Travel Procurement Workshop

Travel Procurement WorkshopScott GillespieAuthorGillespies Guide to Travel+Procurement

NBTA Convention & Exposition | August 8-11, 2010NBTA Convention & Exposition | August 8-11, 2010Houston, Texas#

ModernAirline Sourcing#Key Analytical ConceptsFair Market Share (FMS)Airline Supplier MapFare mix, discounts, and Net Effective Rate (NER); a.k.a. Weighted Average DiscountScenario modelingProgram savings and CEO MapProgram optimization#3Fair Market Share (FMS)A.k.a. QSI, or neutral share, or share of liftBest estimate of carriers market share before pricing and loyalty factorsVery important basis for all modern airline sourcing projectsDrives minimum, maximum and goal share, and the corresponding spend projectionsKey variables are connection logic and interline logic#4Fare Mix, Discounts and NER(Net Effective Rate)Fare mix is key to calculating savingsHistoric fare mix determines the spend-weighted Net Effective Discount

Share of SpendBooked Fare ClassDiscountNet Eff. Rate10%J30%3.0%20%Y20%4.0%40%M15%6.0%30%T0%0.0%13.0%Net Effective Rate = #5Fare Mix IssuesBuyers use historic fare mix dataAirlines may use non-historic fare mixes when biddingBuyers calculation of Net Effective Rate, and savings, will differ from airlinesNo practical way to guarantee inventory availability or the future fare mixStandard practice is to use last years fare mixBut check with each airline!

#6Airline Supplier MapSpend at Fair Market Share$3.0 MM$0.0Ability to Move ShareVery LowVery HighDLAAUAPrimary, or Tier 1Secondary, or Tier 2Tertiary, or Tier 3USAC#7Scenario Modeling is CriticalBasis for modern airline sourcingScenarios are What if optionsTypically involve Tier 1, 2 and 3 airlinesA.k.a. Primary, Secondary and TertiaryCan have Co-primaries, co-secondaries, etc.Easy to model alliancesCalculates detailed carrier shares and buyers savings for each scenario#89

scenario modeling#9Scenario ExamplesDL as Primary, Star as SecondaryDL/AF/KL as Primary, Star as SecondaryDL + AA as Co-Primaries, then StarStar as Tier 1, then DL + AA as Tier 2Avoid DL: Make FL/AA/UA/US as Tier 1Modeling tools test 50-250 scenarios#10Buyers Focus on Scenario SavingsLast years net program spend- Scenarios projected net spend= Scenario SavingsWeaknesses:Uses last years published fares and last years fare mix** Understates savings when fares fall#11Sample Scenario Results (Illustrated)ScenarioScenarioTotal Net SpendScenario Savings ($000s)DLs Net Spend ($000s)1. DL, then Star2,950507002. DL/AF/KL, then Star2,940606003. DL+AA, then UA+AC2,930704004. Star, then DL+AA2,960403005. Avoid DL2,97030200Last years Program Net Spend was $3,000K#12Scenario ImplicationsScenarioScenario Total Net SpendScenario Savings ($000s)DLs Net Spend ($000s)1. DL, then Star2,950507002. DL/AF/KL, then Star2,940606003. DL+AA, then UA+AC2,930704004. Star, then DL+AA2,960403005. Avoid DL2,97030200Buyer prefers No. 3DL prefers No. 1SkyTeam prefers No. 2#

Hotel Clusters 101#How should you group hotels for negotiations?Distance between hotels matters a lotYou want to group hotels into actionable markets- Small enough to be create valid competition - Regardless of artificial boundariesArtificial boundaries:State bordersCity bordersZip CodesMidtown, DowntownNear AirportNBTA Convention & Exposition | August 8-11, 2010#Clusters are actionable marketsClusters are small areas, maybe 1-3 miles in diameterClusters are built around your programs high-stay areasArtificial boundaries (State, City, Zip Code, etc.) are ignoredClusters include non-preferred and unused hotelsClusters create actionable markets, much like city pairs

#Ignore Orphan Hotels!Orphans are low-stay hotels outside cluster boundaries They show up in TMC booking and credit card reportsIgnoring orphans can eliminate 50-70% of booked hotels, 10-20% of Room NightsIn no way weakens negotiationsSignificantly streamlines the Hotel RFP process#Slide 1 detail (Arial 44)

From a Hotel Usage MapNBTA Convention & Exposition | August 8-11, 2010Houston, Texas#18Slide 1 detail (Arial 44)

To Hotel ClustersNBTA Convention & Exposition | August 8-11, 2010Houston, Texas#19Slide 1 detail (Arial 44)

Including Unused HotelsNBTA Convention & Exposition | August 8-11, 2010Houston, Texas#20NBTA Convention & Exposition | August 8-11, 2010

ModernHotel Sourcing#Hotel Sourcings Typical Annual CycleNBTA Convention & Exposition | August 8-11, 2010Data CollectionRFPImplement& ManageSummerFall / WinterWinter >>>#The Missing Step: Sourcing StrategyNBTA Convention & Exposition | August 8-11, 2010Data CollectionRFPImplement& ManageSummerFall / WinterWinter >>>Sourcing StrategySummer#Strategy Studys Key DeliverablesEstimates the Major Savings OpportunitiesHigher compliance to as is programBroader coverage (more preferred hotels)Less upgrading and/or more rate availabilityBetter rate negotiationsRealistic tier-down scenariosWhich then drives the Bid ListDepends on managements appetite for savings and change#Socialize with Senior Management

=#Clusters Create Meaningful Insights

Which clusters need more preferred hotels?Which clusters have competitive alternatives?Where is there non-compliant spend? Is it a rate problem?Which clusters have lower-tier hotels? By how much do rates differ?#Strategy Study Shapes Your Bid ListCompliance savings > existing preferredsCoverage savings > add more preferredsTier-down savings > bid lower-quality hotels

NBTA Convention & Exposition | August 8-11, 2010#Whats the Total Cost of Stay? Models need:Prices for room rates - Last Room Avail., Non-LRA - Best Available Rate (or AAA rate)Ancillary Costs (Internet, breakfast, parking)Utilization estimates for ancillariesVolume estimates per propertyQuality ratings (3 star, 4 star, etc.)

NBTA Convention & Exposition | August 8-11, 2010#Some Key MetricsSpend Under Contract$2.0 million (80%)$0.4 millionNegotiated SavingsAverage Discountx 20%Average Hotel Quality3.7 stars -10% YoYAverage Booked Rate$143 -22% YoYTotal Hotel Spend$2.5 M -30% YoY#Drivers of Average Booked RateQuality tier of hotel (5 star vs. 4 star)Preferred vs. non-preferred statusRoom typeNegotiating processRoom night volumeRoom availabilityLocal market conditions

Travel Managers are expected to influence most of these factors#Chain Fitting

#If you had $1 million in spend in these secondary marketsTacomaTampaToledoTopekaTucsonTulsa

NBTA Convention & Exposition | August 8-11, 2010Which hotel chain gives you the best coverage?#NBTA Convention & Exposition | August 8-11, 2010Scenario OptionRisk ScoreExpected SavingsQualityPolicy Mgmt.RelationshipStrategic ValueDiscount or New PriceProjected SpendX#Well, lets look at our historic spend by chain

#Evaluate chain-wide deals on Neutral Share not just Actual Share

Strong Candidates!Share of beds in the selected clusters#NBTA Convention & Exposition | August 8-11, 2010

Know which chains best fit your program#