Energy Sector Taking Its Belt-Tightening Turn

By | January 15, 2015

[UPDATE, April 13, 2017: The SkyTeam airline alliance announced a new program dedicated to marine and offshore clients. The initial set of participating carriers is Aeroflot, Air France, Delta, KLM, Kenya Airways and Saudia. The program includes special fares and baggage policies. It is managed by distributor IAS Global to make the program “widely available to M&O specialist travel agencies worldwide through one convenient point of contact.”]

When crude oil prices in 2008 peaked at around $140 a barrel, then-Continental Airlines president Jeff Smisek said oil and gas clients were “living large and flying all around the world up front and spending money like drunken sailors.” The global financial recession shortly thereafter hit prices hard, but oil rebounded to more than $100 a barrel by 2011. Prices now are falling down a well again and the message from the sector isn’t very rosy.

It’s the oil companies’ turn to tighten their belts. Some are bracing for reduced discretionary spending this year, including some corporate, meetings and event travel.

energy sector travel management

CWT Energy, Resources & Marine published its 2015 forecast in December. In it, the specialist division of Carlson Wagonlit Travel suggested clients facing mounting cost pressure are “looking for new ways to operate more efficiently and re-evaluating their travel policies.”

The oil and gas industry, in some ways like the mining and marine sectors, has unique types of business travel. The actual travel is but one component of staggeringly complex logistics management. So-called “upstream” operations include exploration, drilling, piping and any other activity needed to find, extract and transport natural resources. A lot of the complexity relates to moving crews around, maybe by the hundreds or thousands, to remote, risky onshore and offshore locations.

Crew rotations involve scheduling, visas and passports, updated training and certifications for health and safety, and so on. Timeliness is key. A tanker may not wait for one late-arriving crew member. An oil rig costs a lot to operate and won’t stay idle because one worker didn’t make a connection.

“You can save them a lot of money on airfares etc., but its about completion — getting the right people into the right places in time,” said Matt Forestieri, U.S.-based director of marine and offshore for Australian travel agency Corporate Travel Management (CTM).

In addition to the obvious cost-cutting achieved by reducing travel, energy companies may consider other methods to lower expenses and realize efficiencies. Some are specific to the sector while others are traditional travel management tactics. They include greater use of marine and offshore fares, new technologies (maybe virtual payment cards) and, perhaps, seeing how travel management companies can help.

At least in the United States, CWT has been the go-to provider. London-based Griffin, recently acquired by Anglo-Dutch TMC ATPI, also has had a presence. Now, several other TMCs are showing interest in the sector.

CTM in the past few years augmented its global energy sector focus by purchasing U.S. agencies TravelCorp, Avia International and USTravel. Expedia’s U.S.-based Egencia unit purchased Via in the Nordics while Australia’s Flight Centre through its FCm brand and U.K.-based HRG also have been boosting activities in energy sector hotbeds. Other TMCs, too, have applied resources to pursue some of the business.

It doesn’t mean oil, gas and related companies will switch TMCs. Those relationships oftentimes are long-lasting, deeply embedded and mutually beneficial. But the cost-cutting focus might push them to entertain options.

Automating Logistics

Perhaps with the help of a TMC or another third party, some energy sector clients are looking to apply new technologies. The idea is to automate otherwise tedious manual tasks, integrate with pre-existing workforce management systems and promote intra-company connectivity. Merging the travel reservations process with logistics requirements is a goal for many.

A good bit has come from work done for mining sector clients by firms in Australia and New Zealand. Some of it could be useful to the wider world of corporate travel and meetings management.

CWT and New Zealand-based Serko each offer a bulk booking tool suited for “fly-in-fly-out” (FIFO) oil, gas and mining crews. They enable users to arrange commercial flights simultaneously for hundreds of workers originating in many different locations, going to the same place and then going back their separate ways. That can save man-hours.

CWT in December also announced a new “one-stop, fully integrated booking solution” to streamline remote site travel management. Built with Australian workforce management solution provider Osmotion, the tool offers travelers “a single traveler itinerary for all their commercial, charter and site logistics.”

Innovating In Payment

Payment processes also need to be up to snuff to accommodate the crucial task of cost allocation. Managing hotel payments in high-risk destinations is a challenge.

“With rig crews, etc., it’s all about charging the right project or cost code,” said HRG director of global partner relationships Susan Lancaster. “We have done a few integrations straight into SAP, to take that booking — that expected charge — and match it. Many companies in this sector employ contractors and so credit cards are not used. Everything is based on billback and invoice and they need to flow that information in daily.”

Virtual cards represent another travel management advance that can help companies in this space. They provide a payment mechanism for travelers not carrying plastic. Employers enjoy better fraud prevention, reconciliation and accounting. Virtual cards also can specify exactly how much workers can spend and on which expense items.

There are challenges. Not all hotels want to (or can) work in this way. “Ideally, virtual cards would be a great solution,” Lancaster said. “We do use them in isolated cases, but they are by no means mature enough in the world yet.”

Customizing Rates

Another nuance of the energy sector is the marine fare (oftentimes used interchangeably with “offshore” fares, though the origins and specifics of the two are a bit different).

Marine and offshore fares are one-way, changeable and refundable. Flexibility is critical for workers going to far-flung places, oftentimes plagued by bad weather or other risks. According to CWT, “more than 40 percent of bookings made in this sector will be rescheduled at least once.”

Fare rules can vary but in general airlines base them on point of origin rather point of sale. “It means other countries in our network can see the fares available, making it a quicker search for our agents,” Lancaster explained.

Marine/offshore fares generally are cheaper than published fares but costlier than typical corporate negotiated fares, which usually don’t offer the same degree of flexibility or baggage allowance.

Not all airlines offer them. American, Delta and United play in the space to different degrees. Delta, along with alliance partners Air France and KLM, may be the most aggressive among the three.

Executives representing those partners presented during a 2013 Global Business Travel Association oil, gas and marine symposium in Copenhagen. At that time, according to the presentation, the marine and offshore business represented about  €800 million in annual revenue, growing at a 5 percent to 10 percent clip. Delta/Air France-KLM claimed it was capturing 25 percent to 30 percent of that market.

Travel agency vet Eric Henderson, who has experience serving the energy sector, noted that “one of the first things Air China and Korean Airlines did when entering the Houston market was offer seaman’s fare contracts to those who could utilize them, and I’d fully expect both EVA and ANA doing the same as they look to secure booking traction for their imminent 2015 entrance into the Houston market.”

Marine fares generally comprise a small portion of an energy company’s travel. It may depend on eligibility. More likely, users are the “boots” — those in the field involved in exploration, drilling and related activities. Sales, marketing and distribution “suits” involved in “downstream” operations typically aren’t eligible.

In many cases, energy, resource and marine companies will use a combination of marine or offshore tickets and lowest available airfares, depending on where and why an employee is traveling, and how airlines are pricing in those markets at that time.

Contractors handle many upstream activities. They range from big players like Halliburton, Schlumberger and Transocean, to smaller companies most never heard of. Not unheard-of, though, is big energy companies integrating contractors into airline and travel programs. Leveraging spend can help both, as well as TMCs that serve the sector.

“Small companies that do cabling, piping, remote operated vehicles — lots of specialist work not done by massive companies — when you combine all the volume like we do, then airlines listen,” said CTM’s Forestieri.

It’s one way to cut costs. Big energy companies may look to optimize their air programs by including more contractors. Another way is to use more marine and offshore fares when possible, and when corporate rates won’t meet needs.

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