Of Burgers…and Buying Travel

How much does yours cost?

Greetings, Cafe Patrons.

Over the past few weeks, much has been made in the global business and economic press regarding a topic normally not infused with passion and rhetoric – currency exchange rates.  Given that one of my friends here in Australia who works for a global investment bank recently proposed a “Parity Party” for when the Aussie dollar matched the US dollar for the first time in nearly 30 years, discussing currencies is seemingly becoming as cool as property prices used to be in terms of discussions amongst friends at dinner parties.

The Economist recently had a special feature on the so-called “currency wars” that some pundits are concerned may break out across the globe.  One of my favourite (and most useful, to layman economists like myself) indices that helps understand the value of world currencies is the “The Big Mac Index” which highlights the relative costs of McDonald’s iconic sandwich across the globe.

So what do currency rates, Big Macs and travel have to do with each other?  Plenty, I might argue.

It may not matter as much if your air, hotel or car deals are localised in a particular market and you’re dealing in local currency.  Your Big Mac costs what your Big Mac costs in your own market, in essence.

However, many GDS / airline contracts, for example, are written in US dollars and with the greenback’s softening lately, this produces an interesting dynamic in the corporate travel space.  Especially with travel management company transaction fees.

TMC transaction fees incorporate a variety of factors to arrive at what a company ends up paying for their services.  And a fair bit of TMC infrastructure and revenue is made possible by the commercial relationships with GDS’s, technology providers and air/car/hotel suppliers.  No reason to begrudge that, as TMC’s are in business to make money after all.

The incessant downward pressure on transaction fees over the past decade has made this dependency on 3rd party commercial relationships vital for TMC’s to continue to provide the services companies are asking for.  However, if you’re a corporate buyer and are out in the market at the moment, or if you’re a TMC seeking a new GDS provider or preferred airline deal – check how much your Big Macs will REALLY cost you.

Many airline-GDS contracts are written in US dollars.  Therefore, with many global currencies performing well against the US dollar at the moment, the ability for GDS’s to negotiate strong local commercial deals is hampered a bit.  OK, maybe a lot, as the US dollar value of the GDS’s airline contracts aren’t worth as much as they used to be when translated into local TMC/agency contracts.

Same with airlines, as if you’re doing your negotiations with an overseas carrier for your local outbound international travel, is the carrier’s home market strong or weak from a currency perspective?  If you’re seeing the fares being offered now to try and attract Brits or Americans to come to Australia, you’ll see that they are trying to distract travellers from the fact that due to the strong Aussie dollar, its no longer cheap to spend money Down Under.  Big Macs are pricey here.

And lastly, if you’re a corporate buyer negotiating a global contract with your TMC, and you want a single price in US dollars, you may find that what used to be cheap transaction fees for markets in Asia Pacific (after converting to USD) aren’t so cheap any more.  Again – a Big Mac is a Big Mac in name only, price on advisement!

So although currency fluctuations may be the provenance of bankers, traders and speculators, the next few months could pose a conundrum for anyone in a commercial role in the travel industry.  Which is: do you know how much you’re currently paying, how much you want to pay, and whether you think you will end up paying what you think you should pay?

Which begs another question: do you want fries with that?

Travel Innovation: A Field of Dreams? Not Quite…

This field will cost me how much??

Good morning, Cafe Patrons.

I may be going a bit “American” today in my references, but perhaps you’ll indulge me a bit so that I might be able to make a salient argument.

An oft-referred to approach in technology, consumer goods, electronics, etc. is the idea of “if you build it, they will come.”  And for fans of American Baseball, you’ll know what movie I’m referring to which originated this now commonly used business buzzphrase.

Over the past few weeks, there have been the annual 3rd/4th quarter flurry of events and conferences within the travel industry – ACTE Berlin, WebInTravel, TheBeat Live, EyeForTravel Distribution Summit – to name a few.  And it seems as though much of the talk from these conferences was focused on what seems to be a growing ennui amongst industry veterans that innovation in travel is stagnant at best and downright disappearing at worst.

The blogosphere and online industry publications are also full of similar rants and exasperated viewpoints; some examples for your “light” reading pleasure: Travel Tech consultant Norm Rose - http://www.tnooz.com/2010/10/19/mobile/the-gap-between-emerging-technologies-and-the-travel-industry/ ; Travel Analytics founder Scott Gillespie - http://gillespie411.wordpress.com/2010/10/14/four-barriers-to-travel-innovation/ ; and a host of GDS, OTA and travel .com leaders sounding off at WIT: http://www.tnooz.com/2010/10/19/tlabs/there-is-no-innovation-in-travel-only-creativity/

Throughout all this debate and dialogue, it’s become apparent to a few, but not to enough of the many, that there is a fundamental issue with respect to driving innovation in travel.  I would go on to argue that this is especially true for corporate travel, which is summed up by a reply to Scott Gillespie’s posting from Michael Boult of hotel technology experts Lanyon: "Innovation is constrained when those whose problems will be solved by new approaches are unwilling to pay to be helped."

Spot on Mike.  All too often in our industry, the expectations of buyers (and I’m including both corporate travel buyers as well as TMC’s and travel agencies here) is that vendors of technological solutions have to completely build out their technology, run it through comprehensive beta and user testing, launch it to some “brave” customers, and then – and only then – might a customer say “OK you can start invoicing me now.”

The problems with this approach are many.  First off is a simple matter of cash flow dynamics.  The expectation is that the technology company has to completely fund the development of their products before earning any revenue from them, putting them deep into a hole which may take years – if ever – to dig out of.

Second is that due to this overwhelming need for the technology to start earning revenue as quickly as possible, the capabilities of many products are either dumbed down to try and attract the broadest customer base possible, or rushed to market relatively incomplete, in the hopes that “if we build it they will come.”  Yes but will they?  And if so, when?  And will you have burned through your capital by then?

The result of this is then that what’s launched to market often doesn’t really meet anyone’s needs, is looked at as being un-innovative, and therefore results in negative impressions about new technologies which stifles innovation and risk taking by the tech companies in the future.

Now I realise I’ve not provided any examples of this, although we all know some from our own experiences and I’d rather not hang out any dirty laundry outside the Cafe.  There are certainly some successes out there too of course, otherwise we’d all still be writing out airline tickets by hand.  And since I’m a guy who likes to look to the future, rather than re-hash the past, I think that’s where this dialogue now needs to go.

On that note, Cafe Patrons – where to from here?  How can we build a mutually beneficial, shared-risk culture in this industry whereby those who will benefit from new innovations are ready to stand shoulder-to-shoulder, technically and commercially, with companies ready to deliver these opportunities to our industry? 

Or – to tie this all back to my “Field of Dreams” analogy – I would argue that the approach cannot continue to be “if you build it, they will come,” but rather “if we build it together we can both be successful.”

Take that, Kevin Costner.

(image courtesy IMDB.com)

May the Force Be With Us...Avoiding "Air Wars" in Asia Pacific

Greetings, Cafe Patrons.

Over the past several weeks, I've been reading with interest the increasingly noisy debate going on primarily in the North American market pitting airlines vs. GDS's vs. corporate buyers vs. TMC's vs. travel technology companies vs....wait a second, I thought wars were usually between two sides??

Perhaps likening this debate to a war is a bit of a stretch, but certainly the passions that are being flamed over distribution of emerging airline and hotel pricing models are quite toasty, to say the least. At the core of these arguments lie the surging revenues airlines are generating through the unbundling of their airfares and charging as ancillary fees all things great and small during the flight. The corporate travel industry in particular is heavily affected by these types of charges as it's pretty well universally accepted that no one has quite figured out how to book, track, manage, report and account for that $9 ham-and-cheese sandwich on board or that $7.50 pillow purchase (and if the company reimburses for the pillow, does it become company property?)

Earlier this year, the debate was taken to a very public, and entirely new level, via a pair of blog postings from US industry veterans Jim Davidson of Farelogix, and Kevin Mitchell of the Business Travel Coalition. These online salvos were then followed up by what I hear was quite the entertaining session at last month's NBTA conference in Houston. If anyone in the Cafe happened to attend that session, the Barista would love to hear more about it! For the rest of our Cafe goers, if you're up for some fairly fiesty reading, follow these links in order:

Farelogix vs. BTC: http://www.tnooz.com/2010/04/08/news/fear-and-loathing-in-the-airline-industry-innovation-on-hold/

BTC retort: http://www.tnooz.com/2010/04/09/news/set-phasers-to-stun-davidson-accused-of-warped-logix-about-airline-industry/

And just this week, a group of fed up industry types (of which Kevin Mitchell's BTC is a backer) have launched what seems to be another attempt to sway public opinion on the subject, albeit with a fairly silly YouTube video of someone's grandmother reading a prepared statement off a cue card. Again, if you're up for an amusing look at this topic, check out www.madashellabouthiddenfees.com

Anyway, while all of this lively banter is going on in the North American market, it begs the question: when will it hit us here in Asia Pacific? If the level of intensity around the debate within our industry overseas is any indication, we'd better pay close attention to ensure "peace" rather than bringing out the lightsabers. That way, we hopefully can learn from this debate for our region and how we can implement steps to pro-actively manage the situation rather than let it digress into a war of words.

What particularly concerns me about this situation for the Asia Pacific region is that content fragmentation is such a way of life here that any attempts to normalise things in the past have, well, not become the norm. Depending on what you classify as a CRS/GDS, there are more than 10 distribution systems in Asia within the travel industry, and that doesn't even count the proliferation of websites and online travel agencies offering content to travellers.

Adding to the mix, and which is reminiscent of what's happened in the North American market, is the rapid entrenchment of low-cost carriers across Asia Pacific offering their own version of direct selling to both consumers and business travellers alike. Oh, and don't forget that those same LCC's are also offering unbundled, pay-for-what-you-use services for a separate fee. So the battle lines may still be fuzzy, but they are certainly being drawn.

Now I'm not going for a "Travel Distribution Nobel Peace Prize" but I do have some suggestions for us as a regional industry to consider to try and avoid a repeat of the vitriol in other markets:

1. "Legal Collusion:" there are laws and very good reasons why airlines, GDS's or TMC's can't sit at the same table to discuss these things, but there's nothing against an airline, a GDS, a TMC and their corporate customers ALL SITTING DOWN TOGETHER to discuss these issues. All the dialogue from the US laments the fact that of all the stakeholders in this business, no one has sat down together to try and work this out. The first step to getting to an agreement is agreeing that no one has agreed on anything. So let's agree to sit down and discuss our disagreements, then work to agree on how to avoid future disagreements. Agreed?

2. Corporate Buyers Define What They Really, Really Want: what are the truly big issues with respect to fees: booking? Reporting? Policy? All of the above? More than the above? If buyers aren't clear about what their challenges are, then it just seems as though they're mad because no one asked them whether they wanted these fees in the first place (see suggestion 1 above!) One group that's not precluded from getting together and collating their grievances about travel-related issues are corporate buyers, so it's time to rally those troops and put together a prioritised list of issues and proposed recommendations from the ones who really bear the brunt of these fees.

3. Remove the Protectionist Attitudes: let's face it, we operate in a fiercely competitive industry, so we certainly can't begrudge anyone trying to make money here, be it airlines, GDS's, technology companies, etc. However, we must come to an understanding that at the end of the day we all have similar interests around efficiency, cost savings, and ease of use for those who want to buy travel services so if it's possible to be altruistic in our industry, this would be a reason to do so.

On that last point, perhaps I'm being naive as the massive growth projected for the Asia Pacific region in the coming decade is certainly ripe for certain entities doing all they can to grab as much advantage as possible over their competitors. That being said, time and again in the travel industry I find that suppliers and technology companies end up going down a certain road for several years, only to hit a wall and have to re-think their strategy. How about we avoid the wall altogether?

In any case, it may just require the Death Star to be blown up by the Rebel Alliance before anyone pays attention to this looming issue out here in Asia Pacific (are we the far far away galaxy perhaps?) Just don't ask me to comment on who I think Darth Vader is in all this...

Image courtesy www.sodahead.com

Same, Same...but Different?

Greetings, Cafe Patrons.

For those of you who have been to Thailand, Cambodia or other parts of SE Asia, you may be familiar with the theme of this week's Cafe. Whether it's a fake Rolex or a hotel room that's not quite as nice as you thought it was on the Internet, you'll hear a common reply from the locals: "yes, it's same same...but different!"

Which is what was running through my mind at last week's Association of Corporate Travel Executives' Asia Pacific Conference in Singapore. And no, it wasn't because someone was trying to sell me a "Louie Veeton" handbag for my wife ("no really honey, it's a real one...same same but different...!")

As I was sat at a roundtable listening to an industry perspective presentation, one of the attendees whispered to his tablemate that "we've heard this all before, has nothing changed in our industry? It's the same thing every year." And that's when it hit me - yes it's "same same" - but quite different than it may seem on the surface.

Take content fragmentation, GDS relevance and online adoption in Asia Pacific, for example. Five years ago when I attended my first ACTE Asia Pacific conference, I was working for a GDS company and was part of a session discussing the demise of traditional distribution due to the "imminent rise of online booking and direct connects in the region." Lots of nodding heads in the audience at that one.

At the conference last week, we heard from several TMC's including HRG and BCD that online booking adoption is growing in Asia Pacific and that supplier content fragmentation continues to be the norm in this region. So there you go - on the surface it sounds like we were saying what was said five years earlier ("same same!")

But listen closer, and you'll start to hear the "but different" part of the old saying. During another industry perspective presentation at ACTE, BCD's Greg O'Neil in particular talked about this subject within a comprehensive white paper called "At The Tipping Point" in which he rightly points out that while online booking has grown significantly in the region (the "same same" part) the BCD white paper also notes that "...a further trend toward the increased use by business travelers of smart phones and other Web—enabled devices should be seen as an interlinked development with online booking." That's the "but different" part.

The great fun of being in this region is that while on the surface sometimes things seem to move quite slowly, the undercurrent is whipping along at a break-neck pace. So while some people may see things as not progressing all that fast, others realise that when you reach the back-end of a period of time in this region you can expect things to suddenly look very, very different.

Many of the GDS pros, TMC leaders and buyers I spoke with last week to various degrees all understand that a big shift is already underway in Asia with respect to travel technology, distribution and traveller behaviour. And that shift is that mobile and hand-held devices are going to drive tremendous growth in self-service in Asia Pacific that will likely put this region well ahead of the rest of the world in this space in the coming months. Note I said months - not years.

Yes, given the plethora of GDS options (TOPAS or TravelSky, anyone?) seemingly endless new online upstarts (excellent IPO, MakeMyTrip) and rapid rise of mobile social media (60% of all tweets globally come from Asia - yowza!) this market may seem to be a madhouse sometimes. But from madness often comes greatness, and it's likely that the corporate travel industry will meet again in Singapore next year and look back on what will likely have been quite a year for travel technology in the region.

And that, my tablemates at ACTE, is very, very different than what you may think it is.

EXTRA SHOT FOR THE DAY

At the risk of taking credit for something I know I had no direct influence on, I still am pleased to know that Virgin Blue is at least thinking the same way I am.

In an earlier Cafe posting I offered up several ideas which DJ could take on board to help them in their attempts to steal corporate market share away from Qantas. This week they've announced that at least one of my points - widebody planes on domestic routes - will become a reality from May 2011 when they introduce A330 aircraft on routes between Perth and the east coast. Flying to Australia's largest state on a large aircraft is just natural, as why wouldn't you want to start stretching out as soon as you possibly can?

And just in case, by some miracle there are Virgin Blue patrons starting to have a peek in the Cafe's windows, I might suggest that they next see about what they're going to do with that useless "Premium Economy" class....

Image courtesy AustralianGamer.com

Back in Black

Sorry for anyone here in the Cafe that's a bit bleary eyed this morning, as I'm cranking up the AC/DC in honour of our global airline industry:

(you know the guitar riff already so sing along in your head...)

Back in black
I hit the sack
I've been too long I'm glad to be back
Yes, I'm let loose
From the noose
That's kept me hanging about
I've been looking at the sky
'Cause it's gettin' me high
Forget the hearse 'cause I never die
I got nine lives
Cat's eyes
Abusin' every one of them and running wild
(Copyright 1980; B. Young, A. Young, B. Johnson)

You may ask if I've hit the espresso a bit hard this morning. But after some of my recent posts worrying about the supposed drop in premium traffic as well as the frenetic airfare discounting happening in some markets, you can forgive me if I'm now happy to hear that the airlines' worst days are behind them. Cut loose indeed - keep flyin' high boys!

IATA this week announced that they now expect airlines to post a global profit of $2.5 billion in 2010. According to IATA (http://www.iata.org/pressroom/pr/Pages/2010-06-07-01.aspx) "This is a major improvement compared with IATA’s previous forecast released in March of a $2.8 billion loss." A $5.3B turnaround? Yep, I'd say that is quite a major improvement.

Although good news for the travel industry as a whole (after all, a bankrupt airline industry is essentially a bankrupt travel industry) it also didn't stop IATA from taking a swipe at some classic "bad guys" in the industry group's eyes. Well at least the eyes of Signore Bisignani, IATA's Director General and CEO.

In the above referenced press release, Mr. Bisignani said the following: "Seeing black on the bottom line is a great achievement. The resilience of the industry has been strengthened by a decade of cost cutting, restructuring and re-engineering processes. IATA’s programs have contributed to this with $47 billion in cost savings since 2004 with efficiencies in safety auditing, fuel management, infrastructure costs, and Simplifying the Business.

"But even with all of our hard work, the result is just a 0.5% margin that does not even cover our cost of capital. The industry is fragile. The challenge to build a healthy industry requires even greater alignment of governments, labor, and industry partners. They must all understand that this industry needs to continue to reduce costs, gain efficiencies and be able to re-structure itself if it is to be sustainably profitable. We must all be prepared for a greater change,” said Bisignani.

All very true, and certainly all valid points.

But then in a speech delivered to IATA members in Berlin also this week, Mr. Bisignani blasted GDS's in particular saying: "they (GDS's) are leeches charging at least $4 per transaction when China Travel Sky does it for just $1.20. On top of that, they sell you your data with a seven-digit price tag. That is pure profit. BASTA. We will break their monopoly on your data with a cost-effective solution."

Yikes. As the old west cowboys used to say, "dem's fightin' words."

Which concerns me, as in his prepared comments in the press release about airlines coming back to profitability he professed the need for "greater alignment...of industry partners." Is yelling (albeit in Italian, which does sound cool doesn't it?) at those same partners his method of "alignment?"

Of course, Mr. Bisignani could be taking inspiration from the hard rockin' Aussies in Acca Dacca by "running wild." Perhaps being "back in black" isn't all that great for the industry after all? Depends on how you spin the tune, I guess.

Haute Couture, Tiffany Diamonds...American Airlines Seat 23D from DFW-ORD?

Here we go...after years of saying they were going to do it, they are going to do it.

American Airlines is going high fashion.

Perhaps you're wondering if the Travel Barista has had a few too many shots of espresso today, but bear with me.

There is a very clear-cut strategy that high fashion, luxury labels and cache brands use to give their products an air of exclusivity that you can't find in the department store brands. And that strategy is that you can't get them in the department stores.

You want a real Tiffany cut diamond engagement ring in the famous blue box? Only a Tiffany store itself can give it to you. Looking for that Oscar red-carpet look that will allow you to say "it's a Vera Wang?" Better visit one of her stores. Want a complete set of customised steamer trunks like they used to use to travel the world on ocean liners? Head down to your local Louis Vuitton shop. (Ok, perhaps a back alley in Shanghai...)

So what does all this have to do with American Airlines? Simple - they are, in essence, taking their product out of the department store and opening up their own, exclusive, hard to get to, boutique.

Read all about it: http://www.eyefortravel.com/news/airlines/american-airlines-takes-gds-charges-new-distribution-model

Long story short is that American has had enough of giving distribution channels like the GDS's, corporate travel management companies, and online travel agencies (and soon I'm sure good old fashioned shop-front retail travel agencies) a chance to make a bit of profit by selling American Airlines seats. So they're going to only sell direct. Maison d'American Airlines, anyone?

In essence, by only allowing their product to be sold directly via their own channel, takes them out of the shopping marketplace and distribution network that long has served them and other airlines well and will ask the buyers to come find them. It's Fifth Avenue or Bond Street as opposed to Bloomingdale's or Selfridges.

For those travel managers out there who perhaps find the product that American offers is indeed worth the premium it will now take to be able to book, ticket, track, manage and report on flights bought on American, then perhaps this will be a good strategy. After all, making something hard to get can often make it quite irresistible.

But my money's on the fact that most travel maangers are more like power shoppers, who'd rather comb the Saturday newspapers trying to figure out which store is having which sale on the most choices of stuff available rather than having to make a separate trip to a boutique to buy only one type of outfit.

So...could we soon see American Airlines be up there with the Jimmy Choo's or Hermes of the world? Sounds a bit pretentious, doesn't it?