Oh, 2002. It is a bitter year for corporate travel. The environment was desolate for suppliers, buyers and intermediates. Global distribution systems by the third quarter were turning up some good earnings, but it was on the backs of travel suppliers—particularly airlines—that continued to spiral into earnings woes. United, with early alarms around its financial health, declared bankruptcy by the end of the year. But all carriers were scraping for rate rationality after the shock of 9/11, and none were coming up with strategic solutions to increase their margins without sacrificing market share. Carriers largely moved contracts to volume and market share deals, and there was a big move to cast light on buyers' full volume scope by pushing buyers to send their full data through Prism to "verify" market share, instead of "trust."
United CEO at the time Rono Dutta called the airline industry “confusing, unfair and broken” in front of an audience at BTN's Corporate Travel World. Carriers slashed discounts for corporate travel clients, revised rules for unused tickets, tested direct connects and web fare schemes that would reduce distribution costs. The last vestiges of agency commissions came to an end in 2002.
Agencies struggled to find their footing as traditional value creation strategies between them and their clients were disintermediated by the internet. Many of them turned on new capabilities around traveler safety and security in partnership with an emerging player on the scene—Annapolis, Md-based IJet International, headed up by Bruce McIndoe. The company, which had 30 corporate travel security clients in 2001 had by August 2002 more than quadrupled that number. Agencies looked to distribute such services to a larger swath of buyers as travel itself remained under fire, not only for its costs but now also for its perceived risk exposure.
Agencies also moved, in an era of rock-bottom business travel, to create travel management opportunities for small- and midsize companies. With the help of the internet, they launched portals like Rosenbluth's TravelAgent.com, while Carlson Wagonlit Travel tapped the SME market through a procurement-oriented partnership with IBM Leverage Procurement Systems.
They weren't the only ones eyeing the midmarket opportunity, though. Orbitz and Expedia were hot on that trail, each rolling out an all-in-one online agency/self-booking tool model in 2002. Orbitz said it walked away from its first National Business Travel Association convention with 75 contracts to activate, and 200 more to pursue. Expedia was slightly later to the party, but got there by the end of the year.
Hotels, at the same time, were suffering from buyers' over-estimations of their projected corporate volumes going into 2002. Buyers were incensed about hotel partners' continued rate loading failures, but neither side was delivering on their promises. In that environment, buyers maintained the upper hand and they really, really used it. Hotels were desperate to fill rooms. Occupancy hit a 14 year low, according to PKF consulting, and low internet fares continued to undercut negotiated rates, driving corporate dissatisfaction. Starwood lowered volume requirements to access national and global contracts. Six Continents Hotels introduced chainwide discounts in this market, pegged to the market rate. Marriott introduced a practice that booked the market rate if it was lower than the negotiated rate.
Buyers, pressed by executives looking to reduce travel costs by as much as 50 percent on the previous year, were merciless with negotiations going into 2003 season. They pressed for rate after not meeting their volume commitments. When hotels wouldn't budget, they went after value-added amenities, particularly the new internet and phone/modem usage fees that were helping to boost a bit of margin for embattled hoteliers. After they negotiated, and extracted from hotel partners both guarantees and penalties for late rate loading, buyers hesitated to sign final contracts in an attempt to squeeze a final drop of blood from rate. A December piece from then hotel editor Bruce Serlen, estimated that 65 percent of 75 percent of buyers had not signed their contracts by November.
I'm not sure there was a bright spot in 2002. There wasn't much evident partnership, and I think the fallout from this fractious mood would linger for years to come. There's a chance, however, that we did learn a lesson over time: when hit with a global pandemic that brought business travel to its knees 18 years later, I didn't see the same mercilessness in motion in our industry.
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The U.S. airline industry reports $10B in operating losses,
this accounts for $4B in government assistance, without which losses would have
been far worse. The industry, as of Sept. 1, was on track to lose $3B, due to
recessionary reductions in business travel. The 9/11 terrorist attacks cratered
both business and leisure demand.
Southwest emerged as the only profitable domestic
carrier for 2001. It posted $511M for the year. Meanwhile, United lost
$2.1B, Delta lost $1B and American lost $1.7B.
Mo.-based Innovation Travel and CWT Canada each roll out workarounds for agencies to search airline web fares—FareWeasel
and Side Step, respectively. TRX ResAssist had done this for a
while, but the trick is advising how to book and figuring out how agencies can
service such bookings. Neither product is perfect.
Galileo
merges e-tools under Highwire product.Galileo had committed to
maintaining both Travelpoint 2.0 and Travelport when it announced the
acquisition of Highwire in July. New executives said the market asked for the
features to be combined.
Travel managers report using more
extended stay properties, citing growing comfort among travelers with
midscale service expectations and also lower prices offered by extended stay
locations.
Despite spot deals in late 2001 to lure leisure travelers
back onto airplanes, airlines were loath to extend discounts to business travel
buyers, as the later are unable to pump up volume in the weak economy.
Critics of purchasing web fares—and travel management
companies’ willingness to offer solutions to access such fares—cite the
inability to credit such purchases to volume deals and uphold the idea that
negotiated discounts continue overall to beat web fares. As airlines demand
more stringent requirements (see first note in Feb. highlights), those dynamics
are changing.
Buyers boil over with hotel rate loading frustration. The
primary culprit was 2001’s drawn-out negotiation season precipitated by a slack
economy and the Sep. 11 attacks. Buyers, meanwhile, are taking a harder line on
rate loading, given inaccuracies and delays of the prior two years.
Safety and security-oriented products are a hot button for
corporate travel. GetThere launched GetThere Travel Intelligence supplied by Annapolis, Md.-based security company IJet Travel Intelligence.World Travel BTI also inked a letter of intent with IJet to start in
April.
Citing privacy protection, Sabre Holdings says it
will begin May 1 to modify the daily booking data it sells to airlines,
including replacing the passenger name record locator field with encrypted
reference data for what we now commonly call PII, or personally identifying
data. Other GDSs are studying the issue.
British Airways looks to reduce costs associated with
corporate fares, including refusing to absorb the merchant fee imposed by
credit card companies, reforming its distribution cost picture, and removing
frequent flyer mileage from corporate net agreements.
Sabre preps for a beta test with FareChase,
also in talks with other GDSs, to provide “bots” to crawl for internet fares
that are not available in the GDS. Galileo says “it’s all very
preliminary” but the need has been articulated.
Galileo is first to take advantage of new fare filing
capabilities offered by ATPCO and is able to display fares for North
American travel within minutes, rather than hours, after ATPCO issues them.
They say fares are updated 3x per day (simpler times!!)
Hidden hotel fees, which dogged buyers in 1999 and 2000,
largely went missing from folios in 2002, as the industry’s steep occupancy and
revenue declines deepened.
Delta goes to zero-commission structure with
agencies. Within a week, Delta’s move was matched by the other five largest
airlines in the U.S.
United Airlines announces it will change the way it
structures corporate deals, switching entirely to market share-based agreements
and a data aggregation process furnished by Prism. The airlines is still deep
in the red after the 9/11 attacks.
Buyers com up short on hotel agreements, leaving hotels
scrambling for ways to manage the shortfall—short of re-evaluating negotiated
rates.
U.S. Airways introduces a mechanism for corporates to
access web fares and track purchases via a promotional code that will allow
them to credit the volume to their volume agreements. It comes with a catch—in
order to get the code, corporates must provide U.S. Airways with an aggregate
view of what they spend with other airlines.
American Express and IBM announce they are
working together on a low-cost, web-based expense reporting and reconciliation
tool. The tool will be hosted by IBM and marketed as part of American Express @
Work suite of tools. The announcement followed a previous agreement that
IBM would take over all of Amex’s U.S.
technologies operations work and the transfer of 2K Amex employees to IBM.
United Airlines president Rono Dutta calls the
airline industry “confusing, unfair and broken” to an audience at Corporate
Travel World. He called for consolidation and told the audience that the
airline will consider federal loan guarantees and did not rule out filing for
bankruptcy. United would file for Chapter 11 in December.
Hertz eliminated base commissions to travel agencies
on bookings for U.S. and Canadian corporate accounts. Override and bonus
commissions were not affected, nor were leisure bookings or non-negotiated
corporate rentals.
Agencies raise fees by $10 to $35 in attempt to reconcile
pricing with the elimination of base airline commissions last month. Even
buyers with net fare agreements feel some increases, but mostly they fall to
commissionable accounts.
Travel buyers at Aon, Coca-Cola and Credit Suisse mandate their hotel programs in renewed attempts to drive compliance. Hotel
volume shortfalls for corporates have threatened rate agreements.
United devises a method for crediting corporate
contracts with web fare purchases as part of its overall move to United
Corporate Solutions.
More corporate travelers are using non-refundable airfares,
but most companies do not have systems to recirculate unused non-refundable
tickets. Use of non-refundable passed 57% in Q1 2001, a 15% increase YOY.
Rosenbluth and TQ3 Maritz to lead megas in
marketing a web fares solution. Navigant, WorldTravel, Carlson Wagonlit and
American Express all said they would follow within three months, but
several smaller agencies already have solutions, including Omega World
Travel and Tzell. Rosenbluth used TRX to enable Web
Central; TQ3 was still finalizing a tech provider for its Optimizer
tool.
Citing the “Prism Prison” Cornerstone Information
Systems, Hi-Mark Software and TRX join forces to establish a standard for
airlines’ intake of corporate travel data that requires less detail than Prism.
Citing a privacy request from the National Business
Travel Association, Sabre programs new corporate identification
numbers that by year-end will allow travel agencies to roll up corporate
account information while making it invisible to airlines.
Travel buyers experiment with online reverse auctioning to
lower hotel rates—a la Priceline. The technique encountered stiff resistance
from hoteliers. Companies like Charles Schwab saw initial success with
the strategy.
Airlines step up their compensation programs for select
travel management companies and corporate clients with new pay-for-performance
programs with escalating override incentives, deeper corporate discounts and
larger point-of-sale payments tied to aggressive market share commitments.
Continental and Northwest airlines, operating
the only domestic partnership with enough scope to attract corporate buyers,
look to extend to corporate benefits of their respective KLM agreements
as they start to look like a formidable transatlantic alliance trio.
Revenue-starved airlines, which have largely held the line
on transient agreements, step up negotiations for meetings business.
Airline-owned Orbitz commits to corporates with an announcement that it will roll out
password-accessible web-only fares with corporate negotiated rates and provide
booking reports to suppliers and clients.
IBM Leverage Procurement
Services introduced a travel procurement division to serve companies with
less than $2M in annual air spend. The program is a partnership with Carlson
Wagonlit Travel.
The European Commission has ordered global distribution systems to amend the booking data they sell to
airlines so corporate clients no longer can be identified from the information.
Third-party tech providers A.T.
Kearney Procurement Solutions, Freemarkets and ProcurePoint Travel Solutions jump into the online reverse auction fray, expecting demand to soar for 2003
hotel negotiations. Rosenbluth jumps on board the reverse auction train
with Rosenbluth Exchange.
US Airways says it is
discussing domestic codeshare agreements with a number of carriers. It
announces a plan with United in July, which is approved and set for
launch by October.
British Airways makes
good on eliminating merchant fees from its net fare agreements with corporates.
As a result, Amex de-lists BA as preferred. Amex stepped back from a
legal battle that would have ensued if it terminated its merchant agreement
with the airline. Corporate buyers with Amex payment card programs and BA
contracts are caught in the middle.
Expedia acquires Seattle-based Metropolitan Travel—known
for incubating Highwire—and announces the creation of a business unit to develop
technology unique to the corporate market.
BTN reports American Airlines is leaning into bulk
selling, forging such deals that were once limited to the likes of investment
banks with a larger universe of corporate clients as they move to control their
travel cost outlook.
United Airlines issues thousands of dollars of in debit
memos and corporates in a crackdown on long-opposed, back-to-back ticketing
practices, with the aid of new tracking capabilities and in the face of
continued revenue losses that made the infractions harder to ignore.
Airports, hurting for passenger traffic and challenged by costly
new security measures, hike parking fees by as much as 40%.
Airlines support a move to ID cards for trusted travelers,
rolling out first to airline employees but then extending to passengers. While
industry support is strong, government has reservations that include costly
execution of the plan with limited time savings benefit. The FAST program for border crossings for North America only (U.S.-Canada and U.S.-Mexico)
began in 2002. Global Entry would eventually begin in 2008.
American Airlines jumps into the shuttle battle for the
Northeast corridor against Delta Shuttle and US Airways Shuttle—and Amtrak
Acela—with Business Express on 37-seat and 44-seat American Eagle
regional jets.
Online travel management companies introduce themselves at National
Business Travel Association convention and walk away with contracts. Orbitz cites 75 buyers requesting contracts and 200 additional in the pipeline drawn
to the idea of a single source for agency and self-booking tools, all based on
a transaction fee. Expedia said it would roll out its model by the end
of the year but was endorsing Metropolitan and Highwire until
then.
Sabre tries a kind of “net” distribution fee model in which
it would allow corporates to opt out of their agency’s incentive structure
which would allow airlines to pay less for bookings made through GetThere. It’s
unclear why agencies would play ball with clients that want to ‘opt out.’
Rate loading continues to vex corporate buyers. With the
upper hand in negotiations going into the 2003 season, buyers are including guarantees
from hotels to do better, and penalties if they don’t.
Airlines begin filing direct with ATPCO, thanks to
new capabilities developed by the clearinghouse. The upshot is that corporate
fares formulae are applied to fares filed in ATPCO and then are automated
through the GDS so agents no longer need to apply discount codes manually.
Concur acquires Captura in a transaction
valued at approximately $13M. Captura owners were cut into the deal, walking
away with 16.6% ownership of the new company. Concur gained 70 new clients,
including major names like Booz Allen Hamilton, Ericsson, General Motors and
Hewlett-Packard.
Travel management companies like American Express, TQ3
Travel Solutions and Total Travel Management join first movers like Rosenbluth and WorldTravel BTI, working with IJet, whose corporate clients
in 2002 grew from 30 to 170 by August.
Car rental firm Budget Group files for Chapter 11
bankruptcy, after being purchased in an unusual move by a franchisee in the
1990s and then overextending itself through multiple acquisitions. The most
likely purchaser at the time of the bankruptcy is Cendant, which indeed
did purchase the company later that month, bringing together Avis and Budget into one portfolio. In 2006, Cendant would sell Travelport to Blackstone and rename itself AvisBudget Group.
Starwood relaxes criteria for national and global
account status, in an inevitable move driven by travel industry doldrums; other
large hotel companies are expected to follow.
U.S. carriers restrict nonrefundable and standby rules to
deny ticket reuse if the traveler does not confirm itinerary changes prior to
the missed trip. Rather than applying the full ticketed value for a year,
travelers on the six largest U.S. carriers will lose the value completely,
unless they advise the airlines and pay an associated change fee.
Continental discontinues waivers and favors for
agencies, expands paper ticket surcharges and cancels cluster discount programs
for third parties. It leaves agencies scrambling to provide value to clients; megas
later announce ticket tracker technology in response to the changes.
In the corporate travel downturn, mega agencies look to the
midmarket for longer-tail revenue. WorldTravel BTI launches TravelAgent.com for clients with under $2M in annual air volume; other agencies that already
moved on the opportunity are Amex, Carlson Wagonlit and Rosenbluth.
Radisson SAS tries to go direct connect to corporate
clients in a bid to save on distribution costs from the GDSs. It signs up 25
clients, but the road is strewn with obstacles including service issues at the
agency.
Orbitz connect directly with American Airlines,
preps links to other carriers. It is using Kinetics, a self-service airline
kiosk tech provider, to develop the direct connect. Kinetics is
partially owned by Worldspan, which Orbitz is bypassing. Orbitz says AA
is the first of a dozen airlines on its direct-connect roadmap and claims a
four-segment booking will save the corporate $13, compared to a traditional
agency.
Marriott International is hit with lawsuits from
franchisees and management companies alleging the hotel giant hid profits. But
it also alleges the company was selling guest lists to third parties, raising
questions about privacy from corporate clients.
Datalex rolls out a contract analysis tool for buyers.Cognizer claims to take data “from virtually any source” but is designed
to show where corporates are underperforming and what program or supplier changes
could close gaps.
Hilton limits online auction action with four key
stipulations to which its owned and managed must follow in order to participate
in such auctions. Franchisees are recommended to do the same but set their own
rules.
Southwest Airlines mulls what to do about corporate
travel distributors that are screen scraping fares and inventory off its
website without permission, with concern that such activities pose competition
to its Swabiz booking tool.
AA attempts to trade access to web-only fares for
lower GDS fees, but a litany of questions on the value of those fares could
mean GDSs will note cave. US Airways, however, converts a similar bid
later in the month when it convinces Sabre and Galileo to respond
to airlines’ increasingly aggressive bids to bypass them. Both GDSs introduced
similar three-year deals that commit airlines to listing virtually all fares in
the GDS in return for 8% to 10% lower segment fees. The move cut such charges
to levels seen in 2000.
Six Continents Hotels add a second-tier discount
program for large corporate customers that allows them to access a flat
discount at any hotel location in the chain, aside from those properties where
they have negotiated agreements. Today, the “chainwide discount” is a common
practice for national or global accounts.
Online standardized RFP provider EbuyerSolutions attracts buyers with $1M to more than $40M in annual air volume to buy access
to the technology for agency sourcing purposes. The tech promises templates for
agencies, self-booking tools, ground transportation, hotel and payment vendors.
British Airways and AirPlus launch business
travel card in the U.K. and eventually plan to roll out to Europe.
Prism Group and an undisclosed group of airlines
announced further expansion of the data processing model buyers greeted with
concern with Continental mandated it in 2000. Revenue-starved carriers
largely agree on more limited data fields to be sent to Prism.
Buyers dig into value-added amenities in negotiations as
hotels have cut rates to the bone; they focus on eliminating the new
phone/internet bundle charges.
Corporates decentralize the cost of managing travel by
charging agency fees back to the traveler at the point of sale. Hoping to cash
in, mega agencies and smaller ones devise tech to help automate this process.
Lawyers told BTN they were seeking to resurrect a case
against Rosenbluth by identifying clients to join a 2001 complaint that alleged
the agency underreported overrides and failed to pass on payments to which
clients were entitled.
GDS full-content battles—driven broadly by US Airways—enters
a new level of brinksmanship as Worldspan threatens to boot the carrier
from its system if it does not provide web fares to the GDS. US Airways
provides such to Galileo and Sabre for a discount in return. Worldspan is not
offering a discount.
Sabre GetThere announces beta testing for online
ticket refunds and exchanges, following Worldspan which already enabled
such capabilities for Northwest airlines and Expedia. Corporate
travelers change roughly 15% to 20% of tickets.
Marriott International begins to automatically adjust
corporate negotiated rates to the market rate when the former falls below the
negotiated rate. The move addresses concerns that internet rates are
undercutting their negotiations.
WorldTravel inks pact with ProcurePoint for online reverse
auction services
Positive Q3 results for global distribution systems cause “jealousy”
among travel vendors that continue poor earnings—especially among airlines that
have continued steep losses since 9/11.
United Airlines files for Chapter 11 bankruptcy as
the rest of the majors attempt to fix fare structures they have struggled with
all year long—now, testing a much narrower gap between business and leisure
fares in certain markets.
Expedia launches its small-business travel management
program and teases a large-market solution to be available in mid-2003.
U.S. Department of Transportation proposes new rules for
global distribution system activities and commercial models. Critics say the
proposal read “as if they were written by the airlines.” Proponents praise
moves to limit the data airlines obtain from GDSs and the proposal’s motivation
to end parity rules for airline participation and also for GDS charges to
airlines. Removing the latter would encourage more negotiation and competition,
and likely drive down distribution costs, said supporters.
Buyers delay signing hotel contracts, according to a number
of travel management companies, in an effort to wrest every dollar and amenity
out of their deals. Such delays, however, promise to impact rate loading, the
lack of which has nettled travel buyers for several years.
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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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