2010 Business Travel Survey: TMCs Raise Value Of Expertise In Response To Recession

Travel management companies have been adapting to customers' needs much more efficiently since the recession during 2008, and recovery in the industry has become evident.

No one could have looked at the financial meltdown of 2008 and expected 2009 to be anything but a tough year for travel management companies. Yet, while there were certainly moments when it appeared that any sign of recovery could be years away, it seems remarkable now how well travel management companies adapted to their customers' needs and how quickly the business now appears to be recovering.

While it was horrendously tough going, and many people lost their jobs, the intense cost scrutiny of the past year-and-a-half by senior management was an opportunity for travel managers and travel management companies to show the value of managing business travel. Reductions in force by most businesses created an environment in which more companies outsourced travel management operations and took advantage of negotiating expertise.

All indicators show that U.S. spending on business travel fell an average of at least 20 percent last year. The combined sales volumes of the U.S. travel management companies that released data to Business Travel News this year about the airline tickets for which they paid airlines last year—as certified by the Airlines Reporting Corp., the U.S. bank settlement plan—also showed a nearly 20 percent loss from 2008.

To cope with the drop in revenue and an 8.6 percent drop in transactions, many travel management companies reduced headcount. Those reductions in force largely were focused on the point-of-sale agent, however, because account management and customer service became even more important to travel management companies last year.

The altering of the financial foundation of the industry that had almost every travel buyer reconsidering their contracts and bid activity was greater and more competitive than the industry has seen in a long while. Even though nearly every contract was in play, it seems that the incumbents generally kept the business. Rather than a whole lot of shifting, there was a general reexamination of whether business could be done more efficiently.

By and large, travel management companies adjusted terms and counseled their clients to change their policies, in many cases restricting premium class travel and in some cases implementing or increasing the use of technology. Companies desperate to make substantial cuts to travel expenses without hurting their businesses gained a new appreciation for in-house and travel management company expertise.
Ovation Travel Group executive vice president Michael Steiner summed up the response to the situation by his travel management company and others as "a lot of belt tightening, travel policy consulting, vendor negotiations and best practices discussions."

"Gross volumes obviously were down for everybody, especially at the beginning of the year, and they kind of picked up at the end," said Omega World Travel executive vice president of sales and services Goran Gligorovic, "but transactional volume was not down that much compared to dollar amounts. We knew the fare didn't go down that much, so we realized that a lot of corporations downgraded travel policy regarding class of service, made more advanced bookings and more strongly enforced travel policy."

While everyone was challenged last year, and many took a beating, for Travel & Transport the challenge proved to be an opportunity. "We were very fortunate and had our best sales year ever," said president and CEO Bill Tech, claiming $115 million in new business, almost half coming from winning the Allstate Insurance and Booz Consulting accounts.

"The first quarter was horrific. It was T&T's first-ever first-quarter loss in my 24-year history at the company," Tech said. "But then with some account wins, things really started turning around. We were pretty fortunate to get through such a tough time so well."

Citing the unusual amount of bid activity last year, Tech said business travel buyers "had to reduce costs in their companies just like we did. Luckily, we retained almost all of our business. Not everyone, but certainly over 50 percent of our clients came back and asked us to re-look at it. We adjusted terms in some cases and in some we couldn't.

"We even got a couple of five-year contracts, which are practically unheard of these days," Tech added. "Those customers have been with us for a long time and wanted to lock into a lower price."

At Valerie Wilson Travel, "In many cases, after October of 2008, we were guiding our clients on corporate policy and changing procedures," said co-president Jennifer Wilson-Buttigieg. "As TMCs, we've learned to become so flexible and nimble because you don't know what the crisis of the day will be. We've been teaching and showing our clients that."

The one-to-one conversations that took place with each corporation to reexamine every contract, leases and rent, medical expenditures and compensation structures are "what relationships are based on," Wilson-Buttigieg said.

While a lot of Ovation's clients issued requests for travel management company proposals, Steiner said, "most used that opportunity to validate the program, and 100 percent stayed with us. Some went off-site to reduce costs, and some moved online, but most kept their configurations the same."

Some TMCs dealt with the situation proactively. At Omega World Travel, said Gligorovic, "We decided the environment created an opportunity for us to reach out to them as a value-add and act as a consultant to get through the tough times."

Directravel president Pat Fragale said that very few of his company's clients went out to bid because "we were proactive in late 2008 in scaling to the business level. If that meant some displacement of employees, unfortunately that's what had to happen. I retained 95 percent of my business and meanwhile won a lot of new business."

With so many accounts in play, it is interesting how few changed hands. "For the most part, their travel management companies gave them what they were looking for in the way of concessions," explained T&T's Tech, adding, "There is a cost to change in terms of the time, energy and the money it takes to make a successful transition."

Many travel management companies responded to the reduction in customer demand by eliminating the jobs of 10 percent to 30 percent of point-of-sale travel consultants. Others made severe salary cuts to retain employees.

Tech said that as things improved, instead of giving back the pay cuts immediately, "we gradually gave them back. We gave some back in October of last year, some on Jan. 1, and we didn't restore everyone back to their salary until April 1 of this year. On July 1, we're going to give raises. That was a lesson that we learned that we will use in future downturns: Cut quickly but then give back gradually. That allowed us to retain people that we otherwise would have had to cut."

"We acted the same way we did after 9/11 and in 2003," said Valerie Wilson's Wilson-Buttigieg, "and put tiered pay cuts in place. We were able at the end of 2009 to give 50 percent of everyone's pay back in one lump sum check. And then 50 percent of their pay was reinstated in May of this year."
No matter how well companies may have recovered, 2009 was a rough year for everyone. Still, the trial by fire helped to validate travel programs and travel management company services and drive greater compliance with preferred vendors and policies.

"I think the strong survived last year," according to Directravel's Fragale, "and what I see is that this business is about relationships and communication."

He said this past year was the time to say, "If it's not broke, break it and figure out more efficient ways to improve the bottom line."

"In the past," Fragale continued, "when times were good, our recommendations weren't a top priority. After the past 18 months, we're seeing that our services are more important than ever, and are being accepted more than ever before."

Story originally published in http://www.businesstravelnews.com/ by David Meyer