Do Your Wingmen Soar?

Let’s get real about your sales people, consultants and account managers in the travel management space. Your contracts should do the heavy lifting, but great sales people can make an enormous difference in your program. You have far more leverage than you think. Here’s a test: are you courageous? Curious? Assertive? Then how often do you tell your friends and colleagues when their out-of-office email or voicemail is out-of-date. Judging by how long some of them remain active I’ll risk offering that we don’t do it enough. We think we’re more assertive than we actually are, but HOPE could improve this situation – Help One Person Everyday. So the next time someone’s out of office is expired – be assertive and let them know.

Hope is often applied to managed travel – the other kind of hope. We hope that travelers will comply with our policies, we hope our CFO understands why rates go up, and we hope that we’ll have the best sales people, account managers and consultants assigned to us. Travel Management is notoriously lax at holding people accountable. For most airlines it’s nearly impossible to identify and measure sales teams against a metric they control that flows to profitability. All too often they’re not held accountable. Consultants are often treated the same way – many people act as if one is as good as the next. Experience proves otherwise. In the hotel and airline business awards are often given to the sales person responsible for customers in an industry or location that’s growing while scorn is offered to the person living and working in a declining market. This is where Travel Managers come in. Great account managers can be found anywhere (even declining markets) and you’re just as likely to find mediocre performance in growing markets. You must provide feedback to enhance your program and to serve your customers better and you do that by being part of the assignment process. This is where assertiveness is important.

Successful programs rely on great partners. Those partners develop and contribute outstanding account managers. Those managers share three qualities that you should focus on: 1. Competence; 2. Initiative; 3. Fit. All three are necessary for a best-in-class program.

Competence: combines a thorough understanding of the market, customer, products, policies, and procedures. Competent Sales people listen and ask questions before making sound recommendations. This can be improved with training and experience.

Initiative: take the appropriate action to solve or prevent a problem. These people are responsive – they’re on top of issues and have a sense of urgency commensurate with the situation. Improvements in this area often requires an attitude change – it’s more difficult to improve than competence, but good customers shouldn’t bear too many mistakes that thorough talent selection could solve.

Fit: Often overlooked, but personality characteristics and nuances are important to develop respectful, trusting relationships. Your account manager or consultant should be someone you enjoy working with and you should be comfortable around them. Too often Travel Managers tolerate bad behavior from account managers – they don’t return calls, they’re dressed inappropriately for meetings, they are slow to respond to problems, they have a sense of humor that is offensive to others. The list goes on, but sometimes what works with a few customers doesn’t work well with others and you shouldn’t tolerate it. Great account managers should hold customers accountable for their performance too – but sometimes everything else being equal, the fit just isn’t there and when it isn’t you should take action.

You get what you reward – if you make it a priority to gain one excellent airline sales person and two or more outstanding Hotel sales managers each year on your terms, you would very quickly build a network that will delight your travelers and make your job easier. You can even make freedom of choice part of your RFP process to tie it to something positive for the vendor.

Asking for sales people by name is very easy. But how do you get their name in the first place? I’ve discussed this problem with a few friends in the medical field and their example is instructive. How do you pick a great surgeon?

A great surgeon isn’t someone with good bedside manners (they might score well in this category, but it’s insufficient) – its the person who is calm under pressure when things don’t go right; a person who makes good choices about how to handle this never-seen-before situation. These are surgeons who are quick to ask a medical device representative standing next to the operating table – “how have other surgeon’s handled this successfully?”

You don’t find the best one by asking another doctor – they’re rarely in surgery together.  Anesthesiologists and surgical nurses have a small consideration set. That brings us back to medical device sales people. They see many surgeons as they operate and they have more evidence and better experience to give you an educated referral.

Great consultants, sales people, and account managers can be identified through your network – ask your peers and your suppliers’ sales leaders which sales person or consultant they admire or they have heard frequent compliments about from shared customers.  travel industry sales leaders generally have a larger customer network since they manage teams and are exposed to most of the largest, high touch customers in their area. It’s also helpful to understand that sales and consulting leaders maintain balanced territories – so if you don’t ask for someone by name, you’ll often be assigned the person who is available, and good people rarely have a light load. Consultants will have a larger impact on your program; it’s acceptable and I recommend that you ask about your consultant’s training and experience before a project or contract is implemented. Suppliers don’t offer different price points based on the team they assign to support you and you have a right to make requests related to this part of their offer.

Due diligence about your vendor’s personnel is your responsibility, and the management leaders who do this well will achieve championship results.

Coaching Travel Management

Navigate Bigger Airline Discounts

At first glance there’s no secret – airlines exchange higher share for better discounts. This seems easy enough, but there are a few things going on behind the scenes that smart corporations know and will use to their advantage to secure higher savings rates. Well managed travel programs are all the same. They have strong management teams and their policies and practices are aligned with business goals and traveler service. They generate “duty of Loyalty” – employees are driven to comply with policies because they receive excellent service; their travel management team is partnered with them to achieve each travelers business goals.

Airline customers come in all shapes and sizes, but a single number cannot tell the whole story. Airlines capture a lot of data, but four numbers standout to describe a customer: 1. Yield (average revenue per seat mile); 2.  Premium share (Percent of revenue above (below), the carriers fair market share (FMS)); 3. Total spend (revenue to airlines); 4. Customer concentration (Percent of traffic in markets the airline serves). This article will offer a simple scoring system corporate customers can use to determine how much leverage they may have in negotiations with their preferred airline suppliers.

Good airlines create detailed reports to measure the health and profitability of their corporate contracts. Major network carriers have 1,500 – 4,500 managed contracts in place, with another 5,000 – 30,000 agreements serviced through corporate loyalty programs (American – Business ExtrAA, United – PerksPlus, Delta – SkyBonus , Southwest – SWAbiz). Airlines would keep a close eye on trends that correlate the Net Effective Discount rates (NER) to the Yield and Revenue of a particular client. A rational and financially savvy sales team drives profitability higher by controlling NER’s  across industries or clients with similar spend patterns and size. Outliers are analyzed to determine if a particular team or sales person offered higher discounts than necessary to secure preferred carrier status. Additionally, sales support and analysis teams pay attention to specific customer issues.

As an example two consumer packaged goods companies have similar travel policies and total spend might, but warrant different discount levels based on their travelers’ compliance and support for their preferred carriers. Travel managers in the same industry would be disappointed if they expect equal treatment and ignore differences beyond size and policy compliance.

Airlines use sophisticated modeling and regression analysis to determine if their programs are working as designed. They produce graphs similar to the one below to share internally and use as a framework for strategy discussions about discounts and commissions.

Yield V Revenue

A simple scatter plot that contains data for the carrier’s top 100 clients might look like the graph above. The point on the far right depicts a corporate client that produced $35M, at a $.25 yield. It’s a large customer, but not an extraordinarily high yield. Notice there are several customers at or just above a $.10 yield. They are unlikley to receive industry leading discounts, but these customers can take steps to secure better discounts.

In the next graph the airline’s management team would look for a low slope angle and points clustered around the best-fit line. The slope indicates the relationship between yield and the customers’ discount levels. The lower the slope, the less sensitive to discounts higher yields are, while a high slope indicates that as yield rises, discounts are likely to increase rapidly too. Again, this is sample data, but it should give you an idea about how your program is viewed by your preferred vendors.  Additionally corporations without a contract should be able to achieve a savings rate at least as high as available through a loyalty program, so I’m always amazed to see NER’s below the 5% line (a typical valuation for SkyBonus or Business ExtrAA).

NER

Travel Managers should evaluate their program’s performance to establish realistic goals as they position their company and their Travel Management partner to launch an airline RFP. At this point, trust and respect between your team and the account managers and sales people at each supplier are vital for a smooth negotiation, but an honest appraisal can jumpstart the process and show you areas where your suppliers may expect work on your side to achieve your RFP goals.

Travel Managers who understand the airlines point of view and have strong influence over the qualities that matter will be rewarded.

Here’s a model I developed to determine how much leverage you have as you begin the negotiation process.

Leverage

Yield: Begin here. More than $.25 give your program two points. You have a travel policy that likely includes a healthy combination of domestic first class, some International flights (in business class), and a decent percentage of domestic coach-class, business fares. If you achieved this primarily because your headquarters office is in Boston, and your team flies to New York, Laguardia on the shuttle, exclude that data for this exercise. And for those companies that have a combined yield below $.20, don’t try too hard with the airlines, you’re already doing a great job – your travelers buy coach, and they book at least seven days out (no points). Everybody else, between $.20 – $.25 give yourself one point.

Premium Share: This is the one that separates well-managed programs from also rans. Does your travel team have the ability to influence travelers vendor choices? If you can answer yes – you have leverage. Do you enforce contracts to do the heavy lifting or do you need constant support from vendors each time a traveler finds a lower fare online or a checked-bag disappeared? Honesty here will uncover opportunities to drive incremental savings, but more of the same if the same means high maintenance then you will have a difficult negotiation. If you’re a bank or a movie studio and you give one of the legacy carriers an unbelievable share above their Fair Share or Seat Share in the LAX<>JFK market, then you get two points. If you’re based in Atlanta Delta earns all of your business, don’t get too excited, but I would still give you two points here (we’ll address this more in Concentration). For everyone else, use your judgement.

Spend: Are you a big hitter? Does your company spend more than $1BN each year on air travel (you know who you are), than give yourself two points – you’re big enough to dictate some terms. Even if you spend >$25MM and you have a well-managed program you’re likely to have more leverage than a smaller program.

Concentration: This one is more subjective than the others, but if more than half your spend originates or ends in a fortress hub, you should score yourself lower. A company with operations in New York, Los Angeles, Chicago, or any number of up-for-grabs cities will find that this will give you leverage to negotiate better terms with your vendors.

Leverage Scale

Here’s an example – If you combine low concentration, high premium share and high yield you will find yourself in a rare position and should expect industry leading discounts – even if you have a relatively low spend ($5MM). Carriers should fight over this business and the winners would expect to receive profitable traffic.

Leverage Score

The graph above depicts the best customer – one that can dictate terms and may be able to include “most favored” status in parts of their contracts. Any score above five would put a corporation in an excellent position as they negotiate with vendors. Four or below leaves room for improvement, but you should distinguish between values you can control and those you cannot. Total spend is something you’re unlikley to have influence over, but premium share is.

Travel Managers have a significant influence over the premium share variable, and travel policies are yield’s biggest drivers. Before any negotiation you should determine which avenue for savings would be more effective a policy change or carrier discounts. Remember four constituents should be delighted at the end of the process: travelers, corporations, airlines, and travel management partners.

Aviation Travel Management

You Won’t Believe This About Southwest Airlines.

You won’t believe this. I didn’t, and I’ve spent more than a decade staring at airline industry data, so maybe I’m the only one who didn’t see it coming. I’m going to show you something that runs counter to conventional wisdom and what we know and hear about at every ACTE conference or GBTA convention.

It’s well known that airlines operate on lean margins. They lose a lot of money during recessions and only break into double digit profits during the more profitable second and third quarters, but rarely on an annual basis. As airlines continue to squeeze more revenue from every seat the average load factors have increased to the point that the summer surge isn’t even noticeable. Airlines combine the 100% achieved on Sunday’s, Mondays, Thursdays, and Friday’s with the low 80’s on Tuesday, Wednesday and Saturday to achieve an 88% load factor for the month. Any hiccup or foul weather leads to hours of delays since there are so few spare seats to accommodate stranded passengers. Strong finance organizations are required to manage the complicated flows of people and capital. Young airlines act as if marketing will be in charge forever, but losses and maturity have a way of sobering investors, and eventually the CFO will take over.

Prior to deregulation in 1978, the Civil Aviation Board (CAB) approved routes, frequencies and pricing. The government intervention created monopolies that allowed airlines to provide the white glove service and fine dining that so many people describe as the golden age of air travel. This was a time when a 50% load factor was profitable and it was acceptable to smoke from takeoff to touchdown.  Filet was served on china and accompanied with real silverware. So which competitor exhibits this kind of pricing power today? Legacy carriers? The “low cost carriers?”

Every time Spirit, Jetblue, Southwest or Virgin America enter a market the local press wave banners announcing that low fares have finally arrived in Madison, Longview, or Springfield. How do they know?

The CAB reporting structure survived deregulation and data is still required monthly to be reported to the Department of Transportation on Form 41.  Every US carrier with scheduled operations and revenue greater than one billion dollars must submit the form.  It contains detailed information about the carrier’s financials and operating statistics.  The data provides a rich view about how the airlines operate their equipment and move passengers and cargo between every city pair they serve.  Here’s a link that describes the available data sets. You can create your own reports here.

A table I found recently was particularly interesting since it contained information about average departure airfares, taxes and fees for passengers departing the top 100 US airports. Since this table doesn’t distinguish between International and Domestic traffic it would be difficult to support meaningful decisions with this – this is not a comprehensive variance analysis, it’s just a back of the envelope look at four or five major airlines, so you should be cautious about using my conclusions to support your decisions. There is one section that contains information that looked meaningful – a comparison between average fares from 2001 and 2011. Out of curiosity I looked at the price changes for American’s hubs. Most showed a decrease – not too surprising given their financial condition. The data is in the table below (all tables are from BTS 3rd quarter 2011 vs 3Q 2001 – click the link above for the most recent values).

Hi contrast AA Hubs

Next I moved on to Delta’s hubs. They have a fortress hub in Atlanta (under pressure from several LCC’s), but their operations in Salt Lake City, Detroit, and Minneapolis are stronger. Overall a mixed result but they’ve demonstrated more staying power than American. How did that compare to United’s operations in Denver, San Francisco, Washington? Little to brag about here; see the charts below for details.

Delta Hubs

Here’s United (includes Continental – Houston and Newark).

United Hubs

It’s remarkable that Houston Bush was up 12% in a city that hosts a Southwest hub. Meanwhile Newark was up 1% in an extremely competitive metro area. Continental should be applauded for holding their own, especially when the Dallas Fort Worth area offers Continental a pure play to compare against (favorably). American hosts their fortress hub at DFW, while Southwest occupies Dallas Love Field, a situation very close to Houston, yet DFW average fares are down 5% while Houston Bush is up 12%. That’s a big difference in a business that counts margin in basis points. Who has pricing power? It’s not American or United in Chicago; and prices in Denver and San Francisco should scare any competitor away.

Southwest. Industry professionals describe them as the quintessential low cost carrier. This is a company that is proud of their small sales force, doesn’t allow seat assignments and only offers one cabin, and they’re pricing champions.

Southwest Hubs

Those are impressive results. The next time someone excludes Southwest from a list of industry leaders, remember, driving revenue is one of only two ways to increase profits (Profit=Revenue-Cost), and Southwest is terrific at growing revenue.

Aviation Featured Travel Management