Corporate Travel Opportunity

Article Published in Business Travel News, January 1996

Corporate Travel Managers are being handed an opportunity to effect significant change in the travel industry. That opportunity is derived in the evolving transition to "ticketless" airline travel and the resulting potential impact of electronic commerce. Yet only a very few travel managers will size the opportunity. The great majority will remain largely "reactive" to the events surrounding them ... they will fail to assess their opportunities or take a "pro-active" stance in travel purchases and settlement.

Traditionally, the industry has been tied to a structure in which the airlines authorized a CRS to issue a physical travel document (the tickets) ... which, in turn, were functionally issued by a travel agent acting under the authority of an airline, ARC, or IATAN. Both "distribution" and "settlement" for product sold through this distribution loop are processed through this structure.

Without paying much attention, other forms of electronic commerce evolved in other industries to change consumer "expectations". For example, the banking community has taught consumers to depend on credit cards, debit cards, and ATM machines. Hardgoods and other manufactures have taught consumers to expect superior services via grocery and merchant store automated inventory resupply systems that reflect real-time consumer purchases. Concurrently, catalog and telephone marketing companies have matured in response to consumer acceptance of these distribution channels. High volume self-service discount outlets now enable consumers to chose between "value added" services and/or goods, or lower priced self-service products or goods. To a great extent, these new "expectations" have evolved in the last 15 years.

The "time line" of this evolution is significant, not in what has happened -- but rather, what has NOT happened within travel distribution. Despite the ups and downs of the airline industry throughout this period, the distribution process has remained as described above since being structured by the airlines in the early 1960's. Certainly, the travel industry accepts credit cards -- but not within its own distribution system. Rather, the credit card is facilitated between the different entities of the travel distribution network by appending the banking process transactions with audit and settlement still retained by the airline process.

By removing the requirement for the transfer of a physical document (a ticket), the travel industry opens itself to the use of alternative distribution channels and settlement channels. For the corporate travel manager, alternative distribution channels means tools that are used for communication within their own company -- e-mail, voice-mail, fax, or even direct access to vendor databases (with itinerary maintenance handled internally via the company's own accounting or management information system).

Alternative settlement channels suggest direct settlement with airlines OR travel agencies OR other travel vendors (hotels, car companies, etc.) -- as appropriate to the company's buying patterns and travel needs. Changing settlement modes offers an opportunity for travel agencies that serve corporations to "consolidate" the needs of a number of companies and buy direct. As with the discount outlets, volume buying virtually always obtains price breaks.

In considering this alternative, it is important to consider two issues. First, airlines are largely focused on optimizing the revenue of each seat sold in an aircraft -- their primary capitalized investment. The distribution channels, on the other hand, "live off" a very small percentage of the airline (or hotel or car) marketing cost. Essentially, the capital investment of most distribution channels is "optimized" through sustained use ... in other words, through volume transactions. This dichotomy suggests (before all of the emotional, cultural, and redundant ownership interests come into play) that airlines will structure to optimize price per seat while distribution channels will structure to optimize volume.

If the latter is correct, then the bank and mass media (telephone, television, computer networks) distribution and settlement channels are likely "win" any volume/cost competitive marketshare issue in the future. There are simply not enough airline seats in the world to generate the transaction volume that comes from mass distribution through other channels. A side issue is that there are more than 1100 airlines in the world -- and only 7 or 8 real travel distribution systems which, in turn, are owned by about 24 airlines. If alternative distribution systems become viable, one has to consider which airlines will want to "subsidize" the profits of their competitors.

The opportunities for corporate travel managers lie in rebuilding the distribution "mix" in ways that suit their respective company's business and operating needs. These opportunities go beyond "collective buying" such as suggested by BTCC ... they include, EDI (Electronic Data Interchange) direct purchase and/or settlement with either airlines or agencies (or both), corporate localized inventory and itinerary control, and a host of other information management related cost containment and purchasing strategies.

Corporate travel managers need to teach themselves the fundamentals of applying the alternative distribution and settlement channels to their businesses. These corporate travel managers must shed their "traditional" views of travel purchasing, distribution, and settlement fundamentals. Rather, the opportunity lies in creating and using these new channels.