Many large corporations have had to consolidate to one travel agency to bring some measure of control to an exceedingly complex and dysfunctional distribution system and because most airlines have wanted discounts controlled through one agency.
Smaller travel agencies have been gradually locked out of competing for corporate business, but, distribution system simplification can open a door of opportunity for smaller agencies. It serves the long-term interests of corporations to have smaller travel agencies part of the process and there is abundant opportunity for large and small agencies alike. Greater competition produces more efficiencies, innovation and choices. But first we must vastly simplify the distribution system for business travel.
The work that supports a launch of a NASA Space Shuttle is terribly complex and expensive. Physics, engineering, mathematics, communications, training and safety must be understood and combined in a effective manner to ensure a successful mission. Similarly, putting a business traveler in a seat of a plane is also complex and expensive. The difference is that the processes supporting business travel are embedded with false complexity.
Overrides, corporate discounting, triple mileage promotions, fare searches, sign-up bonuses, rebate checks, millions of airfares, irrational airfares, fare audits, lowest logical airfares, back-to-back ticketing, fare wars, soft dollars, Saturday night stayovers, corporate profit centers, truck loads of MIS, airlines suing each other, agencies suing airlines, and unauditable CRS bills combine to add to cost and mistrust.
It is the false complexity of the distribution system that threatens smaller travel agencies. Over the past ten years, a national consolidation of business travel to single travel agencies has been fueled by complexity. More recently, corporate travel agency services have been concentrated in fewer and fewer hands. Some believe consolidation has not produced all the intended results and has occurred at the expense of the smaller travel agency, the corporation and the traveler. Corporations, however, have had little choice but to consolidate because of the need for information and the incentive of rebates.
The disruption to corporations of consolidating from dozens of travel agencies to one is enormous. Plant managers in the field fight consolidation because localization is common sense to them. Their travelers receive personalized service from knowledgeable local agents and they serve in community organizations like the Rotary Club along with the agency owner. However, "corporate" tells them consolidating agencies will lead to: (1) lower airfares; (2) powerful management information; (3) rebate checks; and (4) superior customer service.
Many corporations are not satisfied with the consequences of consolidation. Instead of greater influence and control over air travel prices, corporations face pricing changes that undermine their cost control strategies. Their airfare "deals" went into the trash can with Value Pricing, costs spiked up with the commission cap cost-transfer and the sense that corporations are held hostage to airline pricing in Fortress Hubs seems somewhat of an understatement.
Much of the reams of MIS that corporations receive is of little value and corporations now know they are paying for the rebate check in the price of their tickets while losing the float on their money! Moreover, when an agency "buys" a $40 million account with a $500,000 sign-up bonus and 7 points of rebate, which recently happened, corporations perceive rightly that over time they will have fewer choices and higher costs.
Many large corporations have received uneven customer service, broadly defined as service to the traveler, support for the travel manager, and responsiveness to senior management concerns. Moreover, corporations are beginning to take note of the financial impact of poor travel agency customer service on their corporate results. We have accepted less than superior customer service because we have been co-opted by the rebate check, overwhelmed by complexity, and painfully aware that replacing an agency can just worsen the problems.
Smaller agencies are all but cut out of the opportunity to compete for even pieces of a large corporation's account. The competitive strengths of smaller agencies are currently muted and are ironically what the marketplace is beginning to seek. Low cost structures, personalized service for the business traveler, unbiased advice, and responsiveness to management needs have been the hallmarks of the smaller, local agency and precisely what many corporations want.
If consolidation hasn't delivered expected results, then why does it continue? The reason is because it's a rational senior management response to an overly complex distribution system where there have been no viable alternatives. Until now. The BTCC concept levels the playing field for travel agencies competing for corporate accounts and provides corporations with more choices, including complete de-consolidation. Let's examine three changes in approach associated with the BTCC concept that can work to the advantage of smaller travel agencies.
1. Overrides: Today, overrides are used to "buy" corporate accounts, fund acquisitions and develop sophisticated software applications. Under the BTCC concept, overrides go away along with the view that the travel department is a "profit center." The main competitive barrier for smaller agencies comes crashing down as fast and unexpectedly as did the Berlin Wall.
2. Fee-Based Pricing: With fee-based pricing for agency services, the discussion between a travel manager and his/her boss shifts from a $400,000 rebate check to a $400,000 invoice for reservation services. With flood lights on cost and corporations directly paying the bills, senior management will want a top to bottom examination of options. Several BTCC participants are at this juncture and are including smaller, local agencies in Requests For Proposals. With the "Berlin Wall" down, the smaller agency now can put its cost and service advantages on the negotiating table. But can a corporation de-consolidate and localize its travel agency services?
3. Business Contract Fares (BCFs): The BCFs that are at the heart of the BTCC proposal will be radically simplified airfares offered by multiple airlines. This simplified airfare structure becomes the enabler for corporations to seriously consider localization of agency services. Most corporate travel managers I know would rather consolidate data than travel agencies. With a simplified airfare structure, management information needs are vastly reduced and information can be easily consolidated by the corporation itself. Technology can be re-deployed to allow a corporation to do business with multiple local agencies while maintaining its national purchasing volume.
Indeed, empowering local decision making, while maintaining national purchasing volumes, is exactly what most large corporations want to do to lower their own internal costs and improve services. Travel agency customer service for many large corporations has been uneven because service levels can be only as good as the local Operations Manager. By contrast, local entrepreneurs from smaller agencies are well positioned to deliver superior customer service and as a low cost provider.
In summary, there are several key benefits for corporations considering partial or complete de-consolidation:
{SYMBOL 81 \f "Wingdings" \s 15 \h} Local travel agencies are already low cost providers and can easily customize corporate programs.
{SYMBOL 81 \f "Wingdings" \s 15 \h} Ideally, accountability & control for travel costs should be at the field office level.
{SYMBOL 81 \f "Wingdings" \s 15 \h} Service levels from smaller agencies are perceived to be high and advice unbiased. Time zones are not an issue.
{SYMBOL 81 \f "Wingdings" \s 15 \h} Happy campers! Travel arrangers in Southern California would be more comfortable
working with travel agents down the street because of local knowledge and common
interests.
{SYMBOL 81 \f "Wingdings" \s 15 \h} Local agencies often have stronger regional deals with airlines and other suppliers than corporate headquarters or its national agency.
{SYMBOL 81 \f "Wingdings" \s 15 \h} By working with local agencies, corporations can give something back to the community where they have a vested interest.
{SYMBOL 81 \f "Wingdings" \s 15 \h} Local agencies often provide the opportunity for corporations to advance their minority vendor goals.
The speed with which change is transforming the travel industry is blistering. At times it seems hard to cope. No clear, long-term industry direction has yet to emerge and there are many in the industry who have a vested economic interest in complexity. They would tell you that BTCC is a threat to smaller agencies. I believe the BTCC concept is a profound opportunity for smaller travel agencies.
I would like to conclude this article with a parable about change that futurist Joel A. Barker tells for your consideration.
There once was a a young man with a very fast car who loved to drive on country roads. He thought of himself as a great driver; he could handle anything. One day he was out driving on his favorite road and coming into his favorite curve when around the curve came a car careening out of control. And just before it got to him, it pulled into his lane. As it passed a women yelled out--PIG. Well he responded in a flash and shot back SOW.
He thought to himself, how dare she call me a name. I was in my lane and she was the one all over the place. But he felt rather smug because he got her before she got away And so he put the accelerator to the floor, whipped around the curve and ran into the pig!
Now that's a paradigm story. You see the young man was responding with old rules. You call me a name, I'll call you a name. And when you think about it, she was really trying to warn him. I believe the next ten years are going to be filled with people coming around blind curves yelling things at you. And if you have paradigm flexibility, what you'll be hearing will be opportunities. But if you have paradigm paralysis, what you'll be hearing will sound like threats. The choice will be entirely yours. Joel E. Barker
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Kevin P. Mitchell is President, Business Travel Contractors Corporation located in Lafayette Hill. Pa.
