Corporate Travel Strategic Sourcing -...

Corporate Travel Strategic Sourcing

Kathy Briski, C.P.M., GTP

March 8, 2016

Page: 1

Global Procurement Processes

DefineSupplier

EvaluationCriteria

Collect Data

ConductPerformanceEvaluation

DevelopImprovement

Strategy

Supplier Relationship Management Process

GenerateRequisition

Approve/Submit

Requisition

Process/SubmitOrder

Receive Goods &Services

ApproveInvoice

ProcessInvoice &GeneratePayment

Strategic Sourcing Process

Access Opportunity

&Establish

Team

ProfileCategoryInternally

& Externally

Develop Sourcing Strategy

CreateSelectionFactors &EvaluateSuppliers

ConductCompetitive

Exercisew/ ApprovedSuppliers

Negotiate& DevelopSourcing

Recommend-action

ImplementAgreements

ContinuousImprovement

SupplierScorecard

SavingsManagement

SpendAnalysis

KnowledgeManagement

ContractManagement

CatalogManagement

Core Supporting Capabilities

Day-to-Day Purchasing Process

Page: 2

Strategic Sourcing Process Overview

ProfileCategoryInternally &Externally


Negotiate & Develop Sourcing

Recommend-action

Implement

Agreements

Strategic Sourcing Methodology

Acti

vit

ies

Delivera

ble

s o

r T

oo

ls

Validate Internal

Requirements & Profile Category

ConductIndustry Analysis

Internal Category Profile

TCO Model

Cost Reduction Ideas

Industry Profile

Build TCO Model

Develop Sourcing

Objectives

Sourcing Strategy Plan: Competitive

Supplier Selection or

Existing Supplier

Development

Conduct Supplier Analysis

Create Supplier Selection Criteria

Supplier Selection

Decision Matrix

RFIs (optional)

“Short List” of Suppliers

Complete Traditional

RFP Process

RFPs / RFQs

eAuctions

Collaborative Discussions

Conduct eAuction(s)

Collaborate w/ Incumbent Supplier(s)

- AND/OR -

- AND/OR -

Prepare Fact-Based

Negotiation Packages

Negotiate Agreements

Fact-Based Negotiation Packages

Supplier Negotiations Presentation

Sourcing Recommendation

Finalized Agreements

Benefits Realization

Continual Supplier

Improvement

Implement Agreements and Monitor

KPIs

Evaluate Performance and Develop

Suppliers

Develop SourcingStrategy

Conduct Competitive Exercise w/ ApprovedSuppliers

Fast Track for Quick Savings

Develop Sourcing

Strategies & Tactics

ANALYSIS STRATEGY SUPPLIER SELECTION IMPLEMENTATION

AssessOpportunity & Establish Team

AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan

Analyze Current Spend

Document Requirements

Page: 3





Recommend-action

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls


Conduct Competitive Exercise w/

ApprovedSuppliers



AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan



4

High Level Travel Project Plan

Travel Workplan Review

Mobilization & Kick-Off Category

Profile Internally & Externally

Develop Strategy

Screen Suppliers & Selection Factors

Conduct Competitive Exercise

Negotiate & Develop Sourcing Recommendation

Implement Agreement

April May June July August September

SAMPLE

Page: 5

Travel Category Opportunity

SAMPLE

Category Opportunity Baseline – Travel

Key Travel Contracts and Expiration Dates Preliminary Opportunities to Drive Accelerated Benefit

•Hertz Car Rental Agreement – Expiration Date: July 31, 2010

•Northwest Airlines Agreement – Expiration Date: November 30, 2010

•American Express Travel Agency Agreement – Expiration Date: September 30, 2009 – Currently Extended until September 30, 2010, with an additional 1 year extension (2011).

•Mandated Travel & Entertainment Policy

•Drive Demand Management (Compliance Behavior):

•On-Line Booking Tool

•Advance Ticket Purchase

•Non-Refundable Tickets

•Preferred Hotel usage

•Preferred Car Rental usage

•Hotel Competitive Bid

•Negotiate American Airlines contract

•Car Rental Competitive Bid

Confirmation of Sourceable Spend

Sourcing Group

Category Sub-CategoryAddressable

Spend%

AddressableSourceable

SpendEst. Mid

Saving %Est. Mid

Savings $

Travel Airline $6,000,000 100% $5,500,000 3% $165,000

Travel Car Rental $1,000,000 100% $925,000 5% $46,250

Travel Hotel $4,500,000 100% $4,400,000 5% $220,000

Travel Agency - Agency Fees $170,000 100% $0 0% $0

TravelDemand Management (Compliance) N/A N/A $700,000

SAMPLE

Page: 6





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls

Validate Internal




TCO Model


Industry Profile

Build TCO Model



ApprovedSuppliers



7

Total Cost of

Ownership Travel

Hotel Cost

Agency Cost

Total Cost of Ownership – Elements

Air Ticket Cost

• Emergency Travel Services• Change RequestsSupport

Management Fees• Online Booking• Agent Assisted Booking• Client Negotiated Airfare

Transaction Fee

Price for airfare, room rates and rental rates make up a portion of the TCO for Travel with cost drivers laying hidden in process.

Rental Car Cost

Airfare Cost

Nightly Room Rate

Misc. Charges• Internet• Parking• Fitness Center

Misc. Charges

Fuel

Daily Rate

• Mileage Charge• Vehicle Fees• GPS• Concession Fee Recovery

• Self fill• Fuel and Service Charges• Fuel Purchase Options

Price

Procurement

Process

Labor Costs• Time to register new online users

on Cliqbook• Time to train new online users

• Air Ticket Cost• Taxes

• Room Rate• Taxes

• Daily Rate• Taxes

Travel Policy

• Policy Enforcement• Advance Booking• Preferred Suppliers

• Meals• Phone

• Fuel Surcharges• Security Fees

• Insurance• Airport Fees• City Surcharge

• Upgrade Fees• Energy Surcharge

SAMPLE

Ancillary Fees• Baggage Fees• Change Fees

• In Flight Internet• Status Level

Page: 8

Industry Profile - Objective & Key Questions

Objective

Provide a detailed understanding of the current corporate travel industry as well as the forces shaping future travel services. The results of this profile will shape Comerica’s travel Sourcing Strategy.

Key Questions

How big is the industry?

Who are the major players?

How competitive is the market?

What are the key cost drivers?

Is the industry in a state of growth or decline?

What are the current pricing trends?

SAMPLE

Page: 9

Travel Scope

NAICS 481 – Transportation by Air

4811 – Scheduled Air Transportation

481111 – Scheduled Passenger Air Transportation

NAICS 721 – Accommodation

7211 – Traveler Accommodation

721110 – Hotels and Motels 721110.1 Guestroom Rental

NAICS 5321 – Automotive Equipment Rental

53211 – Passenger Car Rental and Leasing

532111 – Passenger Car Rental (for business travel)

NAICS 561 – Administrative and Support Services

5615 – Travel Arrangement and Reservation Services

561510 – Travel Agencies (including Meetings & Events)

In Scope

• Scheduled passenger air transportation, hotel, passenger car rentals and meeting/event planning services are in scope for travel sourcing.

• Because of the existing relationship with current travel agency and the subsequent process standardization, it does not make sense to fully source the travel agency component of travel at this time. However, there may be components of the contract to reevaluate.

• Meeting/Event Planning Services are categorized under the same NAICS code as Travel Agencies.

Key Points

The travel industry encompasses a variety of different categories each grouped with an NAICS (North American Industry Classification System) code.

Source: http://www.bls.gov

SAMPLE

• In 2000, 10 airlines accounted for slightly more than 90% of available seat-mile capacity in the United States. By early 2012, those 10 airlines, through mergers, were reduced to 5 airlines controlling about 85% of the domestic passenger market. Moreover, American and US Airways merged in 2013—which further reduced the number of airlines controlling the vast majority of passenger ridership to only four.

Source: Office of Inspector General, AVIATION INDUSTRY PERFORMANCE, A Review of the Aviation Industry, 2008–2011, Number: CC-2012-029 , Date Issued: September 24, 2012

RITA, Bureau of Transportation Statistics

AIRLINE INDUSTRY – US Airline Mergers

Page: 11

Airline Industry: Overview

• 2015 Airline Industry revenue reached $727 Billion.

• IBISWorld expects revenue to grow at an annualized rate of 4.6% to $197.1 billion over the five years to 2020.

• Top four companies holding an estimated market share of 68.8%.

• Low profit margins and intense price competition Major operators such as American Airlines, Delta and United will reap synergies from their mergers, leading to higher profit margins. However, profit margins will still depend on volatile fuel prices and the airlines’ ability to successfully hedge against any adverse movements. New fuel-efficient aircraft will aid this cause and increase operator competitiveness in the global market.

• Business customers account for a significant portion of domestic flying. Companies tend to pay for travel when business activity is strong and profit levels are high. When corporate profit is down, demand for air travel also declines. However, when it increases, demand improves.

Key Points

Source: airlines.org, Airline Financials.com, IATA, Wikipedia, Statista.com, MarketWatch.com, Ibisworld.com

2016 US Airline Industry Revenue reached $157.7 Billion. North America is the industry leader.

SAMPLE

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2015 O

pera

tin

g

Reven

ue (

in B

illio

ns)

$582$493

$564$642

$706 $717 $733 $727

2008 2009 2010 2011 2012 2013 2014 2015

Re

ven

ue

in

Bil

lio

ns

Annual Airline Industry Revenue

Major Players (Market Share)

Page: 12

Airline Industry: Market Segment & Competitive Landscape

Source: ibisworld.com

Key Points

• Level & Trend Competition in this industry isHigh and the trend is Increasing

• The Domestic Airlines industry is highly competitive. Airlines compete for customers on price, frequency and capacity, route offerings, loyalty programs, promotions, rewards and service quality.

• Level Concentration in this industry is Medium

• The Domestic Airlines industry has a moderate level of concentration. The top four industry players are estimated to hold a combined market share of more than 66.8% in 2015.

• Barriers to Entry in this industry are High and Steady

• Costs to purchase aircraft and specialist machinery, hangar and other airfield space, as well as costs to attract skilled labor and to comply with stringent safety requirements are high and a significant barrier to industry entry.

• Level & Trend Globalization in this industry is Low and the trend is Increasing

• The Domestic Airlines industry has a low level of globalization, with access to domestic routes strictly controlled for US-based airlines; foreign ownership is discouraged. Foreign operators may provide services to the domestic market, but are generally restricted to limited routes and destinations.

SAMPLE

The PPI (measures average change in prices over time) for passenger air transportation. For 2015 the average amounted to 263.4 which represents a decrease of 9% from 2014.

Airline Industry: PPI (Producer Price Index) – Scheduled Passenger Air Transportation

NAICS 481111 All indexes are subject to revision four months after original publication.

Source: http://www.bls.gov/ppi/

186.5

200.6

200.4

205.7 205.8 217.1

229.6

234.5

257.1

235.9

254.6

273.5

285.1283.1

287.5

263.4

180

200

220

240

260

280

300

Pro

du

cer

Pri

ce

In

dex

Page: 14

Airline Industry: Cost Drivers

Source: IBISWorld.com PlaneStats.com

Cost Drivers Key Points

• The top three cost drivers for ninety five percent of the world’s airlines, are: fuel, personnel and the cost of aircraft

• Dependence on oil production, labor agreements and a duopoly in aircraft manufacturing prevent airlines from having any substantive impact on these cost drivers.

• US airline system wide unit cost declined 12.6% year-over-year to 11.5¢ during second quarter 2015, marking the largest overall cost decline since 2009. Network carrier system cost slid 12.6%, falling from 13.5¢ to 11.8¢. Value carriers reduced system wide costs from 11.8¢ in 2014 to 10.4¢ in 2015, down 11.7%.

• The rapid decline in cost was driven by falling fuel prices, with the network unit fuel cost falling 30.2% and value carrier unit fuel cost down 34.7%. After the decline, fuel cost represents 26.2% and 25.3% of unit cost for network and value carriers, respectively.

• As a result of the significant decline in fuel cost, labor now represents the largest cost category for US airlines. It accounts for 32.9% of the network carrier system wide unit cost and 34.5% of value carrier cost.

Top 3 Drivers Account For 64.3% of Total Airline Costs.

SAMPLE

Page: 15

Airline Industry: Jet Fuel Costs

• Historically jet fuel expenses have ranged between 10% and 15% of U.S passenger airline operating costs, but in 2008 the cost of fuel was between 30% – 40% of total operating expenses for most carriers

• Perplexed Passengers: why airfares were rising even when global oil prices were plunging? One reason is fuel costs account for 26% of the price of an airline ticketaccording to the trade group Airlines for America. Other parts, including taxes and labor costs, are holding steady or rising. Another factor is profits. Airlines rarely pass along all the fuel savings to customers.

• Current 2016 price is $42.90 per barrel or 40.5% from last year this time.

• The Air Transport Association estimates that for every dollar increase in the price of jet fuel (a derivative product of crude oil), US airlines incur an additional $445.0 million in fuel expenses.

Key Points

Sources: Airlines for America: www.airlines.org, www.bts.gov, www.iata.org, WSJ.com

Fuel is one of the largest cost contributor to airlines’ operating costs.

SAMPLE

$83$88

$129

$80$91

$120

$130$125

$76

$45

$0

$20

$40

$60

$80

$100

$120

$140

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Avera

ge P

rice P

er

Barr

el

Page: 16

Airline Industry: Air Travel Price Index

Sources: Bureau of Transportation Statistics, Ibisworld.com, Airlines for America: www.airlines.org

Air Travel Price Index for Atlanta, GA Key Points

1 The air travel price index measures the percents change over time in prices paid by travelers.

• The cost of airfare flying out of Atlanta, GA has been higher than the U.S. average.

• Airlines found several ways to grow revenue without raising fares – a la carte pricing: from charging for select coach seat assignments, boarding after elite status members, baggage fees and fuel surcharges and possibly using restrooms!

• Airline ancillary revenue, projected to reach $59.2 billion in 2015. This figure represents an increase in ancillary revenue gains of 18.8% from 2014 and 163% from 2010.

The cost of air travel have been very volatile over the past several years. The cost of airfare flying out of Tampa, FL has been lower than the U.S. average.

SAMPLE

$180

$230

$280

$330

$380

$430

$480

2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1

Avera

ge A

ir F

are

s

U.S.-Origin ATPI Atanta, GA

Page: 17

Airline Industry: Price of Air Travel versus Other Goods & Services

Sources: Airlines for America: www.airlines.org

SAMPLE

Airfare remains a true bargain and has risen less than overall U.S. inflation

Advito 2016 Forecast: Airline Pricing

Page: 18Source: Advito 2016 Industry Forecast

CWT/GBTA 2016 Forecast: Airline Pricing

Page: 19Source: CWT/GBTA 2016 Global Travel Price Outlook

Page: 20

Hotel Industry: Overview

• The US Hotel Industry Revenue reached $166.5 billion in 2015

• The global hotel industry revenue is predicted to reach $550 billion in 2016.

• Over the five years to 2020, IBISWorldprojects that the industry will continue expanding, with particularly strong growth in the extended-stay hotels, boutique hotels, spa and health retreats and resorts segments.

• US revenue is projected to increase at an average annual rate of 3.0% to $167.0 billion over the three years to 2019.

• Smith Travel Research is reporting in year-over-year comparisons, the industry’s occupancy was nearly flat (-0.2% to 64.2%). Average daily rate is up 3.3% to $119.50, and revenue per available room increased 3.1% to $76.76

Key Points

Source: www.IBISWorld.com, MarketWatch.com, Smith Travel Research

The US Hotel Industry Revenue reached $166.5 Billion in 2015.

SAMPLE

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

2015 G

lob

al

Op

era

tin

g

Reven

ue (

in b

illio

ns)

Page: 21

Hotel Industry: Chains / Brands

• The majority of the global branded properties and revenue are mostly located in North American

• Major revenue for global chains (such as Marriott, Hilton, etc) is from franchise and management fees.

• Business travelers, including executives, are shifting from luxury hotels to more moderate mid-priced hotels

• Hotel taxes, usually a combination of sales and occupancy taxes along with the occasional flat fee, range from 10% to more than 18%.

• Hotel costs represent the single largest component of non-air expenses, about ~40% of the travel dollar

• According to Business Travel News the average Hotel daily rate is $163

Key Points

Source: PWC Hospitality Directions, Smith Travel Research, CWT Hotel Solutions, Business Travel News, IBISWorld

The majority of the global branded properties and revenue are mostly located in North America,

SAMPLE

Brands by Service Level

Hotel Chain Scales

Chain Scale Brand Name

Luxury

Upper Upscale

Upscale

Midscale

Economy

Ex-Upscale

Ex-Midscale

Ex-Economy

For Domestic Hotel

Bookings (2012) :

Total Tracked Spend: $XXM

46% of spend in Upper Upscale. Average Nightly Rate: $XXX

21% of spend in Upscale. Average Nightly Rate: $XXX

Business Travel News: 2015 Corporate Travel Index: $163

The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The 2015 average is 133.7, indicating rates are flat.

Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals


NAICS 721110.1 All indexes are subject to revision four months after original publication.

117.8

125.7

125.2

120.3

122.1

126.5

123.6

126.6

133.5 133.7

100

105

110

115

120

125

130

135

140

Pro

du

cer

Pri

ce I

nd

ex

Page: 24

Hotel Industry: Cost Drivers

Source: IBISWorld.com

Operating Cost Drivers

Over 64% of costs in the hotel industry is distributed among three categories: (1)

Purchases, (2) Wages, (3) Other (marketing, royalty fees, repairs/maintenance, etc)

SAMPLE

US Hotel Industry – Competitive Landscape

• Level & Trend Competition in this industry is High and the trend is Increasing

• At most price points, hotels look to attract travelers by offering competitive prices with a range and quality of service to maximize client satisfaction, while minimizing room vacancy rates. Room discounting increases during difficult economic periods, with fewer discounts offered in boom times.

• Level Concentration in this industry is Medium• The four largest operators in the industry (Hilton

Worldwide, Marriott International, InterContinental Hotels Group and Starwood Hotels and Resorts) account for an estimated 41.0% of industry revenue

• It is increasing as hotel buyouts and mergers become more frequent and operators join franchise and chain operators.

• Barriers to Entry in this industry are Medium and Steady

• The start-up costs and market share concentration vary between industry segments, particularly for the international standard five-star properties compared with three-star motels.

• Globalization in this industry is Medium and the trend is Increasing

• Most operators in this industry are US-owned and earn most of their sales from domestic activity.

Page: 25

Key Findings

Source: Ibisworld.com

Airbnb Average daily rate (ADR) of Airbnb rentals by type of property in the U.S. in 2015 (in U.S. dollars)

Page: 26Source: Statista 2016

Advito 2016 Forecast: Hotel Pricing

Page: 27Source: Advito 2016 Industry Forecast

CWT/GBTA 2016 Forecast: Hotel Pricing


Page: 29

Car Rental Industry: Overview

• Global industry spend is $43.2 Billion of which 20.7% is business travel at airports and 40.9% off-airport.

• The industry is segmented by business travelers, leisure travelers, car leasing and car sharing

• Leisure market has grown larger than corporate business market

• IBISWorld expects industry revenue to expand at an annualized rate of 2.1% over the five years to 2021 to $47.9 billion.

• Hertz and Avis expanding off-airport locations to compete with Enterprise

• Car rental industry adjusted to global recession better than other travel industry categories. They can “right” size fleet to meet demand by disposing vehicles quickly and reduce costs.

Key Points

Source: Ibisoworld.com, Auto Rental News, Business Travel News

Global industry spend is $43.2 billion of which 30% is business travel at airports

SAMPLE

Rental Car Industry: PPI – Passenger Car Rental



The PPI for passenger car rentals had been decreasing since 2013, why?

109.5

117.9

116.8

116.9

118.5

119.1

105.9

103.4100.6

97.9

95.0

100.0

105.0

110.0

115.0

120.0

125.0

Pro

du

cer

Pri

ce

In

dex

Page: 31

Car Rental Industry: Market Share

• Market share:• Enterprise – 32.1%• Hertz – 15%• Avis/Budget – 12.2%

• Suppliers offer different brands that focus on specialized markets:

• Corporate Traveler – On-airport convenience – Hertz, Avis and National

• Leisure Market – On/Off-airport Budget, Dollar Thrifty, and Enterprise

• Additional Non-US regional players include:• Europcar (Europe and Asia Pacific) • Sixt (Germany and EMEA) • In high risk countries such as India, China, Thailand, Latin

America, etc. the business model is to rent a car with driver. Cost is less than a chauffer / limo as a typical rental vehicle is used

• Car rental companies have implemented a variety of new ancillary fees to help preserve some of the lost revenue in recent times, such as tacking on fees to extend a reservation, eliminating 60 minute grace period, or increasing the cost of a two-day rental

• “Virtual rental technology” – enables customers to reserve, rent, access and return cars just about anywhere. ZipCar, WeCar, Connect.

• Business Travel News – Average daily cost: ~$47.00 which makes up 15% of the total travel costs.

Key Points

Source: www.autorentalnews.com; www.ibisworld.com, Business Travel News, 2015 Corporate Travel Index, MarketWatch.com

The U.S. car rental market is highly consolidated among a small number of major players and is getting smaller.

SAMPLE

Top 3 Car Rental Companies By Operating Revenue

$19.40

$10.54

$8.50

$1.00

$3.00

$5.00

$7.00

$9.00

$11.00

$13.00

$15.00

$17.00

$19.00

$21.00

Enterprise Hertz Avis Budget

20

15 O

pe

ratin

g R

eve

nu

e (

in B

illio

ns)

Page: 32

Car Rental Industry: Cost Drivers

Source: Ibisworld.com, Auto Rental News

Operating Cost Drivers Key Findings

• The Car Rental industry has changed gears over the past five years, growing strongly after being forced into reverse during the recession.

• The industry’s solid recovery is expected to continue over the next five years. Demand is expected to increase as domestic travel rates continue to grow, bolstered by the US economy’s recovery.

• Industry revenue is forecast to grow at an annualized rate of 3.0% over the three years to 2019.

• Over the past five years, many industry operators have continued to expand into off-airport markets, providing additional avenues for growth. Car rental operators have learned from the recession and have sought to diversify their revenue streams, so as to mitigate exposure to any one segment of the economy.

• Car sharing has continued to emerge over the past five years as both traditional car rental companies and new players seek to gain market share in this new segment of the industry. Each of the major car rental companies now has a car sharing division.

Over 66% of costs in the car rental industry is distributed among four categories: (1) Purchases, (2)Depreciation, and (3) Other (marketing expenditures, rent, utilities, insurance, administrative fees and a variety of other miscellaneous costs)

SAMPLE

US Car Rental Industry – Competitive Landscape

• This industry is Mature• New technologies, such as online reservations, provide

advantages like reduced customer acquisition costs. But these advantages flow on to existing companies and do not produce new entrants or new markets. Some companies are expanding into local markets with programs like car sharing.

• Basis for Competition: High and the trend is increasing

• All companies in this industry compete primarily on price and customer service.

• Companies also compete through branding and market segmentation.

• Strategic alliances with airlines and hotels can produce a competitive edge.

• External competition stems from other modes of travel including taxis, limousines and public transport.

• Barriers to Entry in this industry are Medium and Steady

• Rental fleet investment is a significant monetary outlay.

• Potential new entrants would have difficulty establishing a brand identity because the current brands are heavily entrenched.

• Globalization in this industry is Low and the trend is Steady

• All major car rental companies in the United States are domestically owned; however, US car rental companies operate globally either through direct ownership or through license and franchise agreements. Page: 33

Key Findings


CWT/GBTA 2016 Forecast: Car Rental Pricing


Page: 35

US TMC Industry: Overview

• Leisure travel is the largest market for the industry, which is made up of travelers taking both domestic and international trips. About 25.0% of revenue for this segment is derived from domestic travel and the remainder (52.0%) from US residents traveling internationally.

• Managed and unmanaged corporate travel makes up a smaller percentage of industry revenue than leisure travel, but is often more lucrative for agents. Demand for business travel is highly correlated with business confidence and corporate profit. Corporate profit has increased 2.8% per year on average over the five years to 2016, resulting in a greater number of business trips.

• There is more competition for the lucrative corporate dollar than ever before and many travel agencies focused on business customers have been forced to drop their commission rates to attract business.

Key Points


US industry spend is $34 billion of which 30% is business travel at airports. Global Industry is expected to hit $166.2 billion in 2016

SAMPLE

Travel Management Industry: Overview

• Expedia and Priceline have dominated for the past few years, ranking 1 and 2 again. No other company was close. Third-ranked AMEX registered just under $

• 21 Companies achieved sales of $1B or more

• Consolidation and more consolidation to come

• Companies are rushing to adopt in-house solutions as well as partnering with companies like Concur to make the travel experience seamless and cost effective.

• New trend – surge in companies developing their own travel schools in order to attract young professionals.

• The average profit of travel agencies in 2013 was 8%. The average profit was 12% in 2015.

2015 Top 6 Travel Management Co’s By Sales Revenue •Key Points

Source: www.travelweekly.com Travel Weekly Power List 2015, Statista 2016

Overall, the US industry is expected to grow 2.2% per year on average to $38.0 billion in 2021

$50 $50

$30 $27

$24

$16

$0

$10

$20

$30

$40

$50

201

3 R

even

ue

s (

in B

illio

ns

)

The PPI for travel agencies has gone down 13% since its high in 2001 (due to 9/11 and the commencement of the on-line booking tool), but has risen since and has exceeded its 2007 high and continues to climb.

TMC Industry: PPI – Travel Agencies



121.8

123.3

114.0

112.5

108.6

107.4

111.0

112.0

113.6

109.9

112.5

113.9

112.6

115.9

113.4

115.7

105.0

110.0

115.0

120.0

125.0

Pro

du

cee

r P

ric

e In

de

x

Page: 38

US Travel Agency: Cost Drivers


Operatng Cost Drivers Key Findings

• Wages are the largest expense for this industry, accounting for an average 35.4% of total revenue in 2016. The industry is still heavily reliant on personal service, where quality customer service and product knowledge remain key success factors.

• The average industry profit margin, is expected to reach 2.5% of total revenue in 2016, reflecting the high level of competition in the industry. When travel demand weakens, many industry operators reduce commissions and margins in an attempt to retain business and increase cash flow.

• Overall, profit margins have decreased slightly during the past five years despite the growth of the online segment of the industry and rising travel demand, especially to exotic international locations. Increased competition has pressured industry profit, forcing competitors to increase consolidation activity

Over 86% of costs in the travel agency industry is distributed among three categories: (1) Wages, (2)Purchases, and (3) Other (advertising/marketing, selling, G&A, insurance, property expense, equipment rental and professional fees)

SAMPLE

US Travel Agency Industry – Competitive Landscape

• This industry is Mature• The two main segments of the Travel Agencies industry

are in distinctively different stages of their life cycles. Travel websites are in the growth stage of their life cycle. traditional brick-and-mortar travel agents have reached maturity and face increasing threats from travel websites and vendors that take online bookings directly. Overall, the industry is mature.

• Basis for Competition: High and the trend is increasing

• Competition in this industry has become largely price-based. The increasing number of travel websites has led to an increasing number of customers browsing to find the best price deal and booking with the best-priced agency. Online ticket price and booking services have increased consumer information on travel prices and has introduced more price-based competition to the industry.

• Barriers to Entry in this industry are Low and Steady

• No restrictive factors prohibiting new players from entering the industry.

• Few large, dominant players. However, beyond these large players the industry is highly fragmented with a large number of small, independent operators.

• Globalization in this industry is Medium and the trend is Increasing

• Due to internationally linked computer booking and reservation systems, the industry has historically been highly globalized.

• The shift from retail storefronts to internet-based distribution methods or call-center-based service delivery makes enterprise location increasingly irrelevant to consumers of travel.

Page: 39

Key Findings


CWT Additional Perspective

Page: 40

Business Travel News – 2015 Corporate Travel Index: Food $97 per day

Page: 41

• Advito Consulting 2016 Forecast• Airlines for America, www.airlines.org• AirlineFinancials.com• Auto Rental News.com• Bureau of Labor Statistics, www.bls.gov• Bureau of Transportation Statistics, www.bts.gov• Business Travel News.com• CWT Hotel Solutions• CWT 2016 Travel Price Forecast• Forbes, www.forbes.com• Hoovers Online, www.hoovers.com• IATA (International Air Transport Association) & World Air Transport Statistics (WATS 2006)• www.ibisworld.com• Global Business Travel Association, www.gbta.org• MarketWatch.com• Power List 2015, www.travelweekly.com• Pwc Hospitality Directions• Smith Travel Research Data• The Transnational.travel• Travel Daily News, www.traveldailynews.com• Travel Procurement• Travel Weekly, www.travelweekly.com• Wikipedia• Wikiinvest

Appendix: Data SourcesSAMPLE

Page: 42





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls

Develop Sourcing

Objectives



Existing Supplier

Development



ApprovedSuppliers

Develop Sourcing




Page: 43

Sourcing Strategies & Tactics

Several sourcing strategies can be pursued, either separately or together.

— Possible Sourcing Strategies —

Best PriceAnalysis

Volume Leveraging

Strategic Relationship

ProcessImprovement

DemandManagement

CommoditySourcingStrategy

STRATEGIC RELATIONSHIP

Establish integrated or close relationships with suppliers where both buyer and supplier work together to share information, collaborate, and further each partner’s goals

PROCESS IMPROVEMENT

Identify opportunities to standardize and streamline business processes that will result in improved quality, reduced cycle times, and lower total cost of ownership

BEST PRICE ANALYSIS

Evaluate and model all costs and use negotiation tactics that increase transparency and maximize competition

DEMAND MANAGEMENT

Address factors such as standards, requirements, and policies to reduce costs related to internal demandVOLUME CONCENTRATION

Aggregate like goods and/or services across organizational units in order to increase negotiation leverage and negotiate better pricing, and terms and conditions

Page: 44

Sourcing Strategy: Airlines

Current State

• Travel policies located in Accounts Payable Expenditure Manual – No enforcement

• All departments using one travel agency, however suspect that some Southwest bookings are going directly to Southwest.com

• Travel compliance is not be monitored

• Recently moved corporate headquarters from Detroit, MI to Dallas, TX

• Top 3 airline spend: Northwest, American and Southwest

• Current contract with Northwest only (no discount in Tier 3 and high market share commitment)

• 70% of air spend in Tier 3

• Some international air spend – about 15%


• Create separate travel policy with management enforcement

• Enter into negotiations with Northwest (current contracted supplier) and American Airlines. In addition, pursue possible corporate deal with Southwest Airlines.

• Stimulate competition between Northwest and American Airlines in multi-hub city pairs

• Stimulate competition between Northwest and American Airlines for international air spend

• Negotiate with Southwest and determine if market share can support a formal corporate agreement

• Market dynamics suggest a 2 year contract

Results

• Separate travel policy resulting in improved compliance

• Discount in Tier 3 level pricing

• Capture all Southwest spend

SAMPLE

Page: 45

Savings Opportunity

Proposed Strategy Expected Outcome

Volume Concentration

Consolidate all Division car rental spend. Leveraging buying power across all Divisions to maximize savings.

Primary and Secondary Considerations

Pricing exercise to include using one primary vendor only or having one primary and one secondary vendor for car rentals.

Award business to one primary only, or one primary and one secondary vendor, whichever is more advantageous.

Service Consolidations

Increase total spend to include cargo van/truck rental business to leverage buying power with Enterprise and Budget.

Enterprise to acknowledge additional spend with cargo van/truck business which could help achieve additional savings. Show Budget total spend across their business units to obtain best pricing.

Additional Concessions

Ask for additional concessions, including higher rebate, lower city surcharges, lower refueling charges, lower one-way and weekly rentals, and lower GPS rental fee.

Better rebate terms, possible lower city surcharges, and flat rate refueling charge which amounts to additional savings.

Demand Management –Global Policy

Develop a global travel policy for all Division’s to follow. Consistency across all Division’s leads to demand management savings.

Demand Management –Enforcement Mechanism

Empower Global Travel Department to enforce global travel policy with key Division team members.

Demand management savings in all areas, airline, hotel and car rental.

Demand Management –Class of Service Standardization

Standardize car rental class of service to “intermediate” size car only.

Average daily car rental rate to decrease, providing incremental cost savings to the program.

Category Strategy Deliverable

Perform pricing exercise to include primary and primary/secondary considerations, include van/truck rental spend and negotiate additional concessions such as better rebate terms, lower city surcharges and flat rate refueling charge.

SAMPLE

Page: 46





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls



Supplier Selection

Decision Matrix

RFIs (optional)




ApprovedSuppliers



Page: 47

Car Rental Scorecard

WeightMaximum

Points

Person A

Score

Person B

Score

Person C

ScoreTotal Score

37% 572 I. Non-Pricing Components 549 526 538 538

0% 0 A. Company Information 0 0 0 0

2% 35 B. Rental Locations 35 35 35 35

7% 100 D. Safety & Fleet 78 88 76 81

9% 131 E. Services & Amenities 130 121 121 124

1% 21 F. Billing 21 21 21 21

12% 185 G. Top 15 Cities - Rental Locations 185 185 185 185

7% 100 H. Top 15 Cities - Trans Method from Airport 100 76 100 92

63% 954 II. Pricing Components 666 667 671 668

10% 154 C. Additional Pricing Questions 92 93 97 94

33% 500 National Daily Rental Rate 437 437 437 437

20% 300 City Surcharge Rate 136 136 136 136

100% 1526 1215 1193 1209 1206

Car Rental Company

Evaluation Criteria

SAMPLE

Page: 48





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls


RFP Process

RFPs / RFQs

eAuctions


Conduct eAuction(s)


- AND/OR -

- AND/OR -



ApprovedSuppliers



Page: 49

Supplier Engagement Options

There are many ways to initially exchange information. While RFPs are often appropriate, they are one of many means of engaging suppliers.

Pre-NegotiationInformation

Exchange

Direct Negotiations with an Incumbent Supplier

Direct Negotiations with a Target Supplier

Brainstorm with a Group of Trusted Suppliers

On-Line AuctionsRFPs / RFQs

Should choose the method(s) that best meets both the Strategic Sourcing objective and the team resource capacity

Page: 50





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls

Prepare Fact-Based








ApprovedSuppliers



Page: 51

Negotiations Approach – Discussion Points

Based on a review of Company’s current program, contract terms, and stakeholder requirements, the following improvement areas have been identified to maximize the annual incentive rebate.

Negotiation Point Description Supplier

Pricing, Incentive Rebate Structure

• Size down the gap between rebate tiers to reduce the risk associated with dropping to a lower tier. Closing the gap between tiers will inset Company to drive more spend to Amex.

• Ensure incentive BPS earned at each tier are best in class for domestic and non-domestic spend.

• ABC

Pricing, Signing Bonus • Reduce/eliminate minimum signing bonus *NACV thresholds (claw back clause) to avoid refunding any portion of the $1M signing bonus paid to Company in 2008.

• Take a position which suggest Company is doing Amex a favor by offering them other potential business. ABC should fight to keep this business considering transition cost will be minimal for them, thus their margin will not be adversely be effected.

• ABC

Pricing, Performance Bonus

• Establish a realistic performance target based on the post spin *NACV, the current (pre spin) performance target is too aggressive.

• Maximize the annual performance bonus.

• ABC

Pricing, Deductions • Minimize consulting assessment expenses (hourly rate) and Membership Reward (MR) fees which are deducted directly from the incentive rebate.

• Negotiate an annual credit which can be applied to consulting and MR expenses.

• ABC

Pricing, High ROC Transactions

• Reduce the 50 BSP reduction on P-card transactions > $10K (Hi-ROC volume).

• Negotiate a buffer which can be applied to the Hi-ROC volume, i.e. request that the BSP penalty apply only to Hi-ROC volume which exceeds a specified amount.

• ABC

*NACV – Net Annual Charge Volume (i.e. annual spend with Amex)

SAMPLE

Page: 52

Negotiations Approach – Projected Targets

Below are the projected results should Company be successful in driving ABC to the negotiation points proposed. Total Savings is projected to be approximately $300-$600K.

SAMPLE Expected Benefits

Strategy Type Savings ($) LAS / BATNA Key Enablers

Incentive Rebate Structure – fine tune the incentive BSP tiers to maximize the rebate received post spin-off.

Financial $200-$400K • Focus on sizing down the gap between rebate tires.

• Put business out to bid

• Stakeholder buy-in

• Executive sponsorship

• Procurement Support

Performance & Signing Bonus –adjust bonus targets to align with the post spin-off spend portfolio. The current targets are far to aggressive.

Financial $100-$150K • Concede to a reduction in the performance bonus if the target is simultaneously reduced

• Mandate a reduction in minimum thresholds for signing bonus retention




Deductions – reduce the expense subtracted from the *NACV and deductions from the base incentive rebate.

Financial $0-$50K • Focus on improving the rebate earned on High-ROC volume

• Dedicate a resource to handle ad-hoc assessment activities




Total $300-$600K

*NACV – Net Annual Charge Volume (i.e. annual spend with Amex)

SAMPLE

Page: 53





Recommen-dation

ImplementAgreements


Acti

vit

ies

Delivera

ble

s o

r T

oo

ls

Validate Internal




TCO Model


Industry Profile

Build TCO Model

Develop Sourcing

Objectives



Existing Supplier

Development



Supplier Selection

Decision Matrix

RFIs (optional)



RFP Process

RFPs / RFQs

eAuctions


Conduct eAuction(s)


- AND/OR -

- AND/OR -

Prepare Fact-Based






Finalized Agreements

Benefits Realization

Continual Supplier

Improvement

Implement Agreements and Monitor

KPIs

Evaluate Performance and Develop

Suppliers



ApprovedSuppliers

Fast Track for Quick Savings

Develop Sourcing




AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan



Page: 54

Implementation Plan Overview

An effective implementation plan consists of several key components necessary to ensure rapid and complete benefits realization from the new supply arrangement(s), and to follow through on agreed to parameters during contract negotiations.

Plan Component Description

Transition Plan Shift from old supply agreements to new ones.

May or may not involve switching suppliers.

Communication Plan

Inform the user community of the outcome of the strategic sourcing effort.

Specify to users how they are impacted and what actions they are required to take as a result of the strategic sourcing effort.

Highlight all benefits that users may derive from the new supply arrangements.

Compliance Plan Determine how compliance to new supply arrangements will be enforced (if possible).

Closely linked to the “Communication Plan”.

Benefits Tracking & Reporting Plan

Measure benefits resulting from new supply arrangements relative to targets

Report to senior management on both status and any necessary actions required to improve benefits realization.

Performance Management Plan

Ensure that suppliers are performing along key metrics as required by the contract.

Put in place a regular communication vehicle with suppliers to drive improvements in supplier performance.

– Overview of Implementation Plan Components –

SAMPLE

Corporate Travel Strategic Sourcing -...

Documents

Transcript of Corporate Travel Strategic Sourcing -...