Really Influence Business? - Deals

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

What kind of deals?

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

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

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

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

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

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

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

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

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

This subject is vast and worthy of a day seminar rather than a brief blog entry however I hope it gives some a basic grasp of what is going on in this somewhat secretive area. More on how such

Can TMCs really influence business?

Ever since travel agencies were created by airlines as the most efficient way of consolidating and distributing their product they have had to incentivize them. Somewhat ironic really that in many ways they created their own Frankenstein’s monster which, despite their best efforts, they cannot kill.

They desperately needed to find a way to deal with the then need to seamlessly interline their services with other airlines using one fare on one ticket and the travel agent, ultimately to become travel management company (TMC), fitted the bill perfectly. They could do all the messy bits for the customer at a fraction of the cost that an airline would have to incur in order to do it themselves. In those days there was minimal technology and very little direct competition unlike modern times.

As time passed the airlines expanded and serious competition arrived on all the main air routes. Instead of being able to assume they would get all, or at least a fair share, of passengers on their services they now had to fight it out with a whole bunch of others. The big snag however was that they had created this TMC middle man who had all the access, relationship and knowledge with the end customer. They were also very firmly entrenched as they offered a ‘free’ service to the traveller and, in many cases, actually paid their company to use them.

So it was that ‘incentive overrides’ were born. This is where airlines not only paid TMCs a standard commission but also gave extra percentages on top in payment for extra passengers and/or higher share. The TMCs used this money to increase their profits, win business and subsidise other services they had to offer their clients that were not otherwise cost effective. They also used these deals co create new ones by playing one supplier off against another. Airlines hated it but always had a nagging doubt about how much business they might lose if the climbed off the incentive roundabout.

Finally things started to change as suppliers decided they could not afford these distribution costs, especially in this new technological world. They really did not like the lack of contact with their end customers and their doubts got greater about whether these incentives delivered a return on investment. After all the TMCs ended up doing deals with practically all the suppliers so who were they going to move business from? And, with the arrival of corporate procurement managers, could they influence business anyway? The main national airlines decided enough was enough, pulled the plug on commissions and, searched for other ways to incentivise that would yield better returns. Airlines can be a little like sheep in that whatever the national carrier does in their own market the others follow.

This brings us to today. A today that is supposed to mean that TMCs work for, and get paid by, their clients and the suppliers give all their incentives to the end user through lower pricing. Oh, if only life and business could be that easy. In actuality various types of incentives are alive and well albeit a little more covert and targeted than they used to be. In fact I believe most TMCs would have to shut down overnight if they ceased earning income from suppliers. Many of the incentives are relatively customer friendly and shaped in the guise of service level agreements (SLAs) but, be under no illusion, their purpose is to build an individual airline’s share whichever way you look at it. I leave it to you to decide if this is a good or bad thing.

So, back to the main question. Can TMCs direct business? My view is a qualified yes if they go about it the right way. By right way I mean with their customer’s knowledge and agreement and using the right methodology. There is a win/win possibility here with improved services, value adds and efficiencies being the end goal. Does it happen now? I have been out of ‘hands on’ touch for a while but I think the answer is probably not. I believe the relationship (financial and otherwise) between supplier, TMC and customer still has a way to evolve and will become one of the next big issues. I predict tomorrow’s ‘incentive’ battleground will revolve around dynamic pricing where TMCs will control what fares and preferences will be in their databases and distribute them in a way that brings them greater return. A key factor of which TMC a corporation uses will be the ability of these databases to deliver best value.Let’s see if I am right!

Unite’d they fall at BA

(originally published in July 2010 but ironically little change)

It is now getting really disappointing as, after the most recent ballot, the Unite union claims another mandate to strike. They claim the cabin crew are behind them but I would question that after looking at the following vote results.

BA has around 13,000 crew of which about 11,000 are with the disputing union (Unite). The number of crew to actually vote was 5,105 (approx 39% of the workforce) and 3,419 wanted to strike. This means the percentage of BA crew voting to strike was a mere 26%. A mandate to strike? I don’t think so. Especially as I hear that because there is a little remaining internal solidarity amongst the crews it was enough for those who no longer wish to strike to not vote at all this time around. Otherwise it would have been a very different result.

One of the saddest things about this is the impact this dispute has had within the various factions amongst the cabin crew. Many of the main strike supporters are well known in BA circles as long time militants and non representative of the main workforce. Separately some non striking crews have had their cars vandalised in the BA secure staff car parks and face great hostility when they try to work. I cannot see the scars of this strike action healing for years to come let alone by the ultimate end of the dispute. They have turned against each other in a very emotional manner.

Meanwhile the union is fighting for its future credibility after making promises of regaining concessions and lost travel perks as the strike intensified. They got it horribly wrong as, from what I can see, BA has drawn a clear line in the sand and said not only ‘no further’ but ‘you will get less’ as the action continues. Whilst this has been going on BA has not only won the support of its investors, many clients and most TMCs but also issued new contracts to non striking staff and started employing a whole new workforce.

So now we have a different kind of ‘impasse’. OK, the current dispute is no nearer resolution and the strikers are still being used as cannon fodder by Unite in it’s increasingly political campaign but meanwhile BA have quietly advanced plans to make the striking crew surplus to requirements. They must be sharpening the axes at H.Q as I write.

Is there going to be a winner in this dispute? Yes there certainly will. BA will finally clean up a significant amount of the industrial mess left by previous executive management and ultimately build foundations that will enable them to compete more effectively with their rivals. But there will be losers too. A union with a bruised ego and a whole lot of crew out there trying to find new jobs only to discover that the pay is not what they have come to expect. Ironic really.

Why small is becoming big in Business Travel.

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

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

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

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

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

A different approach to TMC negotiations?

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

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

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

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

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

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

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

Global Travel Programmes – Delivering?

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

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

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

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

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

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

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

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

Being a public company – A good thing?

Before I launch into this subject I think I had better make one thing very clear. What I write about this and all the other subjects past, present and future is MY view and not necessarily those of any company I have worked for. I am sure they are very capable of giving their own opinion if asked! I am in a position where, within reason, I can say what I want now I have retired.

I learned two truisms about PLC status very early on. Firstly, it earns a few people a lot of money and secondly, all the rules of the game change to dramatic effect. There are so many people there to take their cut and they do not go away. In fact not only do they remain but others join them with the sole intend of using the company as a vehicle to increase their cash flow and make money. But that is not the bad part, after all everyone from the filing clerk to chairman wants security and income. The bad part is that you are both directed and judged by these folk and many of them do not have a clue about the business from a commercial perspective. To them it is trends and numbers with very little room for entrepreneurism, flexibility and market forces.

Allow me to try and explain in perhaps a rather simplistic way. Once you have gone through all the posturing, audits, presentations and gained the necessary financial house and investor commitment you finally become a public company valued at your given share price times the number of shares released. Now all you have to do is deliver everything you said in your presentations resulting in the expect revenue, cash flow and profit. Simple.

But it is not simple even if you achieve all the above. Why? Because you not only have to deliver it but you have to deliver in the same shape as originally presented i.e. by doing it exactly as you said you would. Why you may ask? Surely the end result is the important bit especially as circumstance change so much in the commercial world what with new technologies, prices, competitors etc. No, what you have to prove is that you knew what you were doing in the past so they can trust you to do it in the future regardless of change. You see as soon as the results are published they become history and it is the next set of results they are looking to and hey, if you ‘got lucky’ this time what is to say you will not be so fortunate next year.

It reaches a point that you have to invest huge funds and resources managing a bunch of institutions and investors that basically do not trust your opinion against there’s even though they do not understand the industry you are in. Very often the people you have to convince are young analysts fresh out of university who focus almost entirely on past statistics, economic forecasts and news journals. Woe betide you if you do not convince these folk as it is them, rather than your customers who call the shots and the word loyalty or trust are not in their vocabulary!

I guess if I was invested megabucks in an organisation I too would want to go through it with a fine-tooth comb but surely there must be a less expensive and less time consuming way than this?

Airlines and Travel Management Companies (TMC)

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

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

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

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

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

Airline marriages? Call for Jerry Springer.

Well we seem to be heading towards merger-land again if reports, papers and gossip are correct. It seems a bit like springtime when you get the posturing male birds strutting around whilst the shy females look coy and occasionally defensive before they are finally !!!!!! – Well, you know. Then afterwards? You might wonder who actually got taken advantage of.

For instance a possible coupling between United and US Air would be a marriage not so much made in heaven but more likely the other place and I suggest that a strong ’prenup’agreement is put in place. Just think of what kind of offspring they would produce. Something like the banjo playing kid in the old Deliverance film I expect. At least just as smaller stunted and inbred I suspect.

If you want to see a bit of what happens in fast forward look at the quite recent post honeymoon period between Mr Lufthansa and Mrs BMI. According to today’s UK Times newspaper they may have already begun the Brad and Angelina phase along with drastic reductions in the family budget and relatives being shown the door. Are they both happy and will they be soul-mates for life? I am not sure now Mrs BMI is being told a large chunk of her dowry is going to disappear.

I used to think mergers were a great thing. It meant the strong got stronger and the weak were culled but then I started to wonder what benefits (or otherwise) the travelling customer and their employers would receive. If you look at those airlines who choose to ‘live in sin’ by joining alliances I would wager not much. I have not seen any significant financial improvement for customers in fact I have observed the opposite. OK flight services are linked more seamlessly but choice goes down, monopolies go up and contract negotiations become harder. These partnerships are more one of convenience than a desire to do good for their passengers.

Clearly airline mergers will become more frequent as time progresses and barriers disappear. They have become more common because of the new competition airlines are now facing combined with customer behaviour. The more prices are driven down and the more full service airlines fail to sell their benefits in the value add war with no frills carriers the more closures and mergers will take place. The more this happens then the less choice will be out there with less competitive routes and less keen pricing.

I think this kind of ‘progress’ is inevitable and I am not wholly sure I would want to try and stop it anyway. Goodness knows this industry needs to change and this just might be one of the catalysts. What I do think is, rather like the blushing bride we need to go into this with our eyes open and our legs crossed….well at least until after the ceremony!

Business Travel and the Environment

We have seen reports on environmental issues as they relate to travel. We have heard rhetoric, statements of intent, proud boasts, thinly veiled self promotion statements and promises of a ‘greener’ future. There have been board level corporate policies, conferences, business ventures linked to sustainability and a large number of ‘holier than thou’ declarations between competing companies. Strange how many of the leading standard bearers might be viewed as causing the problem like the fuel and energy giants But what has really happened?

I do not think much has happened at all and I am not entirely sure it matters that much if the experts are to be believed. By this I mean that if air travel only represents less than 3% of global emission does reducing this small fraction by an even smaller fraction make the slightest difference in the whole sphere of things? Would a large company not contribute more if they turned their lights and computers off at night? After all if you fly over any city at night the place is ablaze with lights.

I suspect environmental issues are going to become just a matter of travel hype like the exaggerated effect of direct sell, technology and vapour-ware were in the recent past. Perhaps more wistful thinking than worthwhile delivery.

My perception of the apparent state of affairs has been colloured by the way sustainability has been slipped onto the back burner while the global recession has been going on. Regardless of what others may say I believe being ‘sustainable’ costs money as you have to invest in it. You also cannot sell if you ground your salesmen.
The only exception to this is companies that need to reduce their travel budget for financial reasons and use environmental issues as a vehicle to do it.

All this may sound cynical from me and maybe it is. I actually believe passionately that we need to do something about the environment but I feel a bit sour when seeing all the hot air being spouted around over travel when the bigger and more significant winning may possibly be neglected. I also object to this issue being used for point scoring and the creation of another large consultancy sales opportunity.

This world has two global threats which are the economy and the environment. I would rather we did not damage the former in order to make an insignificant contribution to the latter when there are so many better ways to do more good. Besides I would be more convinced of commitment if people turned their TVs off standby at night like I do!

Is Government Buying Wisely?

Being part of the European ‘nanny state’ must have its advantages…..although I can’t quite think of even one at this time. Most definitely government travel buying, or for that matter any kind of state procurement is not one. The conditions, deadlines, red tape, mandatory declarations and disclosures are such that the likelihood of a smart or mutually worthwhile deal is small.

Until I got involved in the process I have always been perplexed as to why, if there are so many procedures and rules government projects always end up costing much more than the original contract. In the UK you only have to look at the Channel Tunnel, the Millennium Dome and Wembley Sport Stadium as examples of this. Why is this I thought, and then I got involved in a major UK government travel tender myself and saw what I think could be the key contributors to cost and timing failures. I will share my experience and subsequent assumptions with you but I must state at the outset that these are my own personal thoughts and not those of the company I worked for at the time.

If you are a private company you can set your own tender schedule and process. In government you cannot. There is a strict procedure in relation to timelines, disclosure, format and bidder selection you must keep to. On the surface this might seem highly laudable but in actuality it becomes restrictive, eliminates flexibility and costly in unnecessary administration and process. It also works on the basis that you know exactly what you want to buy as this has to be declared and published at the outset. Unfortunately, such is the size, mix and variety of such contracts that this essential is unknown and is probably a part of why the business is out to bid in the first place.

So what are these restrictions I am talking about? Here are some of the key ones as I perceive them:

1/ you have to publish all details of the contract and bid process in advance across European and give all equal opportunity to bid. You cannot be seen as individually selective or discriminatory in any way even if you are wasting your time or that of bidders who stand no chance of success.

2/ At this stage you must declare exactly what you are putting out to tender and you cannot easily change it even if you do not really know if it is accurate or not.

3/ the system seems to prevent any informal or individual dialogue with potential suppliers without giving everyone equal opportunity so there is no way building understanding, knowledge or relationships in order to improve/modify the brief.

4/ Everything has to be done by the book on a ‘one size fits all’ basis even though these contracts are some of the most diverse one is ever likely to come across.

5/ Government bodies seem incapable of aportioning or sharing out costs and savings amongst themselves which means that pricing is a nightmare and the potential of negotiating a fair and equitable financial package is minimized.

If you put some or all the above together you end up in a no win situation as the buyer has had to follow an entirely unhelpful process ending up with an oversimplified deal full of loopholes. The seller has to find some way of picking up the pieces while making a profit and minimising negative exposure.


At the beginning of this piece I mentioned that, in my eyes, most government contracts end up costing far more than the original contract agreement. I personally think it may be as a result of my point in the previous paragraph. What can end up happening is that the supplier goes in at a rock bottom unit price but then builds in a whole raft of necessary caveats in case the core buyer RFP is wrong ,which of course it is. The buyer is not able to hold contingency funds or apportion out costs internally so they have no way of dealing with it. The end result is that the government has an embarrassing overspend and the supplier makes their money out of charging caveats built in for ‘out of scope’ activities.

I write this for two reasons. Firstly I think it is wrong that any government should have to ignore sound commercial tactics and hog tie itself with bureaucracy when buying. Secondly, as a tax payer, it is my money they are wasting.

Who should buy travel? (Part two)

In part one I gave my view as to who should buy travel within a corporation. To recap, I pointed out that no one person should do it. Instead an alliance of procurement and operational management was required pulled together by the influence and gravitas of a hands-on board sponsor. In the mix of travel there is no way to success if the person buying is not linked seamlessly with those who will manage the contract and they can both give up unless there is someone on the board who fully contributes and ensures top down buy-in to the programme. Surely with the complexity, emotional factors and likelihood for misunderstanding this extra effort is worthwhile?

Here in this follow-up I will submit my view on whom in suppliers should negotiate with corporations and how, as I can say from the outset that from what I saw this process is often flawed. If you put the wrong person in front of a professional buyer you deserve everything you get. By wrong person I mean anybody that is not researched, not empowered and lacks crucial client understanding. If a buyer does not know his own volumes or traveller behaviour they too will become unstuck. Obvious really but it is a starting point as so often these ‘givens’ are not evident.

Sales are the lifeblood of any supplier especially during times of diminished and uncertain market conditions yet you would be hard pressed to see much evidence of this. To survive and thrive you would need to be decisive, flexible and have the right attitude towards prospective customers yet I think I would find very few buyers who have observed these necessary traits in their negotiations.

Many travel suppliers (especially major airlines) still seem to think there is their way or no way. The old style still thrives where a supplier will create their strategy and programmes, drive it into their sales teams and say this is the only way people can buy from us. The sales folk then have to go out with minimal flexibility or authority and try to tell the customer why they will have to fit in with what the seller wants. Some of these sales folk are little more than front line ‘cannon fodder’.

I cannot see why a far more productive approach cannot be taken. If you are selling to a high volume senior corporation then you should send out someone of a comparable level with a full mandate to close the deal. That person should not have one type of programme but a range tailored for the differing types of customer out there. It is not rocket science but prospect customers should be researched to discover what their philosophies and missions are, what their previous issues have been and what their capability to deliver is. Elementary I know but it actually happens very rarely.

If I was a buyer the first thing I would do is examine my own company well. Granted the numbers are important but equally so are the levels of internal support, mandate and cross company delivery any negotiated programme is likely to get. If you do not do this any deal could end up compromised or possibly an unpopular, unproductive financial and political liability. As I have said before you may be thinking you are buying a commodity but it quickly becomes a service as soon as the contract ink dries.

I mentioned earlier that there should be a range of potential deals and services to choose from which should deliver increased volume to suppliers and lower prices to buyers. There are plenty of ideas out there but few seem to make it past the internal discussion phase. For example I cannot understand why there cannot be different day and time pricing on individual airline routes. If you looked at airlines flying between London and New York you would find some flights at specific times and dates are always full whilst others go half empty. Why not give your best price on the slack flights?

Airlines could also give bigger rewards to corporations who save them money. By this I mean better deals for corporations who book early and whose travellers always turn up. Why not give bonuses to corporations and travellers who do such things which enable suppliers to maximise their loads and reduce costs. It still puzzles the hell out of me that suppliers still seem to allow people to not turn up without penalty as it must cost them a fortune. What other industry would allow that?

So there you have some simplistic but hopefully logical thoughts and recommendations. Suppliers should be flexible and recognise the individuality of corporations whilst buyers should spend more time ensuring they can deliver their part of the bargain.

Who should buy travel? (Part one)

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

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


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

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


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