Monthly Archives: December 2014

Lawsuit Against Altour Highlights Importance Of Supplier Vetting

[UPDATE, Dec. 2: The U.S. District Court in New York hearing the case in March granted Altour’s motion to dismiss. In April, Planetarium appealed to the U.S. Court of Appeals for the Second Circuit. That court affirmed the district court’s judgment last month, finding that Planetarium “failed to explain” how the Amex-Altour relationship hinders competition.]

A lawsuit between two travel agencies that could go to trial next year in New York state presents one reason organizations should thoroughly vet potential travel providers, including those suppliers’ suppliers.

Travel management companies often provide their business clients benefits from network affiliations. Product offerings vary among the networks, so changing partners can alter an agency’s value proposition. In rare cases, the changes are not expected.

Planetarium-Altour lawsuit

Image Credit: Thinkstock

That’s the scenario in ongoing litigation brought by Planetarium Travel Inc. (PTI) against Altour International. The New York-based agencies respectively are a former and a current member of the American Express Representative Network. That network provides members access to discounted rates and other advantages. Customers of network members also enjoy special Membership Rewards benefits and access to hundreds of travel offices around the world.

Most rep network members are leisure agencies, though several are corporate service providers. The latter group includes Hess Travel, National Travel Service, The Travel Team, MacNair Travel Management, CI Travel and Travelink. An Amex press official declined to disclose the current number of rep network agencies. As of 2010, there were 175 operating 450 office locations, according to a former Amex executive.

A Cautionary Tale

When working with travel agencies that derive products and services from network affiliations, it’s wise for clients to ask for information about contractual commitments, service-level agreements and contingency plans.

Previously head of HRG’s agency network and now president of Hickory Global Partners, Chris Dane said affiliates leave for lots of reasons, but it’s almost always amicable or at least understandable to both parties. That wasn’t the case with PTI and American Express when the latter in late 2009 opted not to renew its longstanding affiliation with the former. The decision allegedly impacted PTI’s corporate clients and wrecked its business, so it sued American Express Travel Related Services Company.

In May 2010, PTI president Blake Fleetwood, now manager of Cook Travel (which also does business as Planetamex), testified during the Supreme Court of New York case that after becoming an Amex rep in the mid-1990s, he hesitated to seek out large corporate clients. He said big clients typically wanted 5- or 10-year agency deals (three to five years is more common), but PTI had an Amex rep agreement of just two years. “I was worried about entering into these contracts with corporations that naturally didn’t want to start doing business with me, an American Express representative, and be told that at the end of the year I could no longer deliver the services I had been promised,” Fleetwood told the court.

He claimed Amex told him not to worry because PTI’s affiliation would renew if it remained in good standing. Fleetwood told the court that he then signed deals with Banco Santander, The Dannon Company, architectural firm Pei Cobb and others. (PTI later also identified Lord Abbott, General Atlantic and Oppenheimer as corporate clients.) It’s not clear if PTI handled some or all those accounts’ corporate travel needs. Fleetwood did not respond to a request last week for more information.

Altour entered the scene in spring 2009 by becoming an Amex rep network affiliate that also offered other members its “host” agency services. Fleetwood said he voiced concern about that deal’s legality, viability as it related to ARC rules and fairness to Amex rep network members. He viewed as unfavorable the financial terms for reps, including how Altour would share upfront commissions and back-end incentives. He claimed his dissent led to PTI’s termination in the Amex network.

Amex executives during testimony said they decided not to renew PTI’s affiliation due to issues they had with how PTI represented the Amex brand.

PTI/Cook Travel and Amex settled in May 2013. Amex paid $550,000 and the parties agreed to enter binding arbitration for any dispute related to the settlement or “any other matter between and among them.”

Case Not Closed

In November 2013, PTI sued Altour in the U.S. District Court’s Southern District of New York. PTI alleged that Altour conspired with Amex to supplant PTI in the Amex rep network and “insulate itself from price competition.”

According to an Amex-Altour contract filed as part of the court case, Amex agreed to “designate [Altour] as a preferred vendor to its rep network” and encourage rep network agencies to purchase Altour services. As the “only” agency to be so designated, Altour agreed to offer its ARC hosting services to “all” network members. These included its airline commission contracts, support desk and — “for the purposes of issuing airline tickets as needed” — access to global distribution systems. The agreement stipulated that rep network agencies can “solicit and procure any other hosting agency.”

The defense called PTI’s conclusions about the Altour-Amex deal “unsupportable” and “mischaracterized.”

“This case is nothing more than an awkward attempt to fit the loss of business PTI suffered as a result of the termination of its contractual franchise relationship with Amex Travel — a dispute which PTI has already fully litigated against Amex Travel in a separate and previously settled suit — into claims of conspiracy,” according to Altour’s attorneys.

PTI did not name Amex as a defendant because of the previous settlement, but implicated it as a co-conspirator. Amex intervened, claiming that by implicating it, Planetarium violated the previous settlement agreement. Amex first moved to keep its Altour contract out of it, then moved for an injunction to stay the legislation.

A jury trial could begin after fact discovery, according to a court case management plan dated Dec. 8, as ordered by U.S. magistrate judge Ronald L. Ellis. The defendant’s motion to dismiss remained pending at press time.

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Concur’s TripLink Adds Airbnb

Concur announced that integration allowing users to book Airbnb through its TripLink “open booking” approach is live. The pair already had enabled Airbnb’s site and apps to feed receipts into linked Concur Expense accounts.

The new booking connection should benefit both TripLink and Airbnb. Corporate travel buyers are more interested in Airbnb if travelers can book through preferred systems. With more appeal, TripLink may become one of those.

Airbnb ConcurThe collaboration doesn’t address Airbnb’s main challenges in the corporate market. Most businesses have no formal employee guidance on Airbnb. But The Company Dime since July spoke with almost 30 corporate travel managers who had evaluated the option. Twenty-five of the companies chose to discourage or not endorse Airbnb while three gave a green light.

Along with Uber, Airbnb is part of the biggest business-travel craze of 2014. Both so-called sharing economy models raise insurance, safety and liability questions.

Airbnb also faces concerns about reliability. Like on Uber, there’s a rating system for the operator. But there’s more at stake with lodging. Dirty dishes, a hassle getting in the door — any unexpected aspect of the environs, really — can make for an uncomfortable or even unsuccessful business trip.

“While the reputation rating system on Airbnb appears to serve as a powerful deterrent to renting out unclean properties, it can still happen, and hosts typically aren’t required by law to meet the same standards of cleanliness as a hotel,” according to a LinkedIn post by’s founder, attorney Stephen Barth. “While hotels are required by law to install and maintain safety features like smoke detectors and fire escapes, many private residences — especially older ones — do not have these features. Hotels almost universally control access to various parts of their buildings and typically have at least basic security measures in place in parking lots and entry areas, while many houses and apartments do not.”

Airbnb is addressing some issues with a business travel site that offers properties it considers most suitable. Internet access, for example, is a must. Airbnb officials this week did not respond to requests for more information about its business travel initiatives.

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Uber’s Banking Endorsements Don’t Assuage Risk Concerns

When Morgan Stanley and Citi authorized employees to use Uber, cynics scoffed that they were just trying to earn Uber’s business. Managing an Uber IPO, for example, would be lucrative.

The Company Dime set out to prove the skeptics wrong, but could not.

Supplier vetting is a standard procurement and travel management process. Sensible practice calls for close examination of all suppliers — especially one with Uber’s legal, safety and integrity baggage.

When asked about any risk assessment their firms conducted on Uber, press officials with Citi and Morgan Stanley declined to comment.

In an internal employee memo sent in late October, Morgan Stanley told workers that they would shoulder the risk.

As with taxis and other private transportation methods, use of Uber is at the sole risk of the employee. Employees should use discretion and good judgement when using Uber since the firm has no assurance that drivers and/or vehicles are properly screened, trained or insured. Employees are making a personal decision to accept the terms and conditions of Uber’s usage agreement and are solely responsible for compliance with such terms and conditions. Employees using Uber are assuming all risks of damages or injury that may be sustained as a result of using Uber.

Sources said that in some cases, senior executives at financial firms pressured travel, risk and legal departments to support Uber despite concerns.

A common refrain is that Uber is just like a taxi, but this ignores the fact that Uber’s driver background checks are less rigorous than those of regulated taxi companies. Uber refers corporate travel managers to its website for information about driver screening. Until November, the site trumpeted “industry-leading standards” for background checks. Now it cites “constantly improving” standards.

Uber banking endorsementsTaxi drivers go through fingerprint identification to authenticate their records. Uber drivers do not. The New York Times this week went into detail on background checks and Uber’s political clout.

During the past couple weeks, a handful of cities and states banned Uber and a few more municipalities sued it. More alleged criminal activity by drivers surfaced. Filed this week by the cities of Los Angeles and San Francisco, one lawsuit goes after Uber for misrepresenting the quality of its background checks.

Some travel managers feel overwhelmed by the volume of information about Uber. Endorsements from big-name companies with huge staffs should offer some comfort and guidance. Regrettably, some of the most public corporate travel endorsements for Uber have come from bankers fighting each other for its business.

It’s going to take more than that to sway safety-conscious corporate travel departments.

Additional info: Sources included a half-dozen people with intimate knowledge of travel management at financial firms, and their recent thinking on Uber.

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Automation Breathes New Life Into Traveler Incentive Programs

Well before gamification became a corporate travel buzzword, companies had straightforward ways to reward travelers for booking cheaper flights. Traveler incentive programs that share savings with those who book coach airfare when business class is acceptable are challenging but not uncommon.

Now, a variation on the concept appeals to companies without robust travel-management programs and policies. Point-of-sale price benchmarks guide travelers who may not know if they’re getting a reasonable price, especially if they’re permitted to book in the open market. To favor frugal choices, incentive programs can tie desired behaviors and/or price targets to reward opportunities.

Incentive programs

The notion is inspired by Google’s travel incentive program, which has not been widely emulated among other large corporations.

“Quite a number of small market clients” show interest in some sort of corporate travel gamification, said Marc Casto of Silicon Valley’s Casto Travel. “It doesn’t lend itself to a complex program, but it does give at least a soft level of policy administration from which a company can grow on. It’s better than letting people do whatever they want to do and letting the chips fall as they may.”

It may be better than letting suppliers, by way of their loyalty programs, be the only ones rewarding travelers. Suppliers taught travelers how to advance in those systems, and “the challenge for the corporation is they are competing against this,” said consultant Tom Ruesink.

Interested companies need to answer some questions about incentive programs. Do they want to reward employees for doing what they should anyway? Is such a program fair to those who don’t travel, or those in departments with different travel policies? Do they want travelers to fly in coach class on long flights when comfort and rest are a big reason for allowing premium class in the first place? The answers may depend on company culture and the travel, finance or procurement department’s willingness to invest in and track the scheme.

“It’s an intuitively obvious idea but remarkably complicated to pull off. It’s not just about travel,” said Rocketrip co-founder Dan Ruch. Rocketrip is a travel management platform built around price targets and rewards redemption. “We spend as much time on the mechanics of what a point is worth and how employees are able to redeem rewards for earning those points as we do on travel.”

There are other practical considerations. When employees earn rewards of any monetary value, they need to understand tax liabilities. Rocketrip suggests clients treat rewards as compensation and withhold taxes accordingly.

Personal tax liabilities don’t apply to merit badges or funding for future business travel. Some incentive program providers enable users to pool points for charitable, philanthropic or environmental causes. Those also don’t come with any individual tax liability.

Budgeting for incentives and reporting any savings or cost-avoidance also can be tricky. And what about fraud? If travelers can receive incentives, the unscrupulous among them might take unnecessary trips to “earn” more. (Sounds far-fetched? Think again.) To guard against impropriety, incentive program providers can help with a pre-trip approvals process. Travel and Transport general manager Michelle Holmes said companies also should watch for one-way bookings. Those could enable travelers to double dip on a single trip.

Travel and Transport is claiming inroads for its Points 2 Points traveler incentive program, which encourages desired booking behaviors to improve policy compliance. Travelers can redeem points for merchandise, travel rewards or other recognition.

Holmes said she has seen interest across the board but acknowledged it’s not for all companies. Those with very small travel volumes, for example, may not find enough value, given the resources needed to assess, manage, measure and monitor such a program.

Rocketrip so far has attracted mainly small technology companies clustered in New York City and California. Some allow travelers to book in the open market. Most Rocketrip clients use a travel management company for at least some basic fulfillment services. MediaBrix doesn’t. Founded in 2011, the New York-based digital advertising platform provider had some guidelines for its roughly 20 travelers. But before signing up with Rocketrip two months ago, that was about it for travel management.

“Each one of our sellers is given a monthly T&E budget, and as long as they stay under, we are OK,” said MediaBrix vice president of finance Aaron Feldon. “But as travel costs have gotten more expensive we wanted to put some savings in place.” Now, the company’s travelers have more granular guidance. Rocketrip incorporates MediaBrix’s guidelines when presenting a benchmark for a given itinerary. Travelers beating that benchmark earn points redeemable for gift cards and the like.

Rocketrip in November claimed to have tripled its client base since the beginning of the year. In early 2014, the company picked up $2.6 million more from its backers, led by venture capital firm Canaan Partners. Rocketrip recently connected with Concur to send expense data to the latter’s expense management system.

Concur now offers its own employee incentive program dubbed Travel Points. It’s used in conjunction with a point-of-sale benchmarking system called Price To Beat. Users can reward points (funded from the company’s travel budget) to travelers who beat benchmarks. According to a Concur user guide, clients can use points for future business travel (perhaps to offset over-benchmark purchases), internal team competitions or “offline redemption … for company merchandise or other items of value.”

Concur travel product vice president Doug Anderson said Price To Beat thus far is the more popular component. That’s because with points, there is “more to think about than just turning on a switch and rewarding points,” he said. “You need to know what to do with them.”

He shared a vision of expanding Travel Points to encourage behavior beyond booking. That could include rewarding employees for checking in during trips (as a duty of care tool) or for filing a proper, timely expense report.

Any foray into employee incentive programs should start with a cost/benefit analysis, according to a November blog post by Vic Arora, co-founder of Concur partner Blackspark, which markets the TMX employee engagement platform. Arora explained that costs can include the time required to review program options and buy the one that fits best; resources needed for change management and employee communication; software licensing and support; hardware if necessary; IT resources; and reward fulfillment.

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Point-Of-Sale Benchmarks Add To Visual Guilt

[UPDATE, March 8, 2017: Concur decided to “phase out” the Price to Beat feature, according to Rocketrip. The two companies announced an expanded partnership. More info here.]

More than a decade ago, U.S. businesses started saving significant money due to what travel professionals called visual guilt. Mainstream by 2006, the notion is that when travelers see rates themselves rather than hear them from an agent, they’ll pick a cheap one. There’s no one else to blame if the boss questions it.

It was a cost-saving consequence of providing employees self-booking tools and more information. Now, some are finding that guilt-tripping employees by displaying a “price to beat” is changing their future booking behavior for the better.

Benchmarks“Giving the travelers more data in an easily visible way is a step in the right direction in helping them make better decisions when booking corporate travel,” said Jason Grunin, associate director of special projects and energy conservation at the University of Tulsa. “It has definitely brought awareness. We’ve seen a lot more advance purchase, 21-day plus. The hope is that by giving the employee that price to beat, they are making a conscious choice when booking more expensive options. We empower them to be experts on something they only do for business potentially once or twice a year and show them what the average is to make better booking decisions.”

Grunin said the university asks employees to treat its money as if it were their own, with savings enabling more travel. With 1,200 full-time employees and an annual T&E budget of roughly $10 million, the school’s travel program is relatively new. It implemented Concur’s travel and expense systems about a year ago, after having used a travel agency for some bookings. Now, travelers must book airfares through the agency or Concur.

The university started using Concur’s Price To Beat function about three months ago, but it doesn’t use the associated Travel Points program. Price To Beat thus far is more popular than the points program because it “ties right into spend goals,” said Concur travel product vice president Doug Anderson. He said the rewards component requires more thinking.

Rocketrip co-founder Dan Ruch doesn’t see the point in using benchmarks without associated rewards. “We don’t offer the platform independent of the reward component for a single, very important reason,” he wrote by email. “Without it, the platform turns into a draconian policy enforcement mechanism, which was never what it was intended to be. The idea behind the reward platform is that it engages employees as enthusiastic partners not only in cost savings, but data collection, analytics and monitoring.”

One criticism of point-of-sale benchmarks is that the further they are from real-time, the more flawed they become. Airfares are particularly volatile and variable. The difficulty in benchmarking a moving target is one reason why travel management companies haven’t tackled this themselves.

‘Secret Sauce’

Executives at Rocketrip and Concur both used the term “secret sauce” to describe how they create point-of-sale benchmarks.

Rocketrip’s algorithms consider any client negotiated rates and policies, global distribution system rates and, if clients allow, prices from the open market. The benchmark expires 24 hours after it’s displayed to the traveler. Prices change in that window, but Ruch said changes do not “materially affect the budget to beat for a given trip.”

In October, Rocketrip shared findings from research into client savings. It claimed that users on average had been saving about 22 percent by booking airfares below the budget benchmark. Clients saved most when travelers used personal frequent flyer miles or chose coach instead of business class. The most popular saving behaviors included choosing lowest available fares and connecting itineraries.

For lodging, users on average beat benchmark rates by 37 percent. Discounted deals on travel sites saved 26 percent while Airbnb bookings saved 41 percent (or $102 per night). Staying with a friend, of course, saved even more.

Concur’s Price To Beat offers historical benchmarks based on applying “predictive analytics” to prices “actually paid in recent months” by millions of users. Corporate users can configure airfare searches to be “restrictive,” “balanced” or “flexible,” based on objectives, culture and existence of any negotiated discount rates. Benchmarks update constantly as new bookings come in from Concur clients.

The Concur Travel self-booking tool can display benchmarks based on real-time availability. Intended to find the lowest logical fare, the system enables corporate clients to set parameters like whether to consider a connection.

Before making TripLink “open” bookings, users first find the target price by entering origin, destination and date into the Concur desktop interface or mobile app. Anderson said a future solution could be a browser extension that enables a traveler to use a widget and see the benchmark while booking in the open market.

“Exhaustion” from running static programs in dynamic environments is driving interest, Anderson said. He also suggested managers can compare and address employee performance. “Here are two salespeople with equal productivity and this one spends a heck of a lot more on travel for some reason,” he said. “You can start to really do some interesting analytics around that.”

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New AA Travel Agency Incentive Favors Higher Fares Over More Passengers

American Airlines this quarter brought to most of its North American travel agencies revised back-end “override” incentive programs. Based on revenue share rather than passenger count, the move may put some travel buyers on guard for higher costs.

It’s conceivable that the program presents agencies a reason to either transact higher fares and/or charge higher client fees. But AA isn’t looking at it that way. Vice president of global sales Derek DeCross today said the idea is to “win a greater share of high-value customers” across all customer segments.

AA Travel Agency IncentiveSources indicated that Delta Air Lines takes a similar approach with agency partners, though it declined to provide information. Like United Airlines, Delta also now bases frequent flyer points accrual on dollars spent rather than miles flown. Corporate discount programs nowadays also emphasize higher-yielding bookings over quantity.

Travel agency executives said they understood American’s rationale, even if the new program will be less lucrative for some. In the past, a narrow focus on market share led to fare wars, which helped push big airlines into insolvency. Airlines always favored higher-yield passengers and for a while have paid smaller, if any, incentives on lower fares. Revenue-share agency programs further cement that strategy.

Under previous marketshare agreements, airlines rewarded agencies that achieved a segment or passenger count target. For example, if the airline had a 25 percent market share, an agency hit the target by booking at least 25 segments or passengers on that airline out of every 100. Now, AA wants $25 for every $100 transacted in that market.

AA’s previous “peer-share-based program” was more than a decade old and too complicated, DeCross said. In the new one, “there’s not a denominator of a peer-based share that is moving around on them all the time.”

AA began developing the program two years ago, even before getting involved in the US Airways merger. It includes bookings from U.S. points of sale on joint business partners British Airways, Iberia, Japan Airlines and Qantas.

While DeCross said AA won’t exclude any bookings from the program, some of the lowest fares count only for measuring an agency’s performance and not for calculating the actual incentive payment.

Feedback from large travel agencies also prompted a change on the data source, traditionally the GDS-provided MIDT information. AA now is using the Direct Data Solutions product developed by ARC and the International Air Transport Association.

“That information is ticketed data, the same data agencies see in their own internal reporting,” DeCross explained.

Spending More?

On the surface, it would seem an added incentive to book high fares could mean business travelers are spending more of their companies’ money.

“You can never assume the agency is doing right by you, if you have any common sense,” said one travel buyer, who requested anonymity while examining an existing TMC agreement. “The travel manager is looking over one shoulder at travelers and looking over another shoulder at the travel company because they are selling fares that supposedly are all that’s available.”

Many corporate policies stipulate that travelers book the lowest available fare for a given itinerary. Ensuring that’s what agencies offer at the point of sale requires some back-end work like audits.

Blackboard corporate travel manager Valerie Fender said it’d be “really irresponsible” but also “too risky” for an agency to deliberately sell higher-priced tickets. “But I do think there’s a tendency to preference,” she continued. “Say the agency is getting close to its target with a preferred airline. Agents might be told, ‘We need some more AA.’ That’s exactly what this program is designed to do. And so in that case, there’s a risk that what’s offered is not the best option for the traveler.”

“Overrides and commissions very much are a secondary consideration when the goal is handling corporate travel,” said Mark Pestronk, an attorney hired by travel agencies. “If you incur the wrath of the travel manager by selling up even once, for no reason other than something that benefits the travel agency, the corporate travel manager will catch that. Is there a built-in conflict of interest with overrides? Well yes, in theory, but in practice it doesn’t work that way.”

Having clients’ backs, though, may come at the expense of diminished revenue from suppliers. TMCs can absorb the hit or try to make it up elsewhere. That can mean new or higher fees charged to clients.

“Travel managers always turned a blind eye to this on some level because they know to some extent it subsidizes the services they get,” explained ARC CEO Mike Premo. “They are not going to get that $7 self-booking fee if the agency is not getting some sort of override. It may not be clear to them what those revenue sources are or how much they are actually getting back, but the model doesn’t work the same way without it.”

ARC offers an accreditation program for companies interested in earning the incentives themselves. ARC has accredited about 300 entities during the Corporate Travel Department program’s history, while 145 now are active.

AA’s DeCross said he hasn’t heard concerns from corporate customers. AA isn’t out to undermine their programs or put agencies in a tough spot, he said. If a traveler works for a company that has agreements with American and another airline, and both airlines are offering a similar fare, “then the travel agency has that discretion to look between those two,” said DeCross. “As long as it’s within corporate policy and the agency is living up to its fiduciary duty, then in essence we are rewarding them for putting that higher-value transaction on AA instead of the other guy.”

Additional info: Sources included eight travel management professionals and executives from five corporate travel management companies.

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SAP’s Earnings Target For Concur Requires Serious Synergy

SAP expects the pricey acquisition of Concur to increase its earnings in 2016, but that seems possible only with massive revenue growth or layoffs.

In its fiscal year ended this past September, Concur recorded non-GAAP pretax income of $56 million. [Using non-GAAP figures reduces the effect of non-recurring items and improves comparability of performance over time.] But SAP is borrowing about $8.7 billion to make the deal, meaning it will be paying something like $260 million a year in interest. So as compared with Concur’s fiscal 2014, SAP needs to make up well more than $200 million in two years to achieve a positive contribution to earnings.

In a research note, RBC Capital Markets analyst Ross MacMillan put it this way:

Assuming the €7 billion of debt SAP is using to fund the deal has an interest charge of 3 percent, and using a 20 percent tax rate, we think SAP will need to get Concur to around $300 million of earnings before interest and taxes to be accretive in calendar year 2016 (i.e., 30 percent-plus operating margin). We modeled 12 percent standalone, so there will have to be material synergies. We note, however, that SAP will likely save by running down its own Cloud for Travel and Expense product initiative as well as achieving sales and marketing synergies in Concur.

Tripling operating margin in two years is a tall task. “I’d imagine that once this is consummated, SAP will have to cut costs fairly materially,” MacMillan told The Company Dime. Executives expect the deal to close as early as today.

Stacy Pollard of J.P. Morgan Cazenove acknowledged the “margin impact” of adding Concur’s less profitable business to SAP. However, she noted this month that “the margin impact could be lower if SAP is able to achieve some synergies within the global sales force or other areas.” Analysts at Jefferies last month wrote that they “expect SAP to realize sizable cost synergy given that Concur was heavily investing to expand its sales infrastructure outside of the United States. We expect Concur will readily leverage SAP’s global sales infrastructure.”

Concur for some time has been on a hiring spree. In September 2012, it employed 2,400 people. Two years later, headcount was 4,900. Concur’s revenues in fiscal 2014 grew 29 percent versus a year earlier to more than $700 million, but its expenses were up 40 percent primarily due to higher increased personnel costs.

SAP-Concur synergyCuts already are underway at SAP itself, according to one analyst. “We understand from previous discussions with management that SAP believes that the core business has not been as streamlined or efficient as [it] could be and thus has been cutting costs since their [2012] acquisition of SuccessFactors,” according to an October research note by Sanford C. Bernstein & Co. senior analyst Mark Moerdler. “We believe that given the margin impact of Concur, SAP’s management and board required additional cost containment in order to mitigate the effects of the acquisition.”

Some don’t expect aggressive cuts. “The jury is still out on this acquisition and the profitability of Concur,” said FBR Capital Markets analyst Daniel Ives. “Rationalizing the price tag is difficult, but from an investor perspective it’s about the top line.”

At more than $8 billion, the acquisition is the most expensive ever for a software-as-a-service firm. SaaS is a version of cloud-based technology, which is growing far faster than the traditional on-premises software that makes up the vast majority of SAP’s existing business. Investors are pressuring the company to transition to SaaS, which saves money for customers. This is financially challenging because it means charging users on a subscription basis rather than through large upfront licensing fees.

If SAP manages to sell a whole lot of Concur’s solutions, the axe may not fall. Execs have noted that a majority of SAP’s approximately 261,000 customers do not run Concur. Can SAP sell so much more of Concur that despite the interest expense it will reach that 2016 profitability target without cutting personnel? Moerdler’s research suggests that SAP could double Concur’s client base and add more than $500 million in revenue if it converts 10 percent of its own customers to Concur.

It’s hard to say if that’s achievable. With an expanded sales force, acquisitions in the United Kingdom (2011) and France (2009) and a joint venture in Japan (2011), Concur already has knocked on a lot of international doors. [The Japanese joint venture is part-owned by Mark Benioff, chairman of SAP rival Salesforce.] Even so, SAP clients may have ignored Concur all these years since SAP offered its own expense solution. According to Mirabaud Securities analyst Susan Anthony, Concur has a sales presence in less than a dozen markets. SAP has a local team in 50.

A September FAQ published by Concur asked whether employees “still have a job.” The answer: “This move is not about industry consolidation and layoffs. It is about innovating and growing our joint businesses. The skills and knowledge of Concur employees are critical to our success and the primary reason for this acquisition. … We do not anticipate workforce changes, and SAP will be working with Concur on go forward plans post-close and keep you informed throughout the process.”

Additional info: Sources included 10 equities analysts who cover Concur and/or SAP.

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SAP CEO: Why Have Travel Policy When Employees Can ‘Maybe Get A Better Rate’?

SAP CEO Bill McDermott sees Concur’s TripLink supplier-direct program as a replacement for corporate travel policy.

In an interview published last week by Re/code, McDermott responded as follows when asked why SAP is paying about $8 billion for Concur.

Every company has a corporate travel department, but no one wants to work with it. You can use your phone and go out on the Internet and as long as you stay within your budget you can travel any way you want, stay where you want, eat where you want and Concur lets you do that. Why should the corporate travel department tell you where you’re going to sit on the plane or where you’re going to stay if you can maybe get a better rate?

SAP expects to close the acquisition any day now.

To say “no one wants to work with” the corporate travel department is an exaggeration. Yet, corporate travel policies and procedures often are unpopular. This makes the corporate travel manager’s job harder. Rather than talking about helping clients in this struggle, McDermott seems to be saying he wants them to throw in the towel.

SAP Bill McDermott

SAP CEO Bill McDermott

The comments raise several questions.

Who is the customer? Since McDermott champions an empathic approach to customers, one would think he shouldn’t make comments undermining their tried-and-true methods. Perhaps he doesn’t see creators of travel policy as his customers. Concur does, though it also wins a lot of its business from finance departments. In the end run McDermott is illustrating, though, it’s the employee who carries the ball. Concur CEO Steve Singh in 2011 cited Apple co-founder Steve Jobs for the view that to win the enterprise, you just need to capture employees. With its mobile apps and perhaps TripLink, Concur has tools to compete for traveler loyalty. But it’s no Apple. When it comes to end-user tech, SAP is an orange.

Is McDermott using flashy-sounding open booking to explain why SAP overpaid for Concur? Could be. It may sound better than the real reason — that SAP is way behind on the transformation of enterprise software to the cloud. Having made that “painful” transition at a much smaller Concur, Singh years ago said it’s “impossible” for a company of SAP’s size.

Why does McDermott speak in the present tense (“Concur lets you do that”) as if TripLink is an established program? TripLink has achieved basic supplier-direct capability with IHG and Starwood. That’s two out of hundreds of business travel suppliers. The program lacks required travel process integration and data reporting. Insufficient progress has diminished support among early travel manager devotees. The vision is grand, but revenue from TripLink is de minimis.

Our last question is McDermott’s own, and the answers won’t be news to those familiar with travel management’s reasons for being. “Why should the corporate travel department tell you where you’re going to sit on the plane or where you’re going to stay if you can maybe get a better rate?”

1. It’s not your money.

2. Booking outside the corporate travel department’s recommended channel can make it difficult for the company to help you in an emergency.

3. You probably cannot “get a better rate.” That’s what Autodesk found. Many corporate travel officials instruct travelers to contact the travel department if they find better rates. Travel managers say that most of the time, the submitted rates are not comparable and the department already is accessing the best rate. Booking company rates supports negotiated agreements, which can bring benefits that are not available or apparent to shoppers using outside channels. This is not to say travel managers don’t have content problems. Individual markets where air carriers are not in the global distribution systems still are a challenge. Independent hotels are too, although GDSs are making gains there.

4. If the travel department doesn’t suggest where to sit or stay, you might overspend. The forces pushing up business travel rates are tremendous. Bonus points, status and better schedules are just a few of the reasons a business traveler may not want to follow policy. Travel policies need to address productivity and work-life balance — but not at any price.

McDermott channeled Scott Gillespie and Evan Konwiser, circa 2012, in saying, “As long as you stay within your budget you can travel any way you want, stay where you want …” Sounds nifty, but the consulting duo’s “Managed Travel 2.0” concept has not taken off. One recent study found just 18 percent of companies that manage travel is even a candidate for such an approach. Far fewer than that have attempted it.

Unrealized visions aside, the second part of McDermott’s answer sounds like it comes from the real world.

The other point is that 84 percent of Concur’s revenue is in the U.S., but only 30 percent of the world’s business travel spending occurs in the U.S. We operate in 190 countries and we have a global sales force.

It’s not the disruptive, game-changing, tells-it-likes-he-sees-it commentary from the first part. This portion of McDermott’s quote is kind of boring and fundamental, like enterprise software itself.

Additional info: SAP media relations personnel could not be reached for comment by press time.

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