The Digital TransformationNew information technologies,s.docx
Travel Trends - Comparison of Tech-Based Managed Models
1. Executive Brief: The Four Technology-
Based Managed Travel Models: Which One
Is Right For You?
2. Online Managed Travel: Which Model is Right for You?
2
IINNTTRROODDUUCCTTIIOONN
Few industries have been impacted as significantly by the Internet as the travel industry. Inherently data-driven,
travel purchases represent the single largest category of e-commerce. Online business travel will grow from $13B
in 2002 to $27B in 2007
1
. Rapid growth of this new medium has led to the dramatic rise of new players, while also
leading to substantial consolidation among existing travel providers, especially travel agencies. While the top 15
travel management companies (TMC) still include American Express, Carlson Wagonlit, Navigant and
WorldTravel/BTI, they also include newer Internet TMCs such as Cendant/Travelport (#9), Expedia, Travelocity
and Orbitz
2
.
Contributing to TMC consolidation are the economic and industry slowdowns exacerbated by the events of
September 11
th
2001, ongoing measures to reduce airline distribution costs (i.e. commission caps, airport/city
ticket office fees), Global Distribution System (GDS) deregulation, and the ongoing impact of low-cost carriers.
Consolidation will continue, with third-ranked Rosenbluth International’s acquisition by the largest player,
American Express, as one of the most recent examples (Carlson’s acquisition of Maritz Travel being another).
This trend is expected to continue over the next two to three years.
Against this backdrop is a race to capture what many believe is the largest and most lucrative segment of the
travel industry – mid- and large-sized corporations. Unlike leisure travelers who demonstrate scant loyalty in
search of the lowest fare, business travelers in these corporations participate in managed travel programs that
require employees to book travel through their designated corporate travel agency. Business travelers have a
more “sticky” relationship with their travel agency vs. their leisure traveler brethren. In addition, relationships with
these mid- and large-size corporations are more profitable.
For now, the phone and the designated corporate travel agency remain the predominant means of booking travel.
However, as the industry has moved online over the past decade, traditional players, particularly the GDSs and
the large, multi-national travel management companies (TMCs) (as well as the newer Internet TMCs), have
moved quickly to address the needs of corporations, resulting in a highly competitive landscape.
Figure 1: Different players and models emerge to capture mid- and large-size corporate market
Wrenching Change and Turmoil Creates New Models
Online Consumer
Agencies Enter
Corporate Market
GDSs Cap Fees to
Capture Web Fares
UAL/US Air Bankrupt;
others close
NWA
assesses/rescinds
GDS fee for all PNRs
GDSs and TMCs
Develop/Acquire/Resell
Corporate OLB
Commissions Go To
Zero
Web Fares
September 11
Startups Offer
Corporate Online
Booking (OLB) Tools
Suppliers Develop
Own Sites
Early Consumer
Online Travel
Agencies
2002 – 2004Late 90s – 2001Mid-to-late 90sMid 1990’s
Corporate Travel Market Dynamics
1
Forrester Research, 15 January 2003.
2
Travel Weekly Special Reports, 2003.
3. Online Managed Travel: Which Model is Right for You?
3
Now, more than ever before, corporations have a variety of options and models to consider when determining
how to manage their travel programs. Assuming – ultimately – the online medium will surpass the phone as the
predominant means of booking travel, it becomes important to understand the capabilities of the online systems.
On the surface, the online options are very similar, driving many corporate buyers to view online corporate travel
as a commodity purchase, looking at features/functions and price as the primary selection criteria. However,
because technology is a game of “leapfrog” best played by those with deep financial pockets, it is critical
to look beyond price and features/functions to determine the best online partner. While
features/functions and price are important factors, equally important is the business model associated
with each online technology provider or reseller. The business model of the providers is key in determining
their complete set of capabilities (online and offline) and whether they have what it takes to support the unique
needs and objectives of each organization.
For managed travel organizations seeking an online option for their program, there are currently four prevailing
models
3
to consider. The purpose of this industry brief is to define each of these models, discuss the strengths
and weaknesses of each, identify vendors that match the profile of the model, and to help corporate travel
managers best determine which model is right for them.
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Although there is some blurring of the lines with regards to different players and their business models, all of the
players fit primarily into one of the four models defined below:
Traditional TMC with Bundled Online Option
The traditional agency model is still the predominant means of corporate travel management. Most agencies in
this category offer an online option, and with very few exceptions, this option is through a reseller agreement with
an existing online booking technology provider. Larger agencies typically operate on multiple GDSs, and most
derive substantial revenues from their GDS agreements. Additionally, most agencies in this category, particularly
the large TMCs, complement transaction capabilities with a wide range of travel management services. The
traditional travel agency makes money from transaction processing as well as management fees associated with
the aforementioned services. While traditional services are highly regarded in this category, only three in ten
travel managers surveyed believe their travel agency is actively engaged in helping them or their travelers
increase booking tool adoption
4
.
The traditional travel agency community has been significantly weakened by the economic slowdown, the events
of September 11
th
, and by industry trends such as commission cuts. With enormous pressure from suppliers to
lower GDS segment fees, it is inevitable that agencies will face erosion of GDS financial assistance as well –
which until recently has been as much 30 percent of some agencies’ revenue. With the high cost structure of the
agency community as a whole, it is very difficult for many agencies to offer decreasing costs to their customers –
in fact, in most instances, these costs will be going up. Many agencies are now vulnerable to acquisition by
stronger players.
Another key factor worth considering is the traditional agencies’ lack of leverage in offering new capabilities. With
only few exceptions – Carlson Wagonlit Travel (CWT)
5
and Navigant – agencies do not own their own online
booking technology. For corporations who select the agency-provided tool, it is important to keep in mind that the
agency has no direct ability to address feedback and suggestions regarding the online tool. Additionally, because
the agency has to pay another provider for its online capability, this limits the cost savings corporations will see by
going online.
Examples of the Traditional TMC with Bundled Online Option include American Express and WorldTravel/BTI.
3
The Corporate Travel Department (CTD) model, although not discussed here, is an option that may (depending on configuration of CTD)
apply to all options here. Currently, however, the online agencies provide limited support for CTDs.
4
Forrester Research, 21 February 2003.
5
In the case of CWT and Navigant, they may or may not have the capability to invest in an ongoing basis the substantial sums of capital it
takes to operate and improve an online booking operation. Historically, agencies have a poor track record here.
4. Online Managed Travel: Which Model is Right for You?
4
Traditional TMC With Direct (3rd
Party) Online Option
This model emerged in the mid-1990s when companies in this category were the first to offer self-booking
platforms that integrated policy and preferred suppliers. With few exceptions, they typically offer online booking
software (as a hosted service) only. Most companies in this category do offer a fulfillment option, but such an
option is provided through a partnership with an existing travel management company. The self-booking
companies typically offer their software as agency- and GDS- neutral platforms.
Historically, this model has had the most advanced and flexible online booking technology, but this business
model has also proven the most difficult to sustain because revenue is derived primarily from Web-booking fees.
Early on, these providers also charged (and received) significant implementation fees, but due to increasing
competition these fees have largely been reduced or eliminated. Given the challenges, this model has seen the
most failures, including TravelNet (1997), XOL (1999), and recently iFao (2002), which shut down operations in
the U.S. Sabre’s closing of its GetThere business unit (brand and technology remain) is notable here because
although GetThere had consistently shown strong transaction growth and a dominant share in the market, it was
far from profitability, forcing its parent to shut down the unit and integrate its operations within Travelocity. Even
when a technology-only player avoids outright failure, players in this category are often acquired by larger
companies and as such are generally most vulnerable to significant operational, product, personnel, and strategy
changes which can be disruptive to customers.
Another key pitfall of this model is the lack of accountability when the online vendor works with customer’s
existing agency. This two-vendor process has often proved to be very difficult when problems occur, particularly
in the area of file finishing – a critical area if one expects substantial transaction cost savings. To date, the
software providers have proven to be very poor at file finishing because it is difficult to excel at this when
operating an agency and GDS-neutral platform. Again, while the technology vendors offer a fulfillment option
through a 3
rd
party to address these types of issues, adoption of this type of arrangement has been slow. Rather,
what is most common is the arrangement where corporations opt for 3
rd
party technology from their existing
agency (see traditional agency model above).
Examples of the Traditional TMC with Direct/3
rd
Party Online model include Outtask, TRX
6
, KDS, and e-Travel
7
.
Internet TMC
Companies in this category emerged in the mid-1990s as B2C (leisure) agencies. As the market opportunity for
corporate travel grew, these companies began offering some limited capabilities for managed travel programs.
Much of the profitability for these companies comes from merchant models whereby the online agency resells
distressed inventory (typically Web fares and hotel rooms) and also from revenue-sharing programs with the
single GDS that serves the online agency.
The merchant model deals, while often good for spot purchases where a negotiated discount is not in place, often
undermine managed travel programs and can be very inconvenient for travelers (non-upgradeable fares, inflexible
cancellation policies, etc.). Related to this issue is transaction pricing to corporate customers whereby transaction
pricing favors the use of the online agencies’ suppliers and rates, further undermining established travel
management programs. Specifically, use of a corporation’s own suppliers and rates typically entails a higher
transaction cost from the online agency.
Online agencies are also vulnerable to evolving relationships with GDS partners. The GDSs are subject to fee
pressure from suppliers that would ultimately negatively impact shared revenues with their online agency partners
– which would be a significant loss to the online agencies and could be a key factor in maintaining a consistent
and sustainable financial condition.
Examples of the Online Agency model include Expedia and Orbitz.
6
Although TRX does offer fulfillment, they typically sell this only to Web site operators and other agency operations.
7
Although Amadeus’ e-Travel previously offered fulfillment through SATO (now Navigant), they currently sell online booking only (no
fulfillment) – mostly through resellers. While they do also sell the Amadeus GDS, because of their multi-GDS strategy, they most closely
resemble the other software vendors, particularly in light of relatively weaker GDS position in North America.
5. Online Managed Travel: Which Model is Right for You?
5
Vertically-Integrated Internet TMC
This model is the newest to emerge and is characterized by full ownership of all three components of the
corporate travel solution: (1) online booking, (2) GDS, and (3) fulfillment. In this model, revenue is primarily
derived from both Web-booking and GDS segment fees.
This model provides key structural advantages relative to other models:
Full ownership of all components enables a greater degree of automation/integration and consistency
across all channels of booking
Greater revenue diversity
The vertically-integrated model is offered by Travelport, a Cendant company, and by Travelocity for Business, a
Sabre company.
Specific to Travelport, there are many other advantages to this model, including:
• Web site flexibility. Because the Travelport online booking product started as an online booking engine
only and has been built from the ground up as a corporate solution, it not only provides a high degree of
corporate capabilities, it also provides a high degree of configurability and flexibility, much more so than
most of the other models, particularly the online agencies.
• Sales flexibility. Travelport allows the corporation to select just online booking or a fully integrated model
of booking, GDS services, and fulfillment, as a single service offering with a low transaction price.
• Fulfillment flexibility. Because fulfillment is fully-owned, it is configurable as a call-center and/or as an on-
site option (CTD is fully supported).
• Corporate control. Travelport provides an ability to capture content, such as Web fares and merchant-
model hotel rates, and offers such deals to corporate customers without compromising or undermining
established travel management programs.
• Seamless-integration. With all components owned by Travelport, everything is tightly integrated, ensuring
a seamless (touchless) process flow and low transaction costs.
• True single point of contact accountability. With all layers of the solution owned by Travelport, the
corporation only needs to manage a single relationship and only needs to call one contact should needs
or issues arise.
Figure 2 summarizes the strengths and weaknesses of each model and also includes criteria designed to help a
corporation understand how best each model may serve its unique needs.
CCOONNCCLLUUSSIIOONN
Whether a corporation is currently online or not, it is inevitable that with few exceptions, most business travel will
ultimately be booked online. Going online has proven to be a significant cost-savings move for many companies,
and employees – more and more – are feeling more comfortable and empowered online as travel technology
continues to improve. With the ongoing pressure on corporations, agencies and suppliers to reduce costs, the
march online continues. Online managed travel adoption is expected to grow more than 30% each year through
2007
8
.
For those who do have aggressive goals to move online, it pays to look closely, not only at features and prices,
but also at the business model of each provider. The business model is an important determinant in key issues
such as the ability to (1) maintain a healthy and consistent financial condition, (2) ensure a smooth process flow
that will provide lower transaction costs, and (3) offer flexible product and service configurations that support the
unique requirements of managed travel organizations.
The industry continues to be highly dynamic and we hope that this whitepaper supports corporate efforts to
understand the change.
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If interested, this whitepaper is also available as an executive briefing to be delivered in presentation format – in
person, over the phone, or over the Internet. The executive briefing session is interactive, and is designed to help
8
Jupiter Media Metrix, March 2002
6. Online Managed Travel: Which Model is Right for You?
6
you (1) learn about the corporate travel models in more detail, (2) analyze the strengths and weaknesses of each
model and how they map to your business, and (3) determine how one of the models may best address your
business objectives.
To set up your free, no obligation, executive briefing, contact Rob Wald at 617.630.1003 or
rob.wald@travelport.com.
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Rob Wald is a 15 year veteran of the business travel technology industry, having worked for such companies as
Oracle, e-Travel, Amadeus, and Cendant. Rob’s background includes work in financial operations, software
product development, and marketing. While at Oracle, Rob introduced the industry’s first Web-based expense
reporting product. He has been a frequent speaker at industry events, including NBTA, ACTE, and CFO Rising.
He has also contributed to numerous articles in such publications as CFO Magazine, Computerworld, Business
Travel News, Travel Weekly, and Business Travel Executive. Rob is a graduate of the University of California at
Berkeley.
7. Online Managed Travel: Which Model is Right for You?
7
Figure 2: Summary Comparison and Target Criteria for Four Corporate Travel Models
TYPE STRENGTHS WEAKNESSES TARGET
TRADITIONALTMC
WITHBUNDLED
ONLINEOPTION
High touch
Travel management
services
High costs (structure)
Little leverage to offer additional content
and capabilities best captured in
components of solution not owned (i.e.
online booking and/or GDS)
Corporations that require high
touch, access to extensive
travel management services,
and that do not necessarily have
aggressive goals to move online
due to culture and other factors.
Smaller programs with little or
no dedicated corporate travel
staff.
TRADITIONALTMC
WITHDIRECT/3rd
PARTYONLINE
OPTION
Features/ functions
GDS/agency flexibility
Little leverage to offer additional content
and capabilities (i.e. file finishing or
integration with agency systems) best
captured in components not owned (i.e.
GDS and/or fulfillment)
Little leverage to reduce transaction fees
with agency, particularly if file finishing is
poor
Corporations that want best-in-
class technology and are not
necessarily seeking maximum
cost savings. Not necessarily
concerned about switching
costs if the vendor is unable to
sustain its business model and
becomes a target for failure or
acquisition. Larger programs
with dedicated corporate travel
staff.
INTERNETTMC
User interface and
content (mostly hotels)
Low transaction costs
Inflexible Web site technology
Inflexible service configurations (i.e.
limited on-site or CTD support)
Complex pricing
Higher prices if use own
suppliers/preferred rates
Lack of travel management services
Web fares, merchant hotels offered tend
to be more restrictive for travelers (i.e.
upgrade, cancellation policy, etc.)
Corporations with very lightly
managed programs that do not
have much leverage to obtain
supplier discounts. Also, no
need for product and service
flexibility and travel
management services.
VERTICALLY-INTEGRATEDITMC
Ability to offer fully-
integrated (online
agency) solution OR
just components
Agency and GDS-
neutral option available
Low transaction cost
Booking product
flexibility
Online agency
flexibility (call center
OR on-site)
Travel mgmt services
Complete leverage to
develop capabilities
best captured in any
component of solution
Mid- and large size corporations
with ongoing goals to move a
substantial percentage of their
transactions online;
organizations that seek highest
possible cost savings, while
preserving access to broad
range of services and ability to
have a significant degree of
product and service flexibility.
