I'm not going to lie. 1997 pretty much ate my mental lunch. After going through the archive issues (yes, the dusty print issues are back in play), I do feel like I might need a really strong drink.
That seems to be the case for most business travel industry players that year, except maybe the airlines, which were raking in record profits and had raised fares by nearly 30 percent over two years. The rise was so stark that the fed eventually launched an investigation into potential anti-competitive practices and incentivized low-cost carriers to take them on.
During 1997, airlines continued a relentless commissions cutting spree for agencies (and by proxy, corporations that were on rebate structure arrangements with their partners—many fewer now than in 1995 when commission erosion began). In addition to commission reductions among U.S. carriers, the trend was spreading to European carriers as well. By the end of the year, Scandinavian, which had already cut commissions to 5%, eliminated them altogether and moved to a "net fare" structure through agencies. It went direct to corporates with what it called a "true" net fare, if the corporate would agree to book directly with Scandinavian.
But that structure was mostly on the fringes.
The gut punch was United, Delta and then American's moves in September to reduce to 8 percent all domestic and international commission rates with caps maintained for domestic fares. Still, the agency community and corporates scrambled for ways to reduce costs as fees for agency services piled up and revenue margins narrowed. European TMCs renegotiated contracts to management fees or transaction fees, but that had already occurred in the North American market. So agencies took other measures, including leaning more heavily on call center strategies to drive efficiencies.
That said, this latest commissions quake happened in the final quarter of the year... and so much more was already in play.
The New Power of Travel Buyers
I couldn't help but notice how much of BTN's front page news was focused on travel buyers in 1997. This was a truly stark change from previous years, when buyer news largely was about accounts that were awarded to certain travel agencies: Rosenbluth, American Express, Woodside, World Travel, BTI, Carlson Wagonlit. Ostensibly, that news was about the agencies' wins. That changed in 1997.
Travel buyers were a major force, with the new power of negotiating directly with airlines and pulling all the levers within their grasp—policy, volume, new technologies and old relationships—to figure out how to control costs while giving business travelers a decent travel experience. It was tough to make it happen.
Compressed hotel inventory in major business travel markets had a couple of years to go before more capacity would come online. It was a sellers market, and some travel managers resorted to room block buying—instead of last room availabilty—to try to guarantee hotel stays for their travelers. Unfortunately, if rooms went unused, they still had to pay for them with most hotels, though a few key brands agreed to play ball and try to release rooms to last-minute leisure bookers and reduce the overage for the corporate buyer.
Drastically rising airfares—and closer scrutiny of corporate discounts by the airlines—reanimated an environment where agents and travelers booking on websites were gaming the system with back-to-back bookings and hidden-city ticketing to try to save a few bucks. It got so bad that United sent a memo to agencies and corporate buyers that such practices were "not condoned." Topaz International, which audited corporate airfares, noted a rise in transient travel piggybacking onto more deeply discounted meetings fares—another "uncondoned" practice but one that was hard to pluck from the meetings mix.
The promise of net fares, overall, reignited toward the end of the year, but it will take some time before that reality truly takes hold. Route-by-route fixed fares were on the table toward the end of the year.
In addition to honing their leverage chops, travel managers spend a good chunk of the year tightening travel policies and receiving commands from upper management to cut travel costs. As they paid fees to agencies instead of receiving rebates, they looked for ways to scrutinize agency activities and measure performance. At least one buyer launched a program with a dozen different fee levels assigned to different agency activities, including (!!!) a 75 percent reduction of booking and handling fees on electronic tickets. We've seen this idea in bits and pieces before, but not at this scale, and perhaps not formalized in a negotiated agency contract.
The Value of Data
Agencies, for their part, looked for ways to provide a different value proposition. When I started my dive into 1997, I thought this article would focus on data. But no... it got too crazy. Still, data began to play a huge role in the agency value proposition. As automated bookings grew and data capture became the natural exhaust of computerized and online environments, the information age for managed travel truly began to take shape.
The idea of data warehouses and "longitudinal" strategies for looking at data across booking, corporate card and expense reporting came into focus. AlliedSignal beta tested a system that combined those three strands of data; Unisys rolled out data warehousing technology for agencies. Prism founder Michael Whitesage began to crop up in a lot of BTN interviews. The industry was realizing that data could provide deeper and more granular insights into travel programs and travel businesses than ever before. Continental had launched a "customer information system" to "analyze interactions" with every customer and determine their value.
Visa incentivizes merchants to provide enhanced data on travel categories to support agency and corporate travel reporting, and to woo travel buyers looking for deeper data insights to use their card. While data might be sweetener, more companies move toward corporate cards, perhaps to achieve some rebates they are losing on the agency front. Lockheed Martin inked the largest corporate card contract in the travel industry.
As an important aside on data, meetings management started to gain momentum in 1997, with the long-awaited launch of PlanSoft—but only in beta. It would launch in full in early 1998.
Technology & Automation
It surprised me somewhat that etickets did not catch momentum faster than they did. In early 1997, they were still just about 8 percent of total tickets sold via agencies. One problem was that they were hard to refund and processes were not in place to track unused etickets to make that different or to provide documentation to make refunds more possible. The breakage rate of etickets was 6 percent, compared to 0.2 percent of paper tickets.
Agencies wanted to change this. Etickets were clearly easier and cheaper to produce, so a number of eticket tracking and refunding schemes popped up. By the end of the year, according to BTN, the momentum on etickets had shifted, but the percentage was not provided in the article, so unfortunately I can't provide it here.
That said, automation was proceeding apace. Even the IRS was moved to stop requiring paper documentation for travel and expense activities.
It was actually pretty insane how quickly technologies were changing, with many of them clearly headed for a short lifespan. One that was perhaps before its time was voice recognition technology that the likes of Microsoft, Sabre and others were attempting to integrate into their booking tools. Responding to voice prompts seem to have gone by the wayside quickly, but not the dream of it. Large language models today have taken up that mantel.
Also, as a final note, I want to point out that Carlson Wagonlit Travel figured out that going all in with one end-to-end travel automation system was perhaps not the smartest way to address customer needs. In 1997 it looks like the agency was the first to integrate a second system offering to give customers a choice of technology platforms, but still provided through a white label platform. Way to go with the foresight, CWT.
I'll be away for a bit of a holiday next weekend, so have a great one and we'll continue with 1998 after Labor Day. Also, this might be the longest timeline ever, so if it takes two weekends to read it, you have that leisure. Note, there are no hyperlinks. Incredibly, 1997 doesn't seem to be on our current website. If I locate them somewhere, I will retrofit some of the key articles below with links.
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Having acquired Alamo Car Rental the previous November, Republic
Industries agrees to buy National Car Rental. HFS a few months earlier had
bought Avis Inc.
Budget franchisee based in Florida signs an agreement to
purchase its parent company Budget Rent A Car away from current owner Ford.
Doubletree Corp. agrees to buy Renaissance hotel chain,
globalizing the Doubletree portfolio
Reed Travel Group acquires TravelNet Inc, the provider of TravelNet
Voyager that provides an automated booking system directly to clients, but also
underpins Carlson Wagonlit’s ActOne suite of products.
American Express begins to renegotiate European contracts in
the UK, Germany, Benelux and Scandinavia to eliminate commission-sharing,
following European carriers Lufthansa, SAS, KLM and Austrian Airlines
commission reductions. Hogg Robbinson begins “encouraging” clients to move away
from commissions and rebate contracts, while Carlson Wagonlit U.K. denies it
will force clients off the model, but says it will offer fee models first.
Business Travel Contractors Corp said it lined up three
major airlines to bid for fix fares business with the member group.
Hilton makes a hostile bid to acquire ITT, the parent
company of the Sheraton hotel brand for $6.5 billion, setting off a year-long battle
that sees ITT shed assets and attempt to break into the three separate
companies to avoid the deal. In the end, Starwood Lodging enters the picture in
October with an offer that ultimately outbids Hilton, though the questions
about who will win out linger until December.
Andersen Consulting announced the launch of “Via World
Network” an “extranet” that direct connects to travel supplier inventories,
bypassing the agency and CRSs. Participating airlines, Continental, Northwest
and US Air, will save 23% of ticket
costs—the amount that goes to distribution—and share that with the corporate
customer.
Worldspan aims to develop a report for unused electronic
airline tickets, which at the time could only be requested one ticket at a
time. E-tickets in 1997 had a breakage rate (they are neither used or refunded)
of 6% compared to 0.2% for paper tickets. Sabre and Apollo say they are working
on solutions as well.
Inter-Continental is among the last major hotel chains to
roll out business class hotel rooms, with two-line phone with speaker and modem,
a Hewlett-Packard printer/fax/copier, etc.
55 Black associations with $200 million in meetings spend
boycott 10 hotel chains that refused to return a survey about the hotel staff’s
race profile, saying they “want their dollars well spent” with companies that
care about diverse staffing.
BTCC fails to sign a major airline for fixed pricing. Only
one airline submitted a bid. Now, the group claims there is a jet company ready
to collaborate on a BTCC air shuttle.
Speculation spreads that IBM will partner with Sabre Travel
Solutions to launch a travel booking solution within Lotus Notes
16 hotel chains and 13 agencies begin using the NBTA
electronic hotel request for proposal tool via Lanyon-RFPassist. NBTA also
solicits bids for 5 additional RFP vendors to participate in providing the service.
United and American airlines offer broad discounts of 2% to
4% to traveler managers whose companies will beta test the carriers’ online
booking tools.
Times Mirror Supply travel buyer Betty Lecero completes
implementation of an agency contract that includes 12 different transaction
fees. The company will be 75% less for airline tickets booked and ticketed
electronically.
Patriot American Hospitality Inc. agrees to buy the Wyndham
Hotel Corporation for an estimated $640 million. It is the first real estate
investment company to buy a major hotel brand. It changes the name to Wyndham
International.
Continental and United engage in a surge of competition that
includes a fight for corporate clients in the Northeast corridor, both looking
for a higher share of business travelers out of New York, with strong capacity
and fare deals. Continental SVP of sales at the time Dave Hilffman pointed to
the Continental loyalty program as “difficult” to compete with on corporate
routes.
AA imposes a flat online booking fee for agencies in lieu of
a commission structure. Tickets booked through Sabre Business Travel Solutions,
which shares a parent company AMR with AA, will continue to earn commission. Those
booked on the Travelocity website are subject to the cut.
Marriott buys Renaissance, making it the 10th
brand in the larger hotel company’s portfolio and gaining a development partner
in Asia.
United follows AA in cutting online commissions, but goes
further, limiting them to $10 per PNR. The lower rate does not apply to tickets
booked through United Corporate Connections, the direct booking portal.
HFS follows Franklin Quest, Microsoft, Charles Schwab,
Universal Studios, Walt Disney and others in taking travel in-house with an ARC-accredited
agency. The company decides to include
leisure travel in the deal.
After months of window shopping for the new breed of
automated expense reporting systems now available in general release,
corporations are finally buying—much to the relief of more than two dozen
vendors like ADP, ARS, Captura, IBM, InterPro, Necho Systems, Portable Systems,
Gelco Information Network, RPL, Vin.net and American Express’ Expense Manager. Others are using proprietary
systems.
Manufacturing and distribution multinational The BOC Group
negotiates struck deals with two airline alliances United/Lufthansa/SAS and British
Airways/Qantas. The deal with include American Airlines if that tight knit marketing
agreement clears goes forward (it doesn’t).
Philips new president and CEO Cor Boonstra orders 12.5%
reduction on all non-product-related costs; that includes travel, even after
the program just realized cost savings after a globalization initiative.
BTN interviewed seven travel managers on the move to set—and
enforce—stricter travel policies. Hewlett-Packard travel buyer says “we’re not
paying for baby-sitting or pet-setting” but also that meetings contracts are
not well managed and suggests putting procurement structures around them.
World Bank rolls out Internet Travel Network’s automated
booking to 11,000 travelers. It is the largest installation of automated
booking so far; surpassing the previous year’s Texas Instruments ITN implementation.
IBM and Worldspan roll out new computing architecture called
“structured message interfaces” that break down CRS data streams into useable
fields to make it easier to develop reporting systems from the data. “It will
enable marketing and salespeople to do things the way customers have wanted.”
Worldspan launches its internet and intranet version of Worldspan
for Business, an end-to-end suite of internet-based travel modules.
Galileo leverages IPO to buy Apollo
(its U.S.-based marketing arm) plus Galileo Nederland and TravisSwiss in Switzerland.
Hotel occupancy crunch in major U.S. cities inspires a new business
travel buying strategy wherein corporations buy a year-long block of rooms.
Some hotels add a competitive twist that allows the option to release the rooms
to other last-minute guests, then charging only for the room nights used.
Crowne Plaza, Doubletree, Hyatt, Westin and Wyndham are pushing the strategy.
AlliedSignal beta tests a reporting system that combines all
travel agency PNR data, all expense reporting information and information from
the corporate charge card. The objective is to see how travel is faring against
budget and financial objectives. This move is a precursor to adopting the Microsoft-American
AXI booking tool
The U.S. Internal Revenue Service moves to accepting
electronic documentation for corporate travel and entertainment expenses in lieu
of paper.
Unysis rolls out data warehousing and data mining technology
UniView for the travel agency market that allows agencies to deliver more
customized and “longitudinal” data views. Airlines, CRSs and automated booking
tools already are using such tools. Travel agency tools will allow buyers to
access a new type of reporting solution.
McGettigan Partners hires Microsoft Consulting Group to
develop an internet-based version of Microsoft’s existing meetings management technology
CORE Discovery. The intent is to make the budget, planning, expense analysis,
supplier negotiations and attendee management available to “thousands” on users
within a company, rather than just “40 or 50.”
A “shortage of qualified travel agents” pushes Boeing to automate
business travel bookings with TravelNet’s Voyager system.
Texas Instruments goes big with automated booking, expanding
its reach to 13,000 travelers
Continental scrutinizes corporate deals saying it signed
more than 100 new corporate deals in the previous years, but cancelled just as
many due, at least in part, to corporate clients not meeting “fair market share”
thresholds which the carrier calculates based on its presence in a given
market. The carrier also says it is developing a customer information system to
track patterns and preferences of frequent fliers and other customers. “We’ll
be able to track all our interactions with a particular traveler,” said one exec.
GE Capital Corporate Expense Management Services launched a
corporate card incentive program that rewards cardholders for saving, rather
than spending money. Reality check: The program has an enrollment fee and
includes a literal ‘coupon booklet.’ We’re still in the nineties.
Kevin Mitchell gains currency with his moves to represent
the business travel industry in Washington D.C. as the head of the 153 member
advocacy group Business Travel Coalition.
Rosenbluth crosses alliances when the leading United/Apollo
agency inks a deal with Sabre to adopt a customized version of its BTS travel
booking tool. Sabre’s parent company AMR Group also owns America Airlines.
Airlines begin to address the airport experience in corporate
contracts to gain an competitive advantage. Company-specific check-in counters
for the likes of AT&T or 3M or Hewlett Packard begin to pop up in key
airports. But airlines eventually calibrate the offering to “Corporate Check-In”
counters to serve select (but multiple) companies. Kiosks emerge for everyday
traveler information.
Carlson Wagonlit private labels Captura expense reporting
module as TransAct 2.0 as part of the agency’s ActOne suite of automated
solutions—adding to ActOne’s costs.
BTI and Hogg Robinson become more entwined as Hogg sales and
marketing director Les Middleditch assumes the same role for the whole of BTI. Simultaneously,
BTI CEO David Radcliffe confirms he will remain at the helm of the worldwide
travel management partneship even as he takes on the CEO position specifically
at parent company Hogg Robinson Plc.
U.S. National Security Administration contracts with
Gelco/TravelNet to build a web-based solution to automate the NSA’s travel
process.
Ford tightens travel policy in pursuit of $100M in savings, mostly
by reducing trips. The automotive company also plans to leverage $250M in
meetings spend.
ARC and the Air Transport Association proposed regulations
for electronic travel systems to identify fraud. The proposals riled up online
vendors, some of whom brought their attorneys to the meetings. They accused ARC
and ATA of simply trying to identify online bookings to hit them with
commission caps, and challenged the duo to prove prevalence of fraud.
Voice recognition becomes the talk of the industry as booking
suppliers like Microsoft-Amex, Sabre and Andersen Consulting sign deals with
names like Nuance Communications and PureSpeech.
American Express rolls out unused ticket tracking reports for
etickets and a IRS approved paper statement that is mailed (or faxed) to
travelers as a receipt in case they need to refund the ticket.
British Airways partners with USA Paymentech to launch
British Airways MasterCard Corporate Card.
Lockheed Martin inks largest corporate card contract in the
travel industry, distributing cards from First Bank Corporate Payment Systems
(soon to be U.S. Bank) to 85,000 travelers.
BTN reports that the job market for corporate travel managers
is better than ever “thanks to a changing distribution system that has put their
professional skills and insights in high demand.”
Former TWA owner Carl Icahn and two agencies sued TWA for
$100M in damages over an early 1990s agreement that Icahn’s company could sell
deeply discounted tickets in place of repayment for a $190M load Icahn floated
to the carrier, which filed bankruptcy in 1995. TWA had already sued Omega World
Travel for marketing Icahn’s discounted tickets to corporate customers; the
court ruled in favor of Omega after which TWA shut down its partnership with
the agency. Essentially TWA was trying to limit damages of those deep discounts
by restricting how they could be sold.
Meetings management technology PlanSoft launches after a
long industry waiting period with virtual site inspection module. It goes into
beta testing with a full rollout planned for early 1998.
United starts a new wave of agency commission cuts, reducing
all commissions to 8 percent, including international fares, and retaining caps
on domestic fares. American Airlines, Delta Air Lines and “most of the world’s
largest airlines” quickly follow, creating a $500M dollar shift in distribution
costs that will need to be shouldered by agencies, corporations or both.
Fee-based agency contracts spur corporates to scrutinize performance
and put measurements in place.
Pharma company SmithKline Beecham negotiates agency deal
with a fixed rate management fee; it differs from the standard management fee
arrangements where the client has to pay more if air fares rise. Plus, the
travel buyer said, “all revenue streams are coming back to us.”
New Budget car rental president Sanford Miller moves the
company toward direct sales with corporations.
Carlson Wagonlit adds a second automated booking choice for
customers by signing Sabre BTS in addition to its existing TravelNet option in
ActOne suite. Regardless of the system chosen, Carlson will provide access to
it via a proprietary web interface.
Visa incentivizes its merchants financial incentives to pass
along enhanced data for corporate travel customers. The company specifies the enhanced
fields it requires for car rental, lodging and airlines. It sounds like the
beginning of so-called Level 3 data.
Omega World Travel says it will launch a low-cost
reservation center that will operate at a women’s prison in South Carolina. The
move addresses a growing sense of urgency amid a “reservationist crunch” for corporate
accounts.
Corporate buyers, responding to decreased discounts from
airlines, drift toward using their lower meetings fares whenever possible. “For
a lot of companies whose meetings and travel overlap, anyone going to that city
during that time-frame is taking the zone fare,” according to Topaz auditing
firm.
United Airlines admonishes travel agents and corporate partners
in a memo about back-to-back and hidden-city ticketing that the airline says
are “wrongful and inappropriate practices” that the airline “cannot condone in
any form, whether by our travel agencies or by our passengers.”
Starwood buys Westin Hotels & Resorts; Starwood chairman
and CEO Barry Sternlicht takes chairman position at Westin. Plans for new brands
to compliment Westin.
KLM, Northwest airlines ink 10-year pact that includes
combining their corporates sales teams.
Hilton rolls out public internet access via web stations
where travelers can check their email, etc. The move targets business travelers
but is open to other guests.
Starwood rushes in to put hurdles in the way of the
attempted hostile takeover of Sheraton by Hilton Hotel Corp.
Ariz. Senator John McCain submits bill proposing slot auction
for small carriers as big airlines look to be squeezing out all the regionals
and LLCs, with the exception of Southwest.
Reservations centers begin a gradual takeover in the
corporate travel ecosystem as agencies (and a
DOT clears way for 5 new entrant airlines, offering
exemptions from slot controls. The move incentivizes “daring” low-cost carriers
to challenge incumbent airlines that charge “very high fares” in duopolistic or
monopolistic markets.
Car rental firm consolidation moves to Europe as Republic
Industries, which owns National and Alamo, sweeps EuroDollar into the family
and plans to rebrand it as National in 1998.
As the commissions dust begins to settle, corporates and
airlines were back at the negotiating tables discussion fixed fare alternatives
on a route-by-route basis, especially for shuttle and transcontinental routes. A
fixed or guaranteed fare was contracted for 1 year.
Bank of America launches corporate card after 15 years of
offering other business payment solutions.
Continental Airlines hikes nonrefundable ticket change fees
from $50 to $75, a move matched by Delta and then American within a week. “It’s
another tightening of the noose around the necks of all travel managers,” said
one exec who still works in the industry today: Tom Wilkinson, then president
of The Travel Management Group.
British Airway institutes an agency commission cap in the
U.S., with varying commission percentages per class of service. Average
commissions were calculated to remain higher than the domestic carrier
commission caps.
Scandinavian, which had already cut commissions to 5%,
became the first airline to move to a net fare system—i.e. eliminated agency
commissions. Plus, the carrier set up a scheme that clients booking direct through
their system would also remove CRS charges for a “true” net fare.
Star Alliance announces during a press briefing that in 1998
it will target 200 U.S. corporations for multinational alliance deals.
DOJ investigates major hub carriers—United, in
particular—for predatory, anti-competitive practices. United maintained that it
had not been contacted. High airfares have moved 50% of travel buyers responding
to an NBTA survey to say they will reduce trips in 1998, testing the apparent going
opinion among airlines that business travel is “inelastic,” said NBTA executive
director at the time Norman Sherlock.
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Elizabeth West is the editorial director of the
BTN Group. She has reported on the business travel and meetings industries for
24 years. Beth was editor-in-chief of Meeting News from 2006 to 2008 and
director of content solutions for ProMedia Travel from 2008 to 2011, when
ProMedia was acquired by Northstar Travel Media and merged with BTN. She became
editor-in-chief of BTN in 2015 and editorial director of the BTN Group in
2019.
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