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!
Showing posts with label itm. Show all posts
Showing posts with label itm. Show all posts
Tuesday, December 28, 2010
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?
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
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