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[UPDATE, April 1, 6:29 p.m. EDT: Delta now says that while “end-on-end combinability of non-refundable fares has been restricted,” booking within one passenger name record “multiple one-way tickets for the purpose of constructing legitimate circle trips” is again possible. “You can book any one-way ticket we offer for sale, but we do not recommend using multiple one-way tickets to create connecting itineraries,” the airline added. “It increases the likelihood that customers could experience service failures such as lost baggage and missed connections.”]
[UPDATE, April 1, 5:05 p.m. EDT: American Airlines and United Airlines revised new U.S. domestic fare combinability rules to again allow circle trips on a single ticket.
According to United, “most legitimate open jaw and circle trips will now auto-price on a single ticket.” Nonrefundable one-way fares only can be used for one-way itineraries or simple roundtrip itineraries back to the origin city. The airline said the changes impact “all” sales channels, including global distribution systems, though online booking tools “may not support all itinerary type pricing requests.” United said its system allows for “multiple tickets in the same record,” but cautioned agencies about “possible consequences.”
AA said it adjusted fare filings to reduce “unintentional changes” to pricing for multi-city trips, circle trips and open jaw itineraries, “and will continue to work on technical enhancements in order to address these complex itineraries.” The airline’s stated reason behind the initial changes last week was to “prevent combining nonrefundable local fares to create a connecting itinerary.” Travelers still can book multiple one-way fares in that manner, though that requires multiple tickets. The airline “strongly” discourages that because it means a greater likelihood of “missed connections for checked baggage or cancelled tickets if travelers miss a connection.”]
[UPDATE, March 30, 1:57 p.m. EDT: American Airlines: “We’re monitoring the situation closely, and have been making adjustments based on customer feedback.”]
[UPDATE, March 30, 1:23 p.m. EDT: Industry sources said American, Delta and United are revising new policies on combinability. “They’re trying to find a middle ground,” said one travel executive. “They are working on how to adjust their philosophies to make sure the business traveler isn’t seeing a huge spike in fares.” Another source said, “We’re seeing some one-way fare pricing inside of a single itinerary” within the global distribution systems, the Concur booking tool and direct airline websites. That’s a reversal of what the three carriers enacted last week. None of the three has yet to confirm the latest changes.]
Processing fees on domestic circle trips skyrocketed last week after the big three airlines changed rules on nonrefundable fare “combinability,” forcing travelers and agents to create multiple transactions to get the best rates. Otherwise, booking in the traditional manner is resulting in fares higher by hundreds if not thousands of dollars.
Corporate travel professionals began catching on to the change as the week closed, for many on a holiday. Some are only just now taking a look at the situation. First reported in The Company Dime LinkedIn group, and almost simultaneously by The Beat, the development could have big implications for travel management.
If they stick, the new rules mean that to avoid fully refundable rates, agents or booking tools need to create three passenger name records for a trip running from A to B, then B to C and C to A — known as a circle trip. That generates three fees to an agent or booking tool.
Without advice to the contrary, business travelers using online booking tools could easily book three segments on one PNR the same as they always have — and pay far higher than the lowest possible amount. If it’s a preferred carrier, maybe they don’t think twice about it. Or maybe they only think, “More miles!”
“This is going to be huge,” Riot Games global travel wizard Sean Parham wrote Friday in The Company Dime LinkedIn group. “It will certainly impact my contract. I just ran a test LAX-JFK/JFK-SFO/SFO-LAX under one PNR and the price was $1,749. Priced as one-ways it came in at $396. I will have to consider disabling multi-segment bookings in my online booking tool to counter this.”
The pricing oddity was apparent on consumer online sites, as well. A trip priced last week on Google Flights to Atlanta from Cincinnati, then to Jackson, Miss., and then back to Atlanta came to $2,310. Breaking that into three one-way tickets showed $1,109.
“These higher priced round-trip or multi-leg fares are not just showing up in GDSs, but also on airline websites and online travel agencies,” said A&I Travel Management president Rebecca Martin. “As such, a knowledgeable full-service agent is currently the one and only source of the lowest airfares available.”
Sources said Delta was first to make the change, technically related to Category 10 fares filed through the Airline Tariff Publishing Company. The airline on Friday confirmed it had “recently made a change to the combinability rule of certain domestic one-way fare products.”
According to a Delta spokesperson, “This rule change was implemented to ensure that the fares we make available in the marketplace are consumed as intended.”
American and United matched. An AA official said, “We have made changes.” A spokesperson for United said, “We’ve matched the industry on domestic combinability changes. Various combinability restrictions already existed in many international markets, but generally combinability rules can change frequently in the marketplace.” According to Executive Travel Consultants, United last week made this announcement:
United as well as multiple U.S. carriers (including American and Delta) have made changes to the CAT10 domestic combinability fare rules impacting some one-way fares. Non-refundable fares will only allow customers to travel either on a one-way itinerary or to return back to the origin city (e.g., A -> B -> A type combination). For example, a trip such as ORD-DEN-LAX-ORD may no longer be combinable, but ORD-LAX-ORD or ORD-DEN-ORD is not impacted. Customers can still book multi-city circle trips and/or open jaws; however, the fares that do not have this combinability restriction may be slightly higher. As this change is in the fare rules, it applies across all channels, including united.com and all GDS providers. Note that refundable fares may still be booked as end-on-end and are not impacted by these combinability restrictions. Many international fare rules already carry combinability restrictions.
It’s not clear exactly what behavior the carriers are trying to correct.
According to one industry source, the Big Three airlines had been allowing travelers to combine onto one ticket two separate one-way fares — one to and one from a “connecting” city — even if those two fares had different rules. The reason behind allowing such combinability rather than offering only more traditional connecting itineraries was to compete against “ultra low-cost carriers” like Spirit Airlines. The new airline policies have closed the loophole, at least for lower-level fares.
The source called the impact on circle trips an “unintended consequence.”
One travel agency source who was on the phone with the airline trio much of last week claimed their revenue management departments made decisions without consulting sales. The source was hopeful that adjustments could be made this week.
Short of that, “it is a complete mess,” according to Casto Travel president and COO Marc Casto. “Interestingly, it is not in all markets. These price increases are firmly targeted at the business traveler. In short, throw your 2016 travel budgets out the windows.”
While dust continues to settle, it’s clear the biggest potential impact is on costs. Either travelers are paying the vastly higher combined circle-trip fares or splitting the tickets and paying additional fees.
Asking not to be quoted by name due to a lack of authority to speak publicly, one travel manager said that as many as one in five of the company’s domestic trips is a circle trip.
As Executive Travel Consultants pointed out, the more separate tickets there are, the more travelers would pay in change fees.
More broadly, the change could make the likes of Yapta much more attractive. Why continually re-shop for better rates on one ticket when you can do so on three?
Meanwhile, it would seem that transaction-based pricing — long the norm for corporations and their TMC partners — could fall out of favor if airline pricing and ticketing moves toward a segment basis.
For now, travel managers need to consult with agency partners, educate travelers and take a close look at messaging and rules in their booking systems. Pre-trip approval workflows may warrant a rethink.
It is easy to understand the importance of traveler feedback. Obtaining it is harder. As usual, mobile technology offers promise. A few new tech companies provide the means to collect timely and relevant traveler input, on the fly. Some travel management companies are looking to do the same.
Armed with meaningful feedback, travel managers can address service deficiencies and misconceptions, answer questions and better prepare for supplier negotiations. Legitimate closed-network feedback beats the noise and uncertainty of consumer review aggregator sites. If travelers believe their voice is heard, they’re more likely to share.
The Association of Corporate Travel Executives last year studied how travel managers approach this. ACTE found that a “surprisingly large” 44 percent had no formal process. Instead, they relied on ad-hoc emailed comments from travelers.
Many in the profession still use annual or semi-annual email surveys. Response rates aren’t always great and traveler sentiments can be dated. Post-trip surveys from travel management companies often relate only to a TMC’s own services, and travel managers can’t be sure they’re seeing timely or unfiltered data. The more popular business travel apps have ways to share feedback, but mostly about the app itself. Internal social media can be helpful, but it’s not for everybody. Some suppliers do better than others in sharing with travel managers the info gleaned from their own customer surveys.
“My suppliers know more about how my travelers feel about them than I do,” lamented one travel manager. “I’d like to ask people at the end of the trip to provide a smiley face, a straight face or a frowney face, and if they pick the frowney face, tell us why. If they pick the smiley face and they want to share the experience, tell us. It’s that easy, but I can’t find how you would do that.”
Surely things are moving that way. Think Uber’s quick ratings system.
“The feedback is going to be collected from travelers more in the moment, where they are,” said Miriam Moscovici, BCD Travel’s director of emerging technologies. “Is the traveler going to get a survey at the end of the year asking them what they think about American Airlines? No. It’s more reasonable for them, on their mobile itinerary at the end of an AA flight, to say if they enjoyed this flight, if it was acceptable and if they’d recommend the airline to a colleague. That makes more sense.”
According to marketing materials, BCD Travel’s TripSource app includes mobile surveys. Moscovici said the fastest-growing practice at BCD Travel consultancy Advito is traveler engagement. Engagement also is a key purpose of Roadmap’s custom travel apps and U.K.-based Tripism.
Tripism founder Adam Kerr said the idea is to better connect the travel management team and traveler population. The platform currently is accessible via a website, with a mobile app coming in a few weeks. It displays locations of a client company’s offices, preferred hotels and ground transportation providers. Individual client travelers can add their own recommendations on places to eat and various other pointers. Collaborative “trip boards” provide info for specific locations or specific events.
Kerr said client travel teams regularly receive employee feedback. It’s used to consider traveler-recommended hotels or address problems about policies, programs and suppliers.
“These are recommendations from people like you whose reviews you trust and are relevant,” Kerr said. “The goal is to drive a continuous cycle of improvement. People are more inclined to provide feedback in this channel because they know it will help colleagues.”
A next step is proactive surveying. “As soon as you’re back from a trip, we’ll send a page with trip details — the flight you took, the hotel you stayed at — and ask for a quick review and comments,” Kerr explained.
Tripism’s client list includes Microsoft.
The more familiar business travel apps allow for itinerary sharing and some collaboration on trip planning. They generally don’t provide mechanisms for submitting supplier and program feedback to travel managers.
TMCs suggest travel management pros engage employees through social media. Many do, but find genuine, balanced feedback hard to come by. It’s human nature to grumble more than compliment, especially when it’s easy to do so.
When DocuSign recently launched a Chatter site for travel and expense, “I was a little leery at first,” said global travel and card manager Rick Wakida. “It tends to just give people a place to complain. I want to hear the real complaints, not just entitlement complaints.”
In a 2015 white paper, Advito wrote that “it is important that travelers feel safe to share their opinions, even if they are unpopular ones.”
Travel managers at Advito clients LinkedIn and SunTrust detailed traveler engagement programs at last summer’s Global Business Travel Association conference in Orlando.
“I don’t know how many of you have sent out the boring travel survey, ‘On a scale of one to 10, how knowledgeable and friendly and courteous was your travel agent?’ ” said LinkedIn global travel manager Donna LaBarge. “We get 12 responses when sending out to 4,000 people and it’s only the people who lost their luggage who want to share that story with you.”
To get a more meaningful response, LinkedIn created a three-minute survey. It used visual appeal and quirky travel program stats to draw in respondents. Travelers chose smiley faces or sad faces to express satisfaction levels, and added comments to explain them. Responses were segmented by travel frequency and geographic region.
“We got so much out of it, and were able to send it back to the regions and have the travel agency respond by actually calling people,” LaBarge said. “It helped validate to executives that the travel program is working. Every country responded with great results. They feel good, so they’ll go address something else.”
SunTrust also relied on a visually appealing campaign and travel program factoids to drum up interest. The goal was to gauge employee awareness of certain policies and preferred suppliers. Playing off the company name, shining suns and thunderstorms stood in for smiley and frowney faces.
“We pushed out to 4,800 participants and had a 22 percent response rate, which is very good,” said outsourced travel manager Valerie Sullivan. “That is phenomenal feedback. We’ve got some work to do, but it validates that our goals are appropriate.”
Moscovici said there’s a step even before asking travelers for feedback: sensing satisfaction levels based on data about trip disruptions and how the TMC handled them.
American Express Global Business Travel VP digital traveler Evan Konwiser said Amex also tracks those metrics. He agreed they “can be a proxy for certain aspects” of customer satisfaction.
“Collecting real feedback from travelers is of course the ideal, but it’s tricky,” Konwiser said. “You don’t want to ask five or 10 questions each time a traveler checks out of a hotel or returns a rental car or gets off a plane. It’s not practical. Finding low-barrier techniques built into obvious and easy access channels like mobile is clearly one of the paths we can utilize to increase feedback.”
Travel and Transport this year expects to add “immediate survey pop-ups” to its mobile app and traveler portal, according to account management vice president April Wheeler.
It’s not that traditional feedback-gathering techniques yield no results. Plenty of companies survey travelers once a year, and plenty of TMCs push out post-trip surveys (often at low frequency). In doing so, they can flag serious issues. Many travel managers say any feedback is good feedback.
Travel and Transport surveys travelers by email about the reservations process after every trip, though not more than once every 90 days. “We also work with our various accounts to do ad-hoc surveys on various topics such as vendor programs, traveler services or other unique industry topics,” according to Wheeler.
Atlas Travel has a similar approach. It distributes a standard, emailed survey (clients determine frequency) to gauge traveler perspectives. A “fully customizable” option allows clients to define “context and scope,” according to an official. “We’ve seen campaigns for evaluating hotel programs mid-year, and policy/program-specific questionnaires.”
Carlson Wagonlit Travel emails travelers and travel arrangers “a globally standardized 90-second survey” after they complete transactions (not more than once every 180 days), according to a spokesperson. It’s meant to gauge performance of agents and online booking tools and identify areas for improvement.
As part of CWT’s Hotel Intel directory service, travelers from client users receive emails after their trips. They’re asked to rate and comment on the property they stayed in. Co-workers can see those peer reviews. CWT now is working to integrate the information into its mobile app.
Egencia for one client created “lightning” surveys. Each is five to seven questions, aimed at specific sets of users, like executive admins. “With that information we create action plans to address perception, training or any concerns that are identified in the results,” according to global account manager Reiko Sudduth.
IRobot corporate travel manager Shelby LeMaire cautioned against a faceless process when dealing with traveler populations. “Travelers know I am here for them to get their feedback, when things go right or wrong, and they don’t necessarily have to have that button to push every time; they tend to ignore those things,” LeMaire said. “It’s important to have that open dialogue that sometimes you don’t get in a survey.”
Additional info: The ACTE survey in August 2015 collected responses from 350 corporate travel managers and buyers. Of the slightly more than half with formal feedback processes, 47 percent conduct “a standalone” survey and 18 percent use a “general satisfaction” survey; 35 percent lead or participate in traveler user groups; and 20 percent convene “town-hall style events.”
A Lufthansa executive this month reportedly named American Express Global Business Travel and BCD Travel as potential partners for the airline’s direct-booking initiative. However, the travel management companies don’t sound interested. According to an Amex executive, Lufthansa’s proposed alternative would end up costing more than the airline’s 16 euro surcharge for traditional distribution. A BCD Travel spokesperson said the company doesn’t understand why Lufthansa named it in such a way.
It’s not the first time Lufthansa’s comments about this program have been disputed. Chief commercial officer Jens Bischof last June said the airline negotiated new deals with global distribution system operators Amadeus and Sabre. He said those agreements included a “new way of defining distribution freedom.” But according to Amadeus, the relationship had merely reverted to older, standard terms. Those included neither full-content obligations by the airline nor discounts on the GDS fees it pays.
Sabre also is taking Lufthansa to task, according to the airline’s complaint filed this month in a district court in Tarrant County, Texas. The parties apparently don’t see eye to eye on the validity of Lufthansa’s distribution charge. According to Lufthansa’s complaint, Sabre argues the surcharge should apply to bookings not just through the three traditional GDSs, but also the Lufthansa direct connect and agent portal channels. Lufthansa insists those direct channels “are expressly excluded from being considered GDSs” under its current Sabre contacts, and wants a judgment to that effect.
Lufthansa Group this month said business travel agency chain Lufthansa City Center (of which it owns 50 percent) is testing the direct connection. The first implementations are scheduled for the end of this month. It also announced that it’s working on the same with Hogg Robinson Group.
According to a March 11 report by U.K.-based Travolution, Bischof during the ITB Berlin conference this month also said “Amex and BCD are on the list. News will follow in due time.” The article as it appears now no longer quotes Bischof on Amex and BCD Travel. Travolution declined to explain. A Lufthansa official did not reply to requests for clarification.
Amex GBT senior vice president of global supplier relations Mike Qualantone said the TMC and Lufthansa discussed the carrier’s direct-connect plan. Amex concluded it wouldn’t be efficient.
“We would need to engage other third parties, expend considerable resource and investment, while still using the GDS environment for much of the required functionality and capabilities,” according to Qualantone. “Lufthansa has itself admitted that the technology does not work in a multichannel environment. With Lufthansa’s approach, TMCs must still make available technology and infrastructure for shopping, ticketing, fulfilment, settlement and data capture. This adds cost, creates workarounds and transfers the distribution cost to the TMC. In fact, the cost of the inefficiencies and necessary accommodations required will far exceed the 16 euro fee.”
That’s pretty much what Carlson Wagonlit Travel said in November.
A BCD Travel official indicated that the company continues to consult with clients and evaluate options. “To date, we have yet to confirm any meaningful alternative to the GDS in providing a more cost-effective booking solution that includes full comparison shopping and that consistently facilitates capture of pre- and post-trip booking and security data as effectively and efficiently as the GDS,” according to the spokesperson.
Lufthansa (with sibling carriers Austrian, Brussels and Swiss) has engaged several other distributors. Companies that “are already using direct booking interfaces” include ticket consolidators and tour operators. TUI is among those planning to do so, according to Lufthansa, while “constructive exchange” is underway with Thomas Cook.
For business travel, the airline claimed multinationals Andritz and ArcelorMittal agreed to “actively promote a direct connection.” Lufthansa said discussions also are underway with Germany-based Bayer.
“There’s evidence that companies with significant scale, particularly in Germany, have been able to renegotiate to offset the charge,” said MW Travel Consultancy principal Martin Warner. “I think it was a mistake to do what Lufthansa has done across the whole of intermediary distribution. It’s another example of a supplier that doesn’t value the premium yield it gets in corporate travel. It would have made more sense to pick off online travel agencies and other lower-yielding channels. If you look at the claims at ITB, it’s an example of not being ready. Any other airline that does this I would hope would be a lot more ready with their alternatives than Lufthansa.”
Lufthansa said 14 tech providers are helping with direct connections. They include Travelfusion and Pass Consulting Group. In the Texas court filing, Lufthansa also identified Farelogix as a direct-connect tech provider. Concur last summer said the airline agreed to participate in its TripLink program.
Travel data aggregator Traxo also is connecting with Lufthansa. According to the airline, business travelers booking on Lufthansa Group websites can send booking info “into their own billing systems” if they use Traxo.
Traxo said Lufthansa will be the first travel company to use the new Traxo Connect solution when it begins testing next week. The company expects a wider launch in six to eight weeks to support Lufthansa’s work with small businesses enrolled on its PartnerPlusBenefit program.
Hilton Worldwide declined to comment, but several sources said it’s planning to reduce agency commissions on its new HHonors rates. Those are the discounted rates that Hilton revealed in February as part of its “Stop Clicking Around” marketing campaign, designed to compete with online travel agencies. Other travel agencies at first worried they also would not have access to those rates. Hilton assured them they would.
However, Hilton has since communicated to multiple sources that commissions paid on these new rates would drop to 5 percent from the traditional 10 percent. One source heard 8 percent. It may be a work in progress.
The sources last week said they had learned this would begin in the second quarter; one said specifically May.
The “HHonors Discount” program includes free Wi-Fi, online check-in and room selection and an “exclusive” price for loyalty members. Effectively the program promotes bookings through channels other than Expedia and Priceline.
Marriott International also indicated offline agencies would access its version of special rates for loyalty program members, announced March 11. A press official did not respond to a request for information about what Marriott meant in its announcement by “select corporate accounts and travel agent partners.” Agency sources said they were still seeking clarification about access and pay. Marriott does differentiate between preferred and non-preferred agencies. The former earn commissions at 10 percent, the latter at 8 percent.
“They’re making up the rules as they go along,” said one travel industry executive about Hilton. “They’re saying conflicting things. Their competitors are hearing all this. I think they’re looking for feedback. It’s driven by the marketing departments, and the sales departments are running to catch up.” The source asked to remain unidentified so as not to cut off communication channels.
Things are a bit chaotic in hotel distribution, marketing and sales at the moment. There’s ongoing channel conflict with online travel agencies. New models from the likes of Airbnb and tripBam are altering norms. Softer business conditions in some places are adding to the pressure. Hilton, for one, is trying new pricing structures. Complicating matters, the fragmented nature of the hotel business means owners and operators within a given brand won’t necessarily support centrally driven programs.
“Hotel companies have to think about costs versus value delivered,” said former lodging and travel technology executive Flo Lugli, now a consultant with Navesink Advisory Group. “Many of these organizations are huge and complex, but it’s important to look at all possible stakeholders and run the scenarios through before undertaking something new. You have to continually understand and manage potential channel conflicts. In the managed travel space, those are high-value customers. In my view, there are a lot of other distribution challenges that should be considered before looking at cutting commissions to your best customers.”
Large corporations often have their own rate programs, net of commissions. So the larger TMCs that typically serve them are partly insulated from commission reductions. Still, these clients book plenty of commissionable rooms. A cut like Hilton is considering would more fully impact the next tier of travel management companies — those that service small and medium enterprises.
It’s hard to overstate how important hotel commissions are to corporate travel management. Some TMCs have planned their business to live on such supplier revenues.
Intermediaries everywhere have been moving toward more, not less, reliance on supplier funding to pay for travel management services. Take Fraedom. The Hogg Robinson Group subsidiary is developing low-cost online travel and expense services for midsize businesses. It plans to offer the travel services to clients at no cost. “But [we] make our money through supplier revenue on the back end of that transaction,” said Fraedom CEO Kyle Ferguson last week. “Very similar to some of the leisure models you’re familiar with, [like] Expedia. We’re looking to embrace that model into the corporate travel marketplace.”
In some cases, corporations themselves collect hotel commissions and use them to fund travel management services.
Of concern is whether the idea catches on with other brands or expands to other rate types. If Hilton follows through with its plan, one agency industry leader said “it will send shudders. It will be just like 1995, when Delta first cut airline commissions.”
It took another seven years before “base” domestic airline commissions disappeared. Of course, performance-based commissions remain, in spades. Should Hilton start down this path, expect buyers and TMCs to ask about what’s negotiable.
Additional info: Check out our December podcast for more discussion from industry experts about the importance of hotel commission revenue. Hilton so far has not modified its travel agent page, where it discusses commission rates and its partnership with commission processor Dell.
Hilton’s only comment to The Company Dime: “Travel agents continue to be an important part of our business as we focus on making travel easier and more rewarding through personalized experiences and granting guests more control over their stay. We are committed to our partnership with the travel professional community; however, we are unable to further disclose the details of our agreements with current or prospective partners at this time.”
[UPDATE, May 31, 2016: Plaintiff eCommission Solutions and defendant Dell Marketing agreed to dismiss claims and counterclaims. The presiding judge in Dallas County Court on May 27 signed the order for dismissal with prejudice prohibiting ECS from bringing the same claims in the future. The case is now closed. The related ECS suit against CTS continues in a U.S. District Court in New York. Defendant CTS is ordered to file its motion to dismiss by June 6.]
Convoluted legal proceedings about a complicated niche of the industry advanced recently in two courtrooms. Hotel commission collector CTS Holdings this month responded to allegations filed in court last year by one-time partner eCommission Solutions. CTS also is a subcontractor to Dell Marketing, which itself faces allegations from ECS, and likewise has filed counterclaims.
ECS last year accused CTS of fraud, misleading ECS on a potential acquisition agreement and stealing proprietary information and customers. CTS has now denied the allegations and directed similar ones back at ECS.
The dispute left some corporate travel agencies scrambling for new services. Commission revenue from hotels represent a vital subsidy for travel management services otherwise largely covered by business customers themselves. Some corporations earn commissions directly. Anthem, for example, is a former CTS user, according to court documents. Actually getting hotels to pay can be a challenge; hence, this cottage industry.
Dell Marketing also is involved in hotel commission recovery. CTS became a Dell subcontractor in 2004. The next year, Dell entered into a reseller deal with ECS, through which ECS sold Dell services to travel agencies, including CTS subcontracted work. The reseller deal expired March 10, 2015.
“At some point, ECS formulated and launched surreptitious scheme [sic] to steal CTS’ proprietary technology and processes, defame CTS to the travel agency customers and Dell and provide its own competing product,” according to CTS’ March 3 filing in the U.S. District Court of Southern New York. Further, CTS alleged that ECS’ discussions about acquiring CTS were meant to “gain access to CTS’ proprietary information while supposedly conducting due diligence.”
The series of CTS counterclaims alleges that the company lost customers to ECS following ECS’ actions, including “false” statements about CTS “service issues.” As a result, CTS “suffered special damages in an amount to be determined at trial, but in no way less than $93,903.30.” That figure is the sum of estimated profits lost from dozens of customers. It said these included such travel management companies as Balboa, Campbell, Gant, MacNair, S.R. Travel, Travel Store, TS24 and Uniglobe. It also includes three Carlson Wagonlit Travel contracts, with alleged lost profits accounting for more than half the total.
CTS alleges that ECS misappropriated proprietary CTS information under the guise of creating “a user manual and ‘bible’ of the services provided to the travel agencies.”
“ECS was actually trying to develop a platform to compete with CTS, disengage CTS from its relationships with the travel agencies, and then assume the role of service provider to the travel agencies,” according to the CTS filing.
CTS also accuses ECS of refusing to extend the Dell reseller deal unless it contained a clause prohibiting CTS from servicing travel agencies outside the CTS-Dell subcontractor agreement. “When ECS made these demands, approximately 30 percent of CTS’ business came from CTS’ own independent contracts,” CTS claimed.
CTS alleges that ECS enacted its scheme after hiring as an advisor Thomas Sparico of Brand New Matter.
CTS contends that Sparico made “unfounded and spurious complaints to Dell about CTS regarding non-existent service issues;” sought to eliminate CTS from travel agency interactions “pursuant to the reseller agreement and subcontract;” misrepresented ECS intentions regarding an extended Dell reseller deal; and engaged in “fraudulent discussions” about ECS’ interest in acquiring CTS.
Sparico and ECS president and CEO Paul Hoffmann declined to comment.
CTS also claimed that while “travel agencies paid ECS directly for the Dell services received pursuant to the reseller agreement,” ECS also owes it “significant amounts” for CTS services provided to the agencies outside the scope of the reseller deal.
CTS wants a judgment that dismisses ECS’ claims, covers legal fees and provides at least $10 million in compensatory damages and punitive damages “to be determined at trial.”
Discovery in the case is scheduled to run through June 1.
Meanwhile, in a Dallas district court, a separate ECS suit against four Dell entities also continues. Three of the Dell entities claim no involvement in the matter and seek summary judgment to dismiss ECS’ claims against them. A hearing on that request is scheduled for April 14.
The fourth, Dell Marketing, also denied ECS allegations and filed counterclaims in December. Those include an alleged breach of contract. Dell claims ECS hasn’t paid invoices for travel agency commission and reconciliation services and owes more than $2 million.
Related to similar issues in the CTS suit, ECS accuses Dell of breach of contract, fraud, negligent misrepresentation, tortious interference, trade secret misappropriation and conspiracy.
Since filing the suit in March 2015, ECS claimed Dell engaged in “improper solicitation efforts with American Express,” then an ECS client. “In July 2015, Dell Marketing received the ill-gotten fruits of its misconduct. American Express, in particular, informed ECS that it would no longer do business with ECS [and] transitioned its business to Dell Marketing,” according to an amended ECS complaint filed in November.
A trial is scheduled to start Aug. 8.
It’s a tricky time for the world’s largest corporate card provider. American Express’ recent financial performance is “disappointing,” said chairman and CEO Kenneth Chenault. An antitrust suit with potentially wide and expensive implications still is pending. Amex recently lost a couple big consumer co-branding partnerships. Average fees charged to merchants are dropping, and will keep doing so as the company pushes for wider acceptance. Competition, it says, is “increasingly intense.”
Something has to give.
Amex last week laid out plans for cutting $1 billion in annual expenses by the end of next year. It’s not clear whether corporate clients will feel the pinch, if at all. Seemingly in contrast, the company is continuing significant investments in its commercial business.
Corporate card providers compete on acceptance, data quality, loyalty programs and customer service. They also win and retain business through bonuses and rebates paid back to clients based on their volume. Some sources suggested that as Amex fights for business, financial benefits for clients could even rise.
At a March 10 investor event, Amex vice chairman Steve Squeri said the company would save $500 million by restructuring. In October, it combined all B2B services within Global Commercial Services. That unit now includes large, midmarket and small business programs, as well as cross-border payment and business lending services. “We’ll ultimately be able to approach our customers and prospects holistically with one sales force, one back office and one marketing organization,” Squeri said. “We’ll reduce overall marketing costs and layers of management.”
Another $400 million in savings would come from re-engineering marketing, digital processes, IT and tech development. Squeri said combining resources would “help better prioritize investments in the digital space.”
The remaining $100 million would come through revising policies on things like sourcing. The company is looking to save by either insourcing or outsourcing certain functions. For example, Amex plans to bring in-house more tech development. Squeri said that would “lower overall expense and improve speed to market.”
In his presentation, Squeri did not discuss cost-cutting targets for cardmember services or rewards programs. In fact, Amex listed customer service capabilities as an investment priority for the Global Commercial Services unit.
Overall, Amex during 2015 and 2016 expects to spend about $1 billion combined “to build and enhance our commercial capabilities,” Squeri said. “The commercial business is big and complex and requires continued investment to ensure our future relevance, growth and ability to innovate.”
Total GCS investments increased 16 percent on average during the past three years, including customer acquisition. GCS technology investment grew by an average of 31 percent during the past three years. Squeri explained that a multiyear initiative “to uplift our global commercial platforms to enable growth” started in 2013 and would be about done next year. Other priorities include consolidated accounts receivable platforms around the globe, virtual payments, cross-border payments and digital tools.
GoldSpring Consulting partner Colleen Black said Amex “is putting their efforts and their money in a couple of areas that align with what the buyers are looking for: better reporting and data, admin tools and merchant acceptance.”
Acceptance has been the primary hindrance to Amex’s competitive positioning, especially outside the United States. Overseas coverage is particularly important for corporate travelers, and Amex is pushing to grow the network. New participating merchants include Asian airlines Tigerair and Jetstar.
Nilson Report publisher David Robertson pointed out that Amex’s international coverage is closer to that of competitors when it comes to travel. He said the gap is getting smaller. “The Amex in-house sales force aggressively is looking to make sure the network is pushed out to everywhere the core group of customers needs it,” he said.
Multinational companies, Robertson said, weigh “the ubiquity of the network versus the seamlessness of processing payment.” The latter is an Amex advantage, made possible by its “closed-loop network” and global platform that provide consolidated data. “For a treasury management specialist at a corporation, maybe that’s worth more,” Robertson said.
Within the United States, Amex is aiming for acceptance parity versus competing networks by 2019. It’s using a variety of means, including an outsourced merchant acquiring program called OptBlue launched in 2014. Chenault called the pursuit of small merchants “a major shift in strategy.” By the end of this year, the number of U.S. “active locations in force” is expected to be up 48 percent since 2012. According to a financial filing, the Amex U.S. merchant network already can accommodate “more than 90 percent of general-purpose card spending.”
“We all know that perception often lags reality,” said Anré Williams, president of the company’s Global Merchant Services and Loyalty Group. As such, Amex plans to better market its expanded acceptance.
One-third of 205 travel managers responding to a 2014 GBTA Foundation/TSYS poll said merchant acceptance is something their primary card provider could improve. Among the 94 surveyed Amex clients, that figure jumped to 57 percent.
Williams also pointed out that the rising number of accepting locations “has caused our discount rate to go down as we price these small merchants differently.” The “discount” rate, higher at Amex than competing networks, represents the fee merchants pay. Williams said downward pressure on the rate also is coming from tougher merchant-specific negotiations, volume-driven rate changes meant to encourage or reward merchants, variable spending mix based on geography and industry, and regulatory changes in Europe. Then there are U.S. lawsuits that also could force Amex to adjust merchant fees.
Amex is waiting on a court of appeals decision after a U.S. district court ruled for the U.S. Department of Justice in its antitrust suit. The district court found that “anti-steering” clauses in Amex merchant agreements violate antitrust laws and issued a permanent injunction, later stayed by the appellate court. Amex expects the appellate decision in a few months.
Resolution of that case — which doesn’t seek monetary damages — will inform individual and class action antitrust cases brought by merchants. Merchants in those cases “seek damages in unspecified amounts and injunctive relief,” according to Amex. A company financial filing said the range of possible losses from these antitrust suits and a few other legal proceedings is “zero to $350 million in excess of any reserves related to those matters.”
Amex acknowledged that it may need to up that estimate as legal proceedings move forward. If the appellate decision goes DOJ’s way, it “could have a material adverse effect.” It might mean Amex has to alter merchant agreements “that could expose our cards to increased merchant steering and other forms of discrimination.” It also could prompt more litigation and hurt the brand reputation.
Removal of anti-steering clauses could lead merchants like travel suppliers to offer clients better prices in exchange for using lower-cost forms of payment.
[UPDATE, Dec. 22, 2016: Amex won the appeal in September when the appellate court reversed the district court’s order. Now DOJ seeks a rehearing. More here.]
The T&E Leaves
Amex remains the by far largest corporate travel card issuer. Squeri cited Nilson Report 2014 data showing its U.S. commercial business was five times larger than Citi’s and three times larger than Chase’s. Chase last year retreated from the international corporate card market.
Such leadership can be a curse. Among clients with more than $500 million in annual revenue (contributing one-quarter of Amex’s total commercial spend volume), T&E generates 61 percent of spending. The company is particularly exposed to T&E spending fluctuations and the ease with which companies slash travel when times get tough. Still, Amex over time has minimized reliance on T&E. In 2001, that spending segment accounted for 60 percent of the company’s total U.S. billings. In 2015, it was 26 percent.
Meanwhile, the Visa and MasterCard networks “continue to support card issuers such as Citibank, J.P. Morgan Chase and U.S. Bank, including by improving data collection and reporting to meet customers’ requirements,” according to Amex. The company also noted that payment providers, “including larger regional and national banks,” have stepped up “product and price competition.”
Robertson said most of the negative, recent news about Amex is on the consumer side. As a result, “it’s not a given that Amex is going to suffer in the short term on the corporate card side.” He said Amex as a “truly” global company “offers a coherent opportunity for multinationals to enjoy integrated payment for all the different subsidiaries they may operate around the world.” MasterCard and Visa issuers “in the main need to set up partnerships with other banks so that their coalition might serve a multinational.”
In the grand scheme, though, the “growing titans” of Chase, Bank of America, Citi, Wells Fargo and Capital One are nipping at Amex heels, according to Robertson. “The deep pockets that Amex once enjoyed relative to its peer group just doesn’t exist any longer,” he said.
Does that mean rebates Amex offers corporate clients will be squeezed? GoldSpring’s Black said probably not. If anything, they’ll go the other way. “They’ve never been the most aggressive from a rebate perspective. They go on reputation,” she said. “Now, a natural consequence of the separation of their businesses — card from TMC — means they lost a built-in sales avenue and need to make it up. I think they will be aggressive.”
Acquis Consulting Group principal Debra Moss said the traditional decision has been between great customer service and the global platform provided by Amex versus wider card acceptance and higher rebates offered by competing issuers. “There has been a shift in the past few years,” Moss said. “Issuing banks are moving closer to a global product that Amex has had all along.”
As a result, she sees a few potential paths for Amex to follow. One is “to become more aggressive, not take for granted that they are the preferred choice, and get more competitive on pricing or some of the other factors that compensate for lower acceptance,” Moss said. Another is to reduce costs by doing away with soft dollar benefits often part of commercial card programs, like insurance, which are “less visible in a financial comparison that clients are making.”
Chenault said the large corporate segment is “critically important” to Amex’s global scale and relevance, but in most markets doesn’t have high revenue growth potential.
Rather, Amex views the small business and midmarket segments as fast-growing and under-penetrated. In those areas, Amex already claims to be the No. 1 commercial issuer in the United States and globally. It sees promising growth opportunities. “It’s less about share shift and more about converting companies that do not have commercial card programs today,” Squeri said. T&E accounts for 28 percent of Amex’s midmarket client volume and 11 percent among its small business customers.
Dinova’s new rewards program enables client employees to personally benefit from their companies’ dining dollars. Whereas in the dining network’s existing program their companies get rebates, individual participants also can now earn points redeemable for restaurant gift cards.
American Express corporate cardholders working for Dinova clients can sign up for the myDinova program on its website. Dinova founder and CEO Vic Macchio said other cards should be enabled by the end of the second quarter. Members accumulate points by dining, and paying with the registered card, at the more than 13,000 establishments in Dinova’s network. They can also earn bonus points based on their loyalty to the network. Gift cards are for use at participating Dinova restaurants.
With hundreds of clients from ABB to Zappos, Dinova offers a way to benefit from corporate spending power. Dining tends to be about 10 percent of travel and entertainment spending, but businesses struggle to come up with innovative ways to manage it. Daily allowances or per-meal limits are common. These can vary by city or region. Policies sometimes also address tipping. They might indicate that employees should not submit expenses for breakfast if they’re staying at a property where that’s included in the rate.
Macchio said corporate culture plays a big role in managing dining expense. A defense contractor, for example, is likely to have a very different approach than an investment banking company. Nevertheless, said Macchio, “the No. 1 method for managing meal expense is the ‘reasonable’ test. A receipt is submitted and your boss determines if it was reasonable in the context of the meal.”
Dinova is not designed to replace policies or judgement calls. Rather, it brings back to corporations and now employees some perks for consolidating their spending. Apparently it’s working. Dinova this month announced that 2015 spending through its program surpassed $4 billion. The company expects to nearly double its staff in the next 18 months. Its client list reads like a Who’s Who of Corporate America.
OSI Systems is a relatively new client. Director of global corporate T&E Frank Dolce said that although the program has gained some traction on its own, he had not promoted Dinova because he worried about overkill on travel policies and guidelines. “Now I’m going to tell them where to eat?” he joked. Dolce was waiting to promote it to employees until there was “something in it for them.”
Now, said Dolce, “I expect the program to increase adoption. It’s human nature to gravitate towards something that involves some reward.”
Dolce reports to OSI’s CFO, who said the company could implement Dinova as long as there was no cost. Not only is there no cost, but corporate clients share in the fees paid by restaurants to Dinova. Dolce said there was some concern travelers may head to the more expensive restaurants in this “approved” network, but added that “folks need to be responsible for their own budgets.”
Other travel managers voiced that same concern to The Company Dime and have shared it with Macchio. It comes down to policy enforcement and expense auditing. “We have heard that once in a while,” he said. “Everything we do at Dinova is coming from a procurement mentality. If your company policy says you have X allowance or every expense must be approved or whatever, none of that changes.”
Dinova is about eight years old. Why create a new individual rewards program now?
“When we first launched, the feeling was that travel managers would integrate this into what they do,” said Macchio. “We originally left it up to the travel manager to get the word out. Travel management was very policy-oriented and there was a high compliance factor. The world has shifted a bit. There’s an increasing role of technology. So travel managers are now trying to use attempts to [market] to the end user to their advantage. This program gives their employees a good reason to use a preferred restaurant versus a non-preferred. I think most companies in America have chalked up loyalty programs to a reasonable quid pro quo.”
The myDinova system also required a fair amount of programming to enable individual purchase tracking. Dinova used technology from Kevin Austin’s Big Data Experts for some elements.
Additional info: Concur’s Expense IQ Report found that in 2012, dining on average represented 9 percent of quarterly T&E spend per expense report filer. In its 2013 survey of more than 2,000 organizations that use T&E cards, RPMG Research Corporation found that restaurants accounted for 11 percent of overall spending (third behind air travel at 36 percent and lodging at 21 percent).
Accumulated myDinova points are subject to a 15-month expiration, to which Dinova will alert users.
She’s chair of the Global Business Travel Association risk committee. She built the travel safety program at Bank of America. Now Facebook has hired her to do the same. She’s Erin Wilk, and she appears to be one of the only dedicated travel safety managers in the corporate world. Apparently Bank of America thought it was a solid approach as it is hiring a replacement.
Whether for a dedicated role like that or as an expanding component of the traditional remit, risk management represents an opportunity for travel professionals to create value.
“It has never been more important and relevant,” said Association of Corporate Travel Executives treasurer and PricewaterhouseCoopers senior director for travel and meetings Lori O’Connell at an ACTE event in New York last week. “This is a great opportunity for every travel manager to prove their relevance and value to their organization. For most companies, the No. 1 asset is their people. The ability to know where they are, to be able to offer them services and support in the event of a crisis — you just can’t place a value on it.”
Rotary International division manager for corporate relations and global travel Robert Mintz is a member of the GBTA risk committee. “To be a global travel professional, risk is clearly one of the disciplines you need to have,” he said. “There’s a lot you can do with it.”
One challenge for corporations is finding people with the appropriate mix of experience. For example, few understand both security best practices on one hand and travel management company operations and data feeds on the other, noted TRM consultant Charles Brossman.
In many environments, it’s up to travel managers to develop their capabilities on the security side. According to a 2015 GBTA/Sabre survey of 281 travel buyers in North America, four in five said traveler safety and security would take on a higher priority in the following three to five years. This doesn’t necessarily mean it will become the top priority, but it is for some.
George McCloskey is Square Inc.’s director of trust and safety. A security expert and former sheriff, McCloskey runs not only security and business continuity but also global mobility and travel, according to his LinkedIn profile.
Valero Energy Corp. senior manager for safety and travel services Scott Miller in June began managing corporate travel after running the safety system in his company’s aviation department. “I brought that culture with me to the corporate travel group,” he said. “When I started in this role, one mandate from my boss was to get duty of care in place and work on risk management so we are ahead of the game, not just working in retrospect.”
Changing to a more proactive program is a key reason Catherine Rigby has pushed for TRM to become a bigger part of her job.
“Travel management is my forte,” said Rigby, CFA Institute global travel program manager and GBTA risk committee member. “Travel risk is kind of new for our organization. We have had more of a reactive program than a proactive program. Recently we hired a new compliance officer, who will be the risk officer, and things are starting to roll. I’m intrigued with it. It can be a full-time position within a risk department, or you can be a subject-matter expert on travel risk. It can be a career move for someone with an extensive corporate travel background.”
Unfortunately, Rigby said, a lot of companies still are not taking travel risk management seriously. “Risk is everywhere,” she said. “You need something in place.”
Clearly Facebook agrees. Wilk is now global travel safety manager. She left the bank at the end of January after starting out in human resources a decade prior. “I haven’t run into anyone with a role like mine,” she said. “Facebook has lots of brilliant young people willing to take risks, and that’s fantastic. But on the managed, corporate side, they needed someone to provide outlines.”
Stephen Barth of HospitalityLawyer.com is host of the Global Congress on Travel Risk Management. He said Wilk’s role is atypical. Without it, he advised, it’s important for companies to break down the silos between concerned departments. “I do think there’s an opportunity here” for travel professionals, said Barth. “Oftentimes this will fall under HSE (Health Safety and Environment). But a lot of those folks are not in tune with what goes on with mobile employees.”
American Airlines clients wanted negotiated discounts to apply to more of their purchases. The airline is now rolling out a new corporate pricing structure for international routes that does just that. To make it so, AA is basing discounts on fare basis codes rather than booking classes. It’s not a new concept in the industry. AA already does it in the domestic market. Travel management consultants said they’ve seen more of it lately, from other carriers, too. They see the benefits for buyers but also complications.
Typically, several booking classes comprise a cabin of service — economy, business or first. Within a booking class, various alphanumeric identifiers called fare basis codes designate the associated rules. Those rules can relate to advance purchase requirements and other restrictions, to amenities that may be wrapped in or to negotiated prices for a specific corporate account.
At American, the objective of the new international discounting structure isn’t to offer or withhold amenities or degrees of flexibility, according to strategic account sales managing director Hank Benedetti. Instead it’s meant to respond to client concerns about published fares in the market beating AA’s discounted full fares.
“We had to account for that and make sure customers see the value of having a contract with American,” he said. “In our previous discounting structure, most clients on international only had two or three different price points to select from within the cabin. In our new approach, the number of price points increases because much more of the time we’re discounting off the actual fare basis codes and providing competitive price points all across our fare ladder.”
GoldSpring Consulting partner Neil Hammond said the granularity of fare basis code discounting is “a much more complex thing to deal with” than booking class-based discounts, but it has merits. It replaces a different, complex strategy called bookdowns. Bookdowns enable clients to purchase in a lower booking class but retain fare rule flexibility from a higher booking class. However, the benefits weren’t always clear. According to Hammond, clients would end up with the option of a cheaper, restricted, publicly available fare or a more expensive unrestricted corporate fare.
“You were being asked to pay a premium to get rid of those restrictions,” Hammond said. “In an individual case, you may want to do it but from an overall program perspective it never made sense. Typically with a low-fare policy in place, they came up with the lower fare anyway. It never worked. The move to discounts based on fare codes in the same inventory class is a more honest, clear and reliable system.”
That’s AA’s rationale. “Now there are even more choices for traveler selection on the combination of price point and fare rules with those price points,” Benedetti said.
CWT Solutions Group director for air in the Americas Katie Raddatz agreed that making more booking options discountable means greater value for customers. “The intention is to apply discounts to those fares that business travelers are already purchasing that historically weren’t discounted, in that middle level of flexibility,” she said.
Partnership Travel Consulting’s Andy Menkes also sees the upside. “Instead of having a binary discount on a business fare to London – a discount off J class — I might have different types of discounts tied to the fare basis code,” he said. “It’s a better opportunity to get a discount in business class than before, even if it’s just 3 percent or 4 percent.”
American is putting the new discounting regime in place for transatlantic routes and services to Latin America. Asia will be next. Benedetti said AA’s joint venture partners have aligned their discounting structures on relevant routes. British Airways is the primary partner across the Atlantic; it did not reply to requests for information.
With the bulk of AA’s US Airways integration behind it, Benedetti said more changes in response to customer demands would be coming during the year.
It’s not clear whether and to what degree Delta and United are pursuing this approach. Neither provided comments by press time. Sources said it’s happening both in domestic and international markets.
“The proliferation of bundled fares and ancillary products is what is causing that,” said Rita Visser, Oracle’s director of global travel GPO/executive travel services. “The differential lies not in the class of service but in the fare basis code. Whether we like it or not, that’s what it’s going to come down to.”
Where discounts don’t apply across a booking class, but rather only those fares with specific indicators, things can get even more complicated for buyers. Critics argue that’s by design. More complex pricing controls in corporate contracts mimic the published pricing revenue management philosophies meant to extract every dollar possible from customers.
At the point of sale, how does this affect agent searches? Menkes said corporate prices tied to discounts on fare basis codes are “more difficult for an agent to sell because they are no longer just looking at a letter in the alphabet.”
Also, can corporate booking tools handle the minutiae?
Benedetti doesn’t see these as issues. In fare displays, he said, lowest fares float to the top and associated rules are clear.
There are other considerations. “If you are using a lowest fare of the day policy and someone isn’t taking lowest fare, why not?” Visser asked. “Now we need to understand the class of service and the fare basis they were offered. Historically it was, what was your percentage of purchases in H or in K class? Now we have to take that a step further: what kind of K fare are you buying? What has been your advance purchase on K fares historically?”
Limited availability is the biggest challenge some buyers face these days when searching for appropriate airfares. Some wonder if a more intricate corporate pricing structure worsens the problem. “For example, fare basis code V21N4 was unavailable but other V class fare bases surely were available,” according to Travel Consulted’s Grant Caplan. “So no discount applies in that case, but the company is still measured on market share regardless of how many of the tickets get a discount.”
Benedetti said availability controls were not a driver of AA’s new international discounting structure. “This should actually make it easier,” he said. “Now there are more discounts on far more inventories, including lower-fare inventory.”
Gant Travel Management in 2015 issued a staggering 77 percent more airline tickets than it did just three years earlier. Clearly its value proposition is winning over clients. Facing a dearth of available corporate travel agents, however, Gant’s capacity can’t keep up. So the company is exploring offshore servicing, an option once considered taboo.
The practice isn’t widespread. Gant now is one of 13 travel agency clients using facilities in Manila run by California-based Casto Travel. Gant also is using an undisclosed contractor to ramp up a separate operation in Guatemala City.
Offshoring was more controversial 10 to 15 years ago, when some travel providers created a backlash by moving call centers there. Casto started its services at the time, beginning with after-hours support.
“A couple things have changed,” said Gant president Patrick Linnihan. “Attitude was No. 1.”
According to Casto Travel COO and president Marc Casto, “The perception from the past that this is a detriment or an ugly secret is no longer the case. There are a number who are reluctant, for the same reasons as always — service support and quality, language barriers. These are fair concerns, but there are ways to address them. Then there’s a more pragmatic component of it. Labor cost is a factor. Every TMC is facing a crisis right now with the number of agents we need.”
End users may be more accustomed to telephone agents with an accent, but research shows customers prefer a more familiar voice. As such, travel service providers have learned about what works and what doesn’t. With Casto in the Philippines, Gant now has 12 people (up from four two years ago). “Manila has a very well-trained remote labor force,” said Linnihan. “The language skills are incredible, their education is extremely high and the culture is remarkably suited for high-performance service work. Manila picks up a portion of the after-hours role every day; they’re just as much part of Gant as any North American agent team.”
Still, many of Casto’s clients there are focusing on “back room stuff,” said Casto. In two area facilities employing 125 of its 225-person global workforce, Casto offers accounting, ARC processing, exchanges, rate desk services, ticketing and online booking support. Some agency clients also are handling data report preparation and proposal writing there. Two multinational clients use full TMC services in Manila for their Asia offices.
Casto said after-hours remains the most popular service. Traditional outsourced after-hours service is “not designed to succeed,” he argued. “You have a call center of 100 people answering calls from 1,000 clients representing 10,000 corporations. There’s no way the agent taking that call can succeed. Companies wishing to contract with us in Manila can do so on a dedicated employee basis, but at a cost savings, so they can set up their own after-hours team. About 10 clients are using that right now.”
For Gant, Guatemala so far has tackled only behind-the-scenes services like email and other “non-voice” transaction support. The program there launched last November and now includes 10 people. It offers the advantage of being in the same time zone as Gant’s Milwaukee headquarters.
“Our Latin American team allows our U.S. agents to work on the complex travel coordination,” said Linnihan.
Freeing up top agents by relieving them of the more mundane tasks is one way this approach addresses the industry’s well-documented shortage of corporate agents. VIP counselors and implementation experts are in particularly high demand, according to industry experts. Gant uses its Philippines and U.S. staff for implementation projects. Most TMCs would decline to put VIP agents offshore.
Linnihan described the offshore programs as part of an evolution. “We don’t have a call center, and all but five of our agents work remotely,” he said. “Every agent in North America is working as a remote agent. We’re truly virtual, as opposed to a hybrid of call center and virtual. It’s the power of a remote workforce, and if you want to hire the right people, offshore is a natural extension.”
Linnihan admitted that if business pace was mediocre, existing employees may have balked at their TMC expanding facilities in other countries. Instead, they’re “seeing the account growth” and “begging for more assistance.”
Not For Everybody
Partners within the Frosch network, Casto and Gant also both serve a lot of tech companies. With different portfolios, other travel providers go in a different direction, according to sources.
This mirrors mixed trends across the corporate world. Duke University’s Offshoring Research Network in 2013 surveyed 45 corporations that have offshore operations. Most were planning to expand those programs. However, 29 percent expected to relocate back to their home countries largely due to quality concerns.
Rather than sourcing offshore, Travel and Transport is developing its workforce locally through an academy. “We have explored offshoring quite a bit over the years,” said president and CEO Kevin O’Malley. “Panama, Poland, Israel, Philippines, India. We have sent people and met with groups. Clearly there’s money to be saved. We’ve brought it to clients four or five times in the past 10 or 12 years, and the feedback has been universal for corporate customers — there just hasn’t been large demand. I could see us at some point getting some really good, highly educated people in a lot of these places for behind-the-scenes, back-office and non-client-facing things.”
KesselRun Corporate Travel Solutions managing partner Brandon Strauss said he hardly ever sees TMCs offering offshoring as a component of their services — “not like they used to, anyway, and certainly not for first-level support.”
Likewise, GoldSpring Consulting partner Mark Williams said he has not seen as much interest as when procurement first entered travel at many companies a decade or more ago. “The idea was to drive out cost, so this was something they looked at,” he said. “But now people are more focused on the service aspect.”
Hotel rates come in lots of flavors. They relate to room and bed types, prepayment, nonrefundability and more. Some corporate rates are static and some are discounted off fluctuating public market rates. All this is not as complicated as airline-style pricing, but it sounds like that’s what Hilton is after. Considering the hurdles, the goal may be too ambitious.
Hilton CEO Chris Nassetta last week told financial analysts the objective is to make sure the company and its branded hotel property owners don’t tie-up inventory “unnecessarily without customers having to take any risk.” He said there are “lots of ways we can create boundaries around our pricing structures.” In existing tests, Hilton is altering rates based on lead time and flexibility.
Various pricing buckets and restrictions — fences, in industry jargon —have a logical purpose. They segment customers based on what they are willing to pay. Sources suspect hotels will step up such activity first for leisure travelers. It’s a tougher sell in the corporate market, where customers demand flexibility and rate negotiations already are a bear.
Hilton’s price differentiation tests follow a limited trial last year of a straight-up cancellation fee. It didn’t go over well.
Even so, more onerous cancellation policies are part of Nassetta’s vision. Frustrated by what he called “robo-techno approaches to cancel and rebook,” Hilton and other chains in many cases went from allowing same-day cancellations to a 24-hour minimum. That created some tension during the last corporate RFP season. Now, Nassetta said, “there are things that we can do to extend that timeframe.”
To partition customers, refundability is the key. It’s not a new factor in hotel pricing; nonrefundable rates have been available in most channels.
Hotel industry veteran Tom Botts said application has been inconsistent. “The very existence of nonrefundable rates varies by market even within a brand,” he said. “Many hotel revenue managers believe that nonrefundable rates slow demand and discourage purchase, particularly if the competitive set is not also offering such rates.”
NYU professor Bjorn Hanson said advance purchase, nonrefundable rates can account for between 5 percent and 30 percent of total options available in the market. That varies by time period (peak versus slow) and property type (resorts versus urban), typically averaging around 15 percent. Hanson said the number of reservations using such rates is “at an all-time high.”
Moving forward, Hanson anticipates many different rate rules: 48- and 72-hour cancellation requirements, various cancel and change fees associated with those, new spins on low-rate guarantees and so on.
It’s not clear exactly what Hilton has in mind. A company official provided no additional information.
But it’s not just Hilton. Intercontinental Hotel Groups also has been playing around with nonrefundable rates, “actually for quite some time,” according to chief executive Richard Solomons. During a conference call last month, Robert W. Baird & Co. analyst David Loeb asked Solomons if work on advance-purchase rates is “designed to combat repricing software like tripBam and Tingo.”
“There maybe an indirect benefit,” Solomons replied. “It really is more about if you can tie people in early. You pay advance rates for almost anything, from an airline to loads of things. Book in advance and you get special deals. In many ways the hotel industry was quite a bit behind a few years ago in terms of having sophistication in their pricing mechanisms, not just us.” Now, he said, the big chains are making progress.
Advito senior director Marwan Batrouni said hotels are taking price differentiation to the next step, mostly in leisure channels, market by market. The big question is when this becomes more prevalent in corporate channels.
“Perhaps by the 2018 negotiating season,” he said. “It’s an evolution, but clearly we are seeing a trend by the major chains to apply their yield management techniques, control inventory and weigh options versus a one-size-fits-all strategy in terms of pricing.”
That would likely lead to more complicated sourcing and more traveler confusion at the point of sale. Travel managers might consider advance purchase and other booking policies. Travel agencies would do more shopping comparisons and price assurance work to ensure they’re providing clients the most appropriate rates.
If it gets too complicated, more business travelers may turn to other outlets like online travel agencies, said Hickory Global Partners president Chris Dane. “Hotels would be walking a fine line.”
Carlson Wagonlit Travel Hotel Solutions Group director Eric Jongeling doesn’t see nonrefundable rates playing a big role in corporate programs. He said CWT doesn’t include them in its preferred hotel program. “Our clients generally need the flexibility to cancel as business trips can change quickly,” he said. “The pushback from corporate buyers would be significant.”
Where highly restricted pre-purchase rates already exist in corporate channels, travel managers sometimes “suppress” them, said Donna Brokowski, general manager of Travel and Transport’s Partner Solutions Group. “The corporation may not want to take risk.”
What if the risk-reward balance changes? TripBam founder and CEO Steve Reynolds said hotels would like to widen the gap between nonrefundable rates and flexible ones. “You’d have a fully refundable rate that is crazy high,” he theorized, “and you have the rate that everyone pays, which is no longer refundable.” Reynolds added that a key factor would be the severity of penalties associated with nonrefundable rates. Would guests be charged for one night if they change or cancel, or are the rates fully nonrefundable? “I think the suppliers would love to go to fully nonrefundable model,” he said.
Asked if more variable pricing is preferable in corporate travel over cancellation fees, Brokowski said yes, “but only if it is delivered consistently. Technology and support around the philosophy will be key.”
Disparity and market fragmentation are chief challenges a hotel chain would face in pursuing the strategy. Individual hotel property owners have different priorities, management systems, corporate contracts and revenue philosophies. Owners, rather than brands, usually call the shots on pricing.
“You have the dumbest competitor theory,” Reynolds said. “In major markets, if someone across the street is not playing the game, travel managers will just shift share. It would require every hotel — all 200,000 — to be arm in arm and have the same philosophy so no one does this last-minute distressed inventory thing, which they all do.”
Botts put it this way: “Advance purchases can work but only if hotels don’t drop rates close to arrival in order to hit occupancy targets or make budget.” That’s a common practice, he said.
Botts also pointed to the challenges of proper display in various distribution channels. “Hotels need to get far better about messaging nonrefundable versus refundable rates,” he said. “Look at how Hotels.com merchandises the same room with a refundable and a nonrefundable rate. The trade-offs are clear. Good luck figuring that out at Hilton.com, or worse yet, a GDS.”
Washington, D.C. – Along with changing attitudes, many private-sector companies now have nondiscrimination policies protecting lesbian, gay, bisexual and transgender employees. Some such employees no longer hide who they are, and many travel overseas for business. People with certain sexual orientations or gender identities may risk jail time or worse in some countries. In many more, the locals are hostile to LGBT people.
A panel of experts speaking during a meeting of the U.S. State Department’s Overseas Security Advisory Council here last week addressed the extra considerations for keeping these employees safe. [The Company Dime agreed to certain ground rules for participation in the meeting, meaning some speakers are not identified in this article.]
Managing the risks means knowing local laws and social norms. It also means finding a balance between human dignity and keeping a low profile to avoid danger.
Speakers noted that many companies embed cultural training for new hires. A representative from an organization advising companies on such matters said training should cover responsibilities of the individual, the individual’s team, the individual’s managers and the organization as a whole. Representing a U.S.-based multinational, another panelist was asked if her company proactively provides LGBT-specific advice on international travel to all employees, or makes it available to those who request it. It’s the former.
The panelists noted that addressing LGBT traveler issues in some ways is similar to managing other groups of travelers. Physical disabilities, for example, make certain assignments uncomfortable if not impossible. Women may feel less safe than men at night. Companies should recognize realities and advise travelers accordingly.
“The unique challenges of LGBT global employee mobility may sound new, but these questions of diversity, identity and safety are as old as your industry,” said Deena Fidas, director of the Human Rights Campaign’s Workplace Equality Program. “There are plenty of places where it’s not particularly comfortable for me as a woman to be alone at dusk. Does that mean my entire career trajectory should revolve around that? No.”
In other words, prepare employees but allow for self-determination.
Fidas said many private-sector organizations don’t have guidelines for LGBT personnel to prepare for or refuse an overseas assignment — but should. Another panelist noted that an individual’s risk threshold may not match the institution’s. “Make sure people are comfortable, and give right of refusal without it affecting” the employee’s professional standing, she advised.
It’s not always so easy. A global airline representative said right of refusal causes “my airline and probably most airlines a great deal of difficulty.” That’s because flight crew scheduling is complex and allowing crew members to pick and choose assignments “would become completely disruptive to the operation.” The airline rep pointed specifically to Uganda, saying “some crew members were getting very nervous — not so much about the laws but the general atmosphere of homophobia. The line we had to adopt is, ‘It is not illegal to be to gay, it is illegal to do gay.’ If you go to Saudi Arabia, you will have to live without alcohol for a few days. If you go to other countries you may have to deprive yourself of other things.”
Fidas talked about drawing a line between an environment that is unwelcoming or uncomfortable versus an actual legal inability to work there. “Singapore, like dozens of other countries, has laws on the books that criminalize certain homosexual/sexual acts,” she said, but that doesn’t mean employers cannot maintain basic workplace protections for diverse workforces.
Big multinational companies have offices in Singapore, including those that are “out and proud about their LGBT inclusion programs,” said Fidas in a followup discussion. “So while the workplace may be safe and inclusive, employees still need to exercise caution and discretion outside of work. Employees may do their own calculations that recognize the professional benefits of being stationed in these locations may come with certain personal compromises about socializing and being out outside of work.”
According to OnCall International, country risk managers and HR departments should thoroughly research a location before sending LGBT employees there. “There may not be rules against homosexuality in Singapore or Japan, but it is still frowned upon — visitors may be targets of hate crimes if affection is displayed in public,” the traveler assistance firm wrote in a recent blog post unrelated to the OSAC event.
In other countries, anti-homosexual laws may be on the books but not necessarily enforced. Where they are enforced, “the application ranges from strict adherence to arbitrary application,” according to a 2014 iJet International report. “In general, LGBT individuals living in or visiting Africa and the Middle East regions face the highest levels of risk.”
Of 198 countries assessed in the iJet report, 19 were classified as extremely risky for LGBT travelers, 71 were high risk and 62 were moderate risk.
Meanwhile, some countries disallow entry by foreign nationals with HIV. A few may deport them if they are already in-country. The United States banned HIV-positive visitors from 1987 until 2010.
In addition to those from travel risk firms, other resources identify countries where laws discriminate against LGBT people or where local sentiments may make travel there uncomfortable or dangerous.
OSAC, for example, runs down the risks by country. It notes laws against homosexuality in India and Morocco, among others, and several places where federal law does not prohibit discrimination based on sexual orientation. OSAC also reports LGBT harassment in several countries in Eastern Europe and the Balkans.
Then there’s Russia. OSAC reports that “discrimination on the basis of sexual orientation is widespread.”
Russian legislation presents “a genuine gray area,” for companies seeking to preserve their full suite of LGBT inclusion practices, according to Fidas. “Corporate general counsels with whom we work generally agree that the law does not actually prohibit LGBT employees from traveling there. However the law’s language is deliberately vague enough to include ‘promotion’ or ‘propaganda’ of LGBT rights and culture. So a lot of businesses are refraining from employee resource group activities there.”
Other sources of information include the U.S. State Department (the Human Rights Report on country-specific laws and societal attitudes, and a tips page), the International Lesbian and Gay Association and crowdsourced information site Equaldex.
The Spartacus International Gay Guide ranks countries based on 14 categories of legal provisions and social conditions for gay visitors. Sweden and the United Kingdom score the highest (most friendly). Iran and Somalia score the lowest (least friendly).
The guide also ranks U.S. states. California, Massachusetts and New York have the highest scores. Mississippi and North Carolina have the lowest.
Privacy and advocacy groups have objected to how the U.S. Transportation Security Administration handles airport screening of transgender people. According to Human Rights Campaign, TSA rules “require transgender passengers to sacrifice a certain level of privacy in order to travel freely. Although TSA has sought to avoid time-consuming and privacy-invasive security measures through the adoption of new technologies, these efforts have failed to address the privacy concerns of the transgender community.”
According to TSA, a security officer indicates male or female on the screening machine “based on how you present yourself. The machine has software that looks at the anatomy of men and women differently. The equipment conducts a scan and indicates areas on the body warranting further inspection if necessary. If there is an alarm, TSA officers are trained to clear the alarm, not the individual. Additional screening is conducted to determine whether a prohibited item is present.”
According to Human Rights Watch, few countries recognize genders other than male and female on travel documents.
Additional info: Human resources consulting firm Mercer in late 2014 surveyed 83 organizations about international mobility challenges for LGBT travelers. Mercer found that 91 percent did not prevent LGBT employees from traveling to LGBT-“unfriendly” countries, and 85 percent indicated “there are no formal or informal procedures in place to ensure LGBT employees are not negatively impacted by rejecting an international assignment.” Nearly half had a global diversity and inclusion policy specifically referencing LGBT employees.