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)

Global Corporate Travel Consolidation: Join In the Blogalogue!

Greetings, Cafe Patrons.

Believe it or not, I’ve just turned 8-months old as Barista of the Friday Morning Cafe. I’m not quite sure how blog years translate into people years, but I hope I’m about ready to start university perhaps?

In any case, I thought that given some increasing traffic (thanks everyone!) and a readiness to tackle some more weighty topics in the coming months, it was time to move the Cafe on from V1.0 and kick things up a bit. Next week I’ll debut a brand new look for the Cafe - an advance thanks to Mrs. Barista for most of the re-decorating – she’s a wizard!

To get things rolling for the new and improved Cafe, this week is part one of what I hope will be a provocative and interesting “blogalogue” (def. – a dialogue conducted within a blog) between the Cafe regulars and soon-to-be-regulars. Without giving too much away, I know that some of you visit the Cafe from travel management companies, some are from GDS or technology companies, some are corporate buyers, and many are corporate or leisure travellers in their own right. Given the one-to-many nature of blogs, it is often hard to get people actually “talking” about some of the topics in a structured way.

In the new Cafe, I propose to change this up a bit. Here’s how: over the coming weeks, I will be reaching out to a few of you who are regulars and some who may not yet be regulars, to see if we can’t get the comments section rolling (that’s the “blogalogue” part) around a particular topic. And if my own web surfing experience is any indication, it will have to be a pretty interesting topic to get people to join in the discussion on line.

So here goes.

As the world’s economy tries to put the recent GFC behind it, I believe that the differences at which recovery is progressing across various global markets is significant. On the one hand you have emerging and/or expanding markets like the BRIC and South East Asian countries that have basically already forgotten about GFC, while the US and European markets remain sluggish and uncertain.

From a corporate travel perspective, this patchy recovery could pose a very interesting dynamic in the coming years as many corporate travel program heavyweights traditionally are centred in the US/Western European markets. This centralised approach to travel management in those organisations have, over the past decade in conjunction with mega-TMC’s, often sought a “one global TMC, one global policy, one global program” approach to consolidation.

Given the last 2.5 years of GFC turmoil, one might then think that continued consolidation would be the norm given the relentless pursuit of cost-cutting many companies have embarked on.

However, given the aforementioned growth of certain “non-traditional” economies, there may be a counter-trend which could find more purchasing power emerging from Asia, South America or Eastern Europe than previously thought. As these markets are now powering much of the growth for many companies, these new “darling regions” could wield much more influence over how they operate. And given that many of the emerging global powerhouse companies are actually based in these rapidly growing markets, we could see an entirely new travel purchasing dynamic emerge.

So – the blogalogue question for Cafe goers is this: will consolidation of corporate travel programs continue apace, or will a new, fragmented yet regional-centric approach start to take shape?

I have a view on this, but in order to get the blogalogue going I’ll allow it to come out in response to the arguments posted by Cafe Patrons in the Comments section – see the link just below this posting. Again, I’ll be offering extra “shots” of advice to those of you I’ll be reaching out to over the coming week to galvanise the discussion – and by all means please feel free to bring newcomers to the Cafe, as again next week we will have a fresh new look ready to welcome them all!

Look forward to chatting with everyone.

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

The Future of Travel is Here...and it's Quite Futuristic

Last week I had the privilege to attend one of the largest corporate travel conferences in Australia, BTTB 2010 in Sydney. An annual confab bringing together buyers and suppliers of corporate travel services, BTTB has always tried to find topics to put on their agenda that are interesting and provocative.

One of this year's more interesting items on the program was called the "Mobile Shoot-Out" where vendors of travel technology including Amadeus, Sabre, Serko and ConTgo did a few nifty tricks with various new products, but one of them stood out as quite an interesting take on where corporate travel is going.

The guys at Serko have come up with an application which allows a corporation to be able to triangulate (using location-based mobile technology) a traveller's location pretty much down to the square foot he or she is standing on, and view that location on a map. The theory is that the corporation's security manager or HR director or whoever is in charge of traveller safety would then be able to evaluate whether or not the traveller may be in a so-called "hot zone" and then send messages to the mobile device of the traveller. This would all be under the premise that in an emergency the company could provide the traveller assistance and/or directions out of the hot zone.

Hello, George Orwell, you say? Perhaps, but I'm not as much concerned about the technology (which is quite cool in and of itself.) It's more about what it will be like for corporate travellers in the future with respect to what they will have to give up in exchange for what their company will provide them.

Are you comfortable with not only providing your mobile number to your company and your Travel Management Company but also now perhaps your technology provider? This would of course be in exchange for the peace of mind that come a terrorist attack or another ash cloud descending on your location, that your mobile will swiftly and surely start buzzing with useful information on how to deal with the situation. A good trade, having someone literally watching over you while you travel in exchange for them knowing exactly where you are standing/sleeping/sitting at all times?

The other aspect of this technology, of course, is although it may allow certain company execs to sleep better at night believing that the company's "duty of care" is now fully in place, how long will it be that these "find me and help me" services will be enough? Will the expectation - whether from the travellers or perhaps even the law in some countries - go even higher to ensure traveller safety? Will it still be enough to know where travellers are and send them messages to help out, or will companies now be expected to have their own SWAT-like search-and-rescue teams on standby to physically swoop in and get the traveller out of harms way?

Sounds a bit far-fetched, but I'm sure the Orwellians out there will say it's only a matter of time. Regardless, it's obvious that the future of traveller location and safety services is literally just around the corner...or is that danger lurking perhaps? Can anyone see around corners yet?

EXTRA SHOT FOR THE DAY

One other interesting "trend" heard at BTTB last week was hoteliers "being forced" to pass along credit card surcharges to companies wishing to pay for their hotel bills with plastic. Will we hear no end to the seemingly endless belief across so many companies today that no one is allowed to make money anymore except themselves?

If you want to accept credit cards, you need to pay for their services. It's secure, it's convenient, and it's what business travellers want to use. I don't carry $200 in cash around with me to pay for my room, and I don't want your hotel chain's direct-connect payment plan, as I am very happy with my current payment plan. That would be a credit card, by the way. You want to surcharge me? Fine, I will go to another hotel that doesn't.

Sounds like hoteliers are taking a page out of the airline book and try to fawn off costs of doing business as "extraneous services charges" or some other spun terminology. If you want to sell your product in a market-type environment (read: GDS) so you can attract the most potential buyers to your door, then you need to allow the market to make money off that. If you don't want to pay credit card companies to manage and process your cash flow for you, then don't take the cards. Simple. Then those hotels that do take cards and don't pass along the costs to me will get my business. Also simple.

What's next - a water surcharge for flushing the toilet? No wait, strike that - I should probably keep my mouth shut...don't want to give anyone any ideas....

I’m “Fee” To Do What I Want...Any Old Time...

Travellers don’t understand them. Corporate travel managers loathe them. And airlines love them.

What are they? Fees. Lots, and lots, of fees.

US carriers have elevated the auxiliary fee to an art form, finding all sorts of ways to charge the traveller extra for things that used to be standard. Checked bags. Choosing your seat. Nabbing an exit row. Food (bad, good or otherwise.) And my personal favourite- pillows and blankets. Laying your head down for a snooze and paying for the privilege is no longer just the business model of hotels apparently.

But what really is driving me nuts is not so much these numerous fees (which, unfortunately, are obviously here to stay and will be leveraged by more and more Asia Pacific carriers in the near future- more on this in a moment) but the fact that both airlines and the distribution systems which help sell seats for those airlines really don’t seem to be making things easy for those people buying and booking their product.

Case in point: Abacus recently announced the findings of the Abacus Merchandising Survey 2010 after interviewing Asian airline executives about their plans for capturing ancillary revenue through new fees charged to their customers (read the article courtesy of TravelMole here. http://www.travelmole.com/stories/1141434.php?mpnlog=1) Abacus vice president of marketing, Brett Henry, said, “The survey has made it clear that airlines in all segments across Asia, not just LCCs, are making ancillary revenues a key component of their future revenue growth strategies.” Well surprise, surprise.

But what’s troubling for everyone who works in the trenches in booking, tracking and reporting on airline costs for corporations (read: travel management companies and corporate travel buyers) is that there was very little Abacus said about what they plan to do about finding automated solutions for managing these fees. In fact, if you read the article closely – they said absolutely nothing about what they plan to do in terms of offering travel agencies solutions for being able to book, track and manage such fees so that corporations have a clear understanding of how they impact their business travel expenditure.

To be fair to Abacus, I’ve not heard or read anything from the other GDS’ with respect to their plans about ancillary fee management/automation/process improvements in Asia Pacific. For US and European markets, the major GDS’ are spending millions on developing solutions for airlines to help them merchandise, market and sell all these extra “services” with fees attached. But there seems to be very little in the way of how travel management companies are going to muddle through in the interim. Especially in Asia Pacific where this is an issue that is yet to really hit the radar of regional travel buyers and agencies, but I’m sure will be a front-of-mind migraine very, very soon.

So on that level, kudos to Abacus for the wake-up call to the Asia Pacific corporate travel community.

But now the challenge is- will Abacus now back up their research with solutions? And if not them, who else will step up?

And in the meantime – to all the TMC’s and corporate buyers out there – to paraphrase the Rolling Stones: be free, to do you want...for now, because pretty soon there will be no freedom from fees.

EXTRA SHOT FOR THE DAY:

Last week I questioned the seemingly full-on retreat by airlines like Qantas, BA and Air New Zealand with respect to traditional premium on-board products given what seems to be a relatively healthy rebound in demand in Asia Pacific at least. Since then, Qantas is reportedly reducing their SYD-JFK services to remove the daily B747 SYD-LAX-JFK services and replace it with an A330 service, but only 5 days a week.

The reduction is frequency is one thing, but it also means that there will no longer be First or Premium Economy products offered through to JFK from SYD as they only exist on the B747. And that may turn out to be a bad idea, given that many companies who have used the GFC to pull back their air spend and ask travellers move from Business down to Premium Economy (or even Economy.) And now Qantas is eliminating that “step-down” option for corporate travel buyers. So now all you QF Freaky Fliers, if you want to go to the Big Apple, it’s either the A380 then transfer to American Airlines (ugh) or scramble for limited business class seats on an A330. Things that make you go hmmm....

AND NOW FOR A DOUBLE EXTRA SHOT:

The International Air Transport Association (IATA) announced that February 2010 international scheduled air traffic showed a 9.5% year-on-year rise in passenger demand. Even more surprising, given that February isn’t usually a high-traffic month, IATA reported that adjusted for seasonality passenger traffic then translates to an all-time record February load factor of 79.3%.

So, some would think the airlines should be breaking out the bubbly rather than the doom-and-gloom quarterly earnings they’ve actually been preparing the investment community for. Yes, comparing February 2010 to February 2009 is like comparing apples to worms (ie- 2009 was an aberration) nonetheless the adjusted load factor record is somewhat astonishing.

So if you’re like me and have experienced packed airports, crammed planes, and waitlisted flights recently, you’re probably scratching your head like I’m scratching mine wondering: how on Earth can’t these airlines be making money????

I love the travel industry, but you couldn’t pay me enough to be in airline revenue management. When the numbers show that things are bad, but the “physical” indicators like the aforementioned packed planes make one think that times are rather good, would make for quite an unsatisfactory job I’d think. Not that I’d be very good at it anyway....