travel strategic sourcing kathy briski, c.p.m., ccte january 9, 2013

Travel Strategic Sourcing

Kathy Briski, C.P.M., CCTE

January 9, 2013

Page: 2

Global Procurement Processes

DefineSupplier

EvaluationCriteria

Collect Data

Conduct Performance

Evaluation

Develop Improvement

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

Exercise w/ Approved

Suppliers

Negotiate & Develop Sourcing

Recommend-action

ImplementAgreements

Continuous Improvement

SupplierScorecard

SavingsManagement

SpendAnalysis

KnowledgeManagement

ContractManagement

CatalogManagement

Core Supporting Capabilities

Day-to-Day Purchasing Process

Page: 3

Strategic Sourcing Process Overview

ProfileCategoryInternally &Externally



Recommend-action

ImplementAgreements

Strategic Sourcing Methodology

Act

ivit

ies

Del

iver

able

s o

r To

ols

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: 4





Recommend-action

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols





AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan



5

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: 6

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: 7





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Validate Internal




TCO Model


Industry Profile

Build TCO Model





Copyright © 2007 Accenture All Rights Reserved. 8

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: 9

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: 10

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

Page: 11

Airline Industry: Overview

• 2011 Airline Industry Revenue reached $591 Billion. 2011 Domestic Airline Industry amounted to $147 Billion

• Domestic Airline industry revenue is forecast to exhibit positive growth, increasing at a rate of 2% per year to $162.3 Billion

• United, Delta, and American are the market leaders based on revenue

• In 2011, United’s net income was $840M and Delta earned $854M, while American lost close to $2 Billion. Alaska Air earned $244.5M, Southwest $178M, US Airways $71M and Jet Blue earned $86M.

• For 2012, IATA forecasts an industry profit of $3.5 Billion, but with the Eurozone crisis and jet fuel prices at an all time high, it will be interesting if this forecast becomes true

• Business travel represents 35% of airline’s revenue• AirlineFinancials.com predicts a 95% probability

that American Airlines and US Airways will merge in the next 18 -24 months.

• From 2000 – 2010, US Airlines improved their on-time arrivals from 72.6% to 79.8%.

• From 2000 – 2010, airlines reduced greenhouse gas emissions by 10%, while transporting 15% more passengers and cargo.

• Federal taxes constitutes $61 or 20% of a typical $300 domestic round trip ticket.

Key Points

Source: Airlines for America: airlines.org, Airline Financials.com, IATA, Wikipedia

2011 Global Airline Industry Revenue reached $591 Billion, up 5.5% from 2010. 2011 Domestic Airline Industry amounted to $147 Billion.

SAMPLE

2007 2008 2009 2010 2011$400

$600Annual Global Airline Industry Revenue 2007 - 2011

Re

ve

nu

e in

Bill

ion

s

United

Delta

South

west

Amer

ican

US Airw

ays

Alaska

Air.

..

Jet B

lue

$0

$5

$10

$15

$20

$25

$30

$35

$40

20

11

R

ev

en

ue

s (

in B

illi

on

s)

The PPI (measures average change in prices over time) for passenger air transportation. For 2012 the average amounted to 285.6 which represents a gain of 9.5% from 2011.

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

NAICS 481111 August – November 2012 Preliminary. All indexes are subject to revision four months after original publication.

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

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

1/12

2/12

3/12

4/12

5/12

6/12

7/12

8/12

9/12

10/1

211

/12

180

200

220

240

260

280

300

186.5

200.6

200.4

205.7

205.8 217.1

229.6234.5

257.1

235.9

254.6

273.5 280.6

286.3292.2

292.5

289.2

292.4

289

292.8

271.4

280

275.2

Pro

du

ce

r P

ric

e In

de

x

2012 Data

Page: 13

Airline Industry: Cost Drivers

Sources: Airlines for America: www.airlines.org

2012 Cost Drivers Key Points• Jet Fuel: In 2008, Fuel prices were at record

highs. For 2011, fuel prices have increased to 2009 record highs. Each penny increase in the price of a gallon of jet fuel adds $190 million in additional fuel costs

• Aircraft Age & Type: Fuel consumption is directly impacted by an aircraft’s age. Standardization of aircraft fleet assists airlines in reducing inventory and maintenance costs

• Distribution: This is a tiered cost for airlines, ranging from proprietary websites to GDS transaction costs

• Labor: In 2010, labor cost has exceeded fuel cost even though many airlines have been slashed due to reshaping labor structure, such as redundancies, sickness pay review, bonuses

• Other: These costs include insurance, utilities, office supplies, advertising and promotions, communication, personnel expenses, injuries, loss and damage, interrupted trips expenses, etc.

Airline costs consist of fuel, landing fees, aircraft, staffing costs, taxes and surcharges.

SAMPLE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31.0%

23.5%

5.6%

6.9%

3.8%1.9%1.8%1.3%0.7%

23.5%

OTHER OP. EXPENSES: 23.5% (2Q 2011 - 23.8%)

PASSENGER COMMISSIONS as % of passenger revenue: .7% (2Q 2011- 1.2%)

FOOD & BEVERAGE per revenue passenger mile: 1.3% (2Q 2011 - 1.6%)MAINTENANCE MATERIAL per revenue aircraft hour: 1.8% (2Q 2011 - 1.7%)

LANDING FEES per capacity ton landed: 1.9% (2Q 2011- 2.0%)

NON-AIRCRAFT OWNERSHIP per enplanement: 3.8% (2Q 2011 - 4.4%)

PROFESSIONAL SERVICES per available seat mile: 6.9% (2Q 2011 - 8.3%)AIRCRAFT RENTS & OWNERSHIP per operating seat: 5.6% (2Q 2011 - 6.7%)

LABOR per FTE: 23.5% (2Q 2011- 24.7%)

FUEL per gallon: 31% (2Q 2011 - 25.4%)

Page: 14

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. For 2012, average price of jet fuel was $129.60 per barrel.

• The most reasonable explanation for such high prices is tight supply and counteracting the weak economic conditions

• In 2008 and now in 2012, every dollar increase per barrel (42 gallons) drove an additional $448M in fuel expenses to carriers’ bottom lines

• From 2000 – 2010, US airlines carried 15% more traffic while using 2.1 Billion fewer gallons of fuel.

• In 2011, US passenger and cargo airlines spent $50.5 Billion on fuel, up $11.7 Billion from 2010.

Increasing Jet Fuel Costs Key Points

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

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

SAMPLE

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$0

$20

$40

$60

$80

$100

$120

$140

$34

$33

$30

$36

$49

$70

$83 $88

$129

$80

$91

$120

$130

Av

era

ge

Pri

ce

Pe

r B

arr

el

http://www.airlines.org/

http://www.bts.gov/

Page: 15

Airline Industry: Air Travel Price Index

Sources: Bureau of Transportation Statistics, AMEX 2012 Forecast, CWT 2012 Forecast, Advito’s 2012 Forecast, Airlines for America: www.airlines.org

Air Travel Price Index for Madison/Milwaukee1 Key Points

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

2001 to 2012 Q2 • Historically, the cost of airfare flying into Milwaukee Airport has been following the U.S. average, but has dropped below since the end of 2009. Madison Airport, on the other hand, has mostly stayed above the U.S. average.

• AMEX 2013 US forecast:• Short Haul: 2%-4% Coach 1%-3% Bus/1st

• Long Haul: (-1%)-2% Coach 1%-3% Bus/1st • CWT’s 2013 US forecast: 2.8% increase• Advito’s 2013 N/A Regional forecast shows a

YOY increase of +5% in Coach fares and +3% in Bus fares.

• 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!

• In 2011, US airlines posted the lowest annual rate of mishandled baggage ever recorded.

• In 2010, the airline industry earned approx. $23 billion in additional ancillary fees, which includes $3.3 billion for baggage fees.

The cost of air travel have been very volatile over the past several years. The cost of airfare flying into Milwaukee Airport has been following the U. S. average, but has dropped below since the end of 2009.

SAMPLE

2001 Q1

2001 Q2

2001 Q3

2001 Q4

2002 Q1

2002 Q2

2002 Q3

2002 Q4

2003 Q1

2003 Q2

2003 Q3

2003 Q4

2004 Q1

2004 Q2

2004 Q3

2004 Q4

2005 Q1

2005 Q2

2005 Q3

2005 Q4

2006 Q1

2006 Q2

2006 Q3

2006 Q4

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

2011 Q2

2011 Q3

2011 Q4

2012 Q1

2012 Q2

$180

$230

$280

$330

$380

$430

$480

$530

U.S.-Origin ATPI Madison, WI Milwaukee, WI

Avera

ge A

ir F

are

s

Page: 16

Airline Industry: Baggage Fees SAMPLE

Source: www.bts.gov

Ranking * Airline 2007 2008 2009 2010 2011 2012 (thru Q3)

1 Delta 96,546 177,063 481,719 952,250 863,608 662,826

2 United 52,002 132,994 268,977 313,207 276,817 538,630

3 American 124,538 277,991 475,184 580,663 593,465 426,693

4 US Airways 27,738 187,082 432,280 513,623 506,339 389,927

5 Spirit 46,848 81,503 133,970 125,542

6 Alaska 16,151 22,028 58,669 108,997 157,013 115,703

7 Southwest 20,799 25,266 26,983 29,787 32,035 104,305

8 Allegiant Air 44,095 55,325 53,562 62,578

9 Frontier 4,618 15,156 55,160 62,115 54,862 53,879

10 JetBlue 16,416 35,308 53,267 57,019 64,078 53,273

11 Hawaiian 4,505 11,627 38,186 54,008 56,590 50,764

12 Virgin America 231 2,569 19,364 36,075 33,482 43,936

Continental 42,844 97,524 254,488 341,585 353,416

Air Tran 9,168 29,401 145,983 152,148 164,670

TOTAL 415,556 1,014,009 2,401,203 3,338,305 3,343,907 2,628,056

* Airlines ranked by Q3 2012 baggage fee revenue, dollars in thousands (000)

Page: 17

Airline Industry: Cancellation/Change Fees SAMPLE

Source: www.bts.gov

Ranking * Airline 2007 2008 2009 2010 2011 2012 (thru Q3)

1 Delta 16,331 18,927 406,039 698,611 766,795 593,724

2 United 331,193 354,471 309,866 321,539 324,129 507,020

3 American 469,883 449,899 471,369 495,158 390,197

4 US Airways 68,304 248,840 253,077 275,643 227,192

5 JetBlue 74,472 123,468 121,273 113,997 124,536 100,880

6 Southwest/AirTran 20,820 24,339 42,766 50,416 49,964 22,422

7 Virgin America 943 9,761 12,866 18,151 15,851 21,920

8 Spirit 21,514 23,561 23,120 25,927 20,442

9 Alaska 54,700 67,077 60,590 50,357 10,598 18,529

10 Hawaiian 21,801 25,159 23,546 18,192 17,356 13,744

11 Frontier 33,081 34,279 21,494 16,685 16,562 10,976

Continental 227,868 237,446 249,831

TOTAL 553,341 1,217,182 1,948,608 2,272,960 2,372,350 1,927,046

* Airlines ranked by 3Q 2012 reservation cancellation/change fee revenue, dollars in thousands (000)

Page: 18

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

Sources: Airlines for America: www.airlines.org

Price of Air Travel Versus Other Goods and Services

Shown in their original values, facilitating comparisons with other goods & services versus the price of air travel and with movements in the U.S. Consumer Price Index (CPI). CPI is defined as a measure that examines the weighted average of prices of a basket of consumer goods and services.

SAMPLE

Product (Unit) 2000 2011 2011 vs 2000

College Tuition: Public (Year) 1 $3,508 $8,244 135%

College Tuition: Private (Year) 1 $16,072 $28,500 77%

National Football League (NFL) Game Ticket 9 $49.35 $77.36 57%

Prescription Drugs (Index) 2 285.4 425.0 49%

Major League Baseball (MLB) Game Ticket 10 $16.22 $26.91 66%

Unleaded Gasoline (Gallon) 4 $1.51 $3.53 134%

New Vehicle 3 $24,923 $30,659 23%

New Single Family Home 5 $169,000 $227,200 34%

CPI (All items) 2 172.2 224.9 31%

Movie Ticket 6 $5.39 $7.92 47%

First-class Domestic Stamp 7 $0.33 $0.44 33%

Whole Milk 2 156.9 209.5 34%

Grade-A Large Eggs (Dozen) 2 $0.91 $1.77 95%

Air Travel: Round Trip Domestic Fare 8 $314.46 $343.46 9%

Air Travel: Round Trip International Fare 8 $935.26 $1,159.82 24%

Apparel: Clothing/Footwear/Jewery (Index) 2 129.6 122.1 -6%

Television (Index) 2 49.9 6.6 -87%

1 The College Board - based on beginning of academic year

2 U.S. Bureau of Labor Statistics - including hedonic "quality-change' adjustments

3 National Automobil Dealers Associaton - average retail selling price

4 U.S. Department of Energy - Monthly Energy Review, Table 9.4

5 U.S. Census Bureau - median value

6 National Association of Theatre Owners

7 U.S. Postal Service - Publication 100

8 ATA via U.S. bureau of Transportation Statistics - exludes taxes; first column reflects 1979 (1978 data not available)

9 National Football League, average nonpremium ticket

10 Major League Baseball, average nonpremium ticket

Page: 19

Hotel Industry: Overview

• 2011 Global Hotel Industry Revenue reached $126.6 Billion, with an overall profit of $7.6 Billion.

• Hotel industry began its recovery in 2010, following a disappointing 2009 when revenue fall 9.4%, due to declines in travel spending

• In 2010 and 2011, revenue grew by 4.4% and 6% respectively, as the economy began to improve and travel rates increased.

• For 2013, industry revenue is expected to continue to grow with an estimated jump of 4%

• 2012 – 2017 projected annual revenue growth rate is projected to be 2.6% to $144.3 Billion.

• For 2013, Smith Travel Research predicts occupancy to be virtually flat with a 0.3% increase to 61.4%, Average Daily Rate (ADR) will rise 4.6% to $111.01 and Revenue Per Available Room (RevPAR) to grow 4.9% to 68.17.

• Major market segmentation: 28.5% transient business travelers and 25% conference travelers.

Key Points

Source: www.IBISWorld.com, Smith Travel Research

2011 Global Hotel Industry Revenue reached $126.6 Billion, with an overall profit of $7.6 Billion.

SAMPLE

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

20

11

Glo

ba

l R

ev

en

ue

(in

bil

lio

ns

)

http://www.ibisworld.com/

Page: 20

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 43% of the travel dollar

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

Chain Portfolio by Hotels & Rooms

Total Network(Rooms/Hotels)

MainFootprint

Brands & Segment

647,161 R4,437 H

Americas: 68%7 brands

from midscale to luxury

612,735 R7,207 H


from budget to upscale

605,141 R3,474 H



~ 600,000 R~ 3,600 H


from economy to luxury

507,306 R4,229 H

EMEA: 56%10 brands

from budget to luxury

495,145 R6,142 H


from budget to luxury

301,700 R 1,027 H



Brands by Service Level

The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The average (thru November 2012) is 126.3 indicating 2012 rates will stay close or exceed 2011.

Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals


NAICS 721110.1 August – November 2012 Preliminary. All indexes are subject to revision four months after original publication.

2003

2004

2005

2006

2007

2008

2009

2010

2011

1/12

2/12

3/12

4/12

5/12

6/12

7/12

8/12

9/12

10/1

211

/12

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

100

104.5

111.7

116.4

124.3

129.7

125.1

124.1

126.8

120.9

123.6

128.7129.9

125.5

126.9

128.6

128.4

124.6

128.4

123.7

Pro

du

cer

Pri

ce I

nd

ex

2012 Data

Page: 22

Hotel Industry: Cost Drivers

Source: www.IBISWorld.com

Operating Cost Drivers Key Findings• Over 80% of costs in the hotel

industry is distributed among three categories: (1) purchases, (2) wages, (3) other.

• Operating cost driver:• Purchases is the largest cost –

mainly food and alcohol for resale.

• Wages costs provide the second largest spend category

• Other costs include those involved in the initial investment in the hotel:• Land comprises 45-50% of

total project cost• Construction is about 25-30%• Remainder goes to

furniture and fittings• Recently, the hotel sector has

experienced a significant increase in insurance premiums particularly related to public liability and health benefit policies.

Over 80% of costs in the hotel industry is distributed among four categories: (1) administrative overhead, (2) labor, (3) repairs and maintenance, and (4) food and beverage.

SAMPLE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

38.1%

26.8%

16.9%

6.6%

6.0%

3.0%2.6%

RENT - 2.6%

UTILITIES - 3%

PROFIT - 6%

DEPRECIATION - 6.6%

OTHER - 16.9%

WAGES - 26.8%

PURCHASES - 38.1%

Hotel Industry: Room Rates

• Hotel showed signs of pricing strength starting in 2011, with 2012 forecast indicating an upward swing.

• The majority of new hotels in the pipeline are limited service properties, especially in the emerging markets, China and India.

• Full service and resort properties have been the hardest hit with reduced demand and little new construction.

• Technology has lowered labor costs, increased productivity and enhanced the customer service.

• AMEX 2013 forecast for N/A: 2% - 7% mid range

4% - 9% upper range• CWT 2013 forecast for N/A: 3.2%• Advito 2013 forecast for N/A: 6% - 7%• Fall 2012: Hoteliers and analysts expect pricing

power to continue rebounding , leading to tougher negotiations for buyers

Average Cost Per Night for March Hotel StaysBased on more than 750,00 hotel stays booked through US based

corporate travel agencies

Key Points

Source: PWC Hospitality Directions, Smith Travel Research, AMEX 2013 Forecast, CWT 2013 Forecast, Advito’s 2013 Forecast, Egencia 2012 Forecast, Business Travel News

US hotel room rates started to decrease late 2008 which led to a buyers market. Buyers have enjoyed lower hotel rates but rates have been increasing, especially in key markets.

2007 2008 2009 2010 2011$120

$125

$130

$135

$140

$145

$150

$155

$160

$148

$155

$134

$132

$139

Average US Corporate Hotel Rate

Co

rpo

rate

Nig

htl

y R

oo

m R

ate

Page: 24

Car Rental Industry: Overview

• Global industry spend is $26.5 Billion of which 34% is business travel

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

• Leisure market has grown larger than corporate business market

• Industry revenue is forecasted to increase 2% for the next 5 years

• High fuel cost is impacting industry as customers, especially leisure travelers, are finding other alternatives (public transportation)

• 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.

• Good time to competitive bid car rental services. Areas of negotiation – GPS, Fuel charges, City Surcharges, Back end Rebates and multi-year agreement.

Key Points

Source: IBISWORLD, Auto Rental News, Business Travel News

Global industry spend is $26.5 billion of which 34% is business travel

SAMPLE

Rental Car Industry: PPI – Passenger Car Rental

NAICS 532111 August – November 2012 Preliminary. All indexes are subject to revision four months after original publication.


The PPI for passenger car rentals has gone up 22% from 2005 to 2008 indicating increased fleet and fuel cost. In 2008 and 2009, prices have slightly increased and in 2011 and 2012 prices have decreased.

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

1/12

2/12

3/12

4/12

5/12

6/12

7/12

8/12

9/12

10/1

211

/12

100.0

105.0

110.0

115.0

120.0

125.0

102.6

106.0

105.4

104.8

104.6

108.8

111.5

116.8

117.8

119.3

118.1

116.6

117.3

118.3

117.4

104.7

105.9

107.5

105.5

104.9 102.9

108.5

Pro

du

cer

Pri

ce In

dex

2012 Data

Page: 26

Car Rental Industry: Market Share

• Enterprise/National/Alamo, Hertz and Avis/Budget account for 90% of the total US on airport market and 80% of total market

• 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 the past 4 years, major car rental companies trimmed fleets from a total of about 2 million cars to about 1.3 million

• 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

• Avis/Budget began working with GDS operators to implement the addition of credit card information to rental car bookings. This opens the door to assess a no-show fee to travelers who fail to cancel their reservation without sufficient notice

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

• For 2013, industry experts forecast minimal decrease to minimal increase in rates.

Key Points

Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2011

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

SAMPLE

Top 4 Car Rental Companies By Revenue

http://www.autorentalnews.com/

Page: 27

Car Rental Industry: Cost Drivers

Source: www.ibisworld.com, Auto Rental News

Operating Cost Drivers Key Findings

• Over 90% of costs in the car rental industry is distributed among four categories: (1) purchases, (2) other, (3) depreciation, and (4) labor.

• Operating cost driver:• Fleet purchases are the largest

cost• “Other” costs provide the second

largest spend category. This represents concession agreements with major airports, fixed rent for terminal counters or other leased properties and facilities.

• Depreciation and Labor costs complete the top cost drivers in the car rental industry

Over 90% of costs in the car rental industry is distributed among four categories: (1) Purchases, (2) Other, (3) Depreciation, and (4) Labor.

SAMPLE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31.1%

26.3%

18.0%

14.8%

6.1%

2.8%0.9%

UTILITIES - .9%

PROFIT - 2.8%

RENT - 6.1%

LABOR - 14.8%

DEPRECIATION - 18%

OTHER - 26.3%

PURCHASES - 31.1%

http://www.ibisworld.com/

Travel Management Industry: Overview

• The top 50 travel management companies represent over $160 billion in sales revenue in 2012.

• Five companies registered more than $20 billion in sales, including Priceline, which showed significant increases each year.

• Expedia, Orbitz, Priceline, AAA Travel, and Travelong receive 90% or more sales revenue from the leisure market.

• There were 16 listees with sales of more than $1 billion up from 14 last year.

• The last 2 years Expedia topped the Travel Weekly Power List , which AMEX held since 1992, but for 2012, AMEX retook the top spot once again.

2011 Top 5 (over $1B in revenue) Travel Management Co’s By Revenues

Key Points

Source: www.travelweekly.com Travel Weekly Power List 2011, www.bts.gov

The Top 50 travel management companies represent over $160 billion in sale revenue

AMEX

Exped

ia

Carlso

n

Priceli

neBCD

$0

$5

$10

$15

$20

$25

$30

20

10

Re

ve

nu

es

(in

Bill

ion

s)

http://www.travelweekly.com/

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 past its 2007 high once again..

TMC Industry: PPI – Travel Agencies

NAICS 561510 August– November 2012 Preliminary. All indexes are subject to revision four months after original publication.


2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

1/12

2/12

3/12

4/12

5/12

6/12

7/12

8/12

9/12

10/1

211

/12

105.0

110.0

115.0

120.0

125.0

121.8

123.3

114.0

112.5

108.6

107.4

111.5

113.2

111.7

111.5

112.4

113.0 113.2

112.2

112.4

111.8

112.8

113.7

113.7

114.5

114.2 114.4

113.5

Pro

du

ceer

Pri

ce In

dex

2012 Data

Page: 30

• Advito’s 2013 Forecast• Airlines for America, www.airlines.org• AirlineFinancials.om• AMEX Business Travel 2013 Forecast and Trends• ATWOnline, www.atwonline.com• Auto Rental News• Bureau of Labor Statistics, www.bls.gov• Bureau of Transportation Statistics, www.bts.gov• Business Travel News• Business Travel News Corporate Travel Index 2012• CWT Hotel Solutions• CWT 2013 Forecast• Egencia 2013 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• OneSource Inc., www.onesource.com• Power List 2012, 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

http://www.airlines.org/

http://www.atwonline.com/

http://www.bls.gov/

http://www.bts.gov/

http://www.forbes.com/

http://www.hoovers.com/

http://www.gbta.org/

http://www.onesource.com/


http://www.traveldailynews.com/


Page: 31





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Develop Sourcing

Objectives



Existing Supplier

Development



Develop Sourcing




Page: 32

Sourcing Strategies & TacticsSeveral 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

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

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

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 demand

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

VOLUME 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: 33

Strategy Considerations

• Company should examine current travel policies. Enforcement of on-line booking tool, advance booking, preferred hotels and other travel guidelines will result in significant savings.

• Because of the relative small air travel spend compared to other companies, in addition to moving corporate headquarters to Dallas while still maintaining their Detroit area locations, Company should consider focusing hard dollar airline discounts with one or two major carriers supporting both markets. Furthermore, Company should consider exploring additional benefits for their secondary markets

• Company should re-examine their current preferred hotel program and consolidate markets and room nights to leverage buying power

• Company should leverage hotel spend for meetings/events in negotiating hotel rates for transient travel

• Preferred car rental utilization is “best in class”, therefore consider a competitive bid to leverage utilization

• Company may consider utilizing teleconferencing as an alternative to reduce their overall travel usage

SAMPLE

Page: 34

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%

Sourcing Recommendation• 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: 35

Sourcing Strategy: Hotels


Expenditure Manual – No enforcement• All departments using one travel agency, however

suspect that some hotel bookings are being booked directly with hotel

• Travel Agency manages and negotiates hotel program

• Large number of properties are being utilized in top city markets (e.g. 75 hotels were utilized in the Detroit (and surrounding) area in the last 12 months)

• Cities are classified as Room Nights per City:• Tier 1 (approx. 200+ Nights): 45% of hotel

spend in 12 market areas• Tier 2 (<200 Nights): 55% of hotel spend in

the rest of the market area

Sourcing Recommendation• Create separate travel policy and enforcement of

policy • Tier 1: Issue a Request for Proposal to the

existing supply base as well as comparable properties in defined geographies.

• Consolidate volume to increase bargaining power

• Minimize number of options available in each geography

• Pursue value-added amenities at no additional cost

• Tier 2: Utilize Travel Agency rates and drive volume to those properties with the lowest rates

Results• Separate travel policy and enforcement which will result in improved compliance• Competitive room rates in preferred cities• Strategically selected properties by geography which will increase preferred property usage

SAMPLE

Page: 36

Sourcing Strategy: Car Rentals


Expenditure Manual – No enforcement• All departments using one travel agency for

booking car rentals, however some spend is being booked via another source

• 97% of the car rental spend is with one preferred supplier

• Over 75% of car rental returns are subject to refueling charges

• The top 15 cities, by volume, represent 78% of the rental car spend

Sourcing Recommendation• Develop and implement one travel policy for all

departments• Issue a Request for Proposal to the top 5 rental

car companies• Consolidate volume from all sources to

increase bargaining power• Request pricing for one primary and one

primary and one secondary supplier relationship

• Negotiate refueling charges, if possible• Negotiate city surcharges for the top 15

cities, by volume• Market dynamics suggest a 2 year contract with

the option for a 1 year extension

Results• One travel policy for all departments resulting in capturing the non-compliance that is being done• Award contract to one primary or one primary and one secondary supplier, whichever is more

advantageous

SAMPLE

Page: 37

Savings Opportunity

Proposed Strategy Expected Outcome

Volume Concentration

Consolidate all OpCo car rental spend. Leveraging buying power across all OpCo’s 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 OpCo’s to follow. Consistency across all OpCo’s leads to demand management savings.

Demand Management – Enforcement Mechanism

Empower Global Travel Department to enforce global travel policy with key OpCo 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 cargo van/truck rental spend and negotiate additional concessions such as better rebate terms, lower city surcharges and flat rate refueling charge.

SAMPLE

Page: 38





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols



Supplier Selection

Decision Matrix

RFIs (optional)






Page: 39

Car Rental Scorecard

WeightMaximum

PointsPerson A

ScorePerson B

ScorePerson C

ScoreTotal Score

37% 572 I. Non-Pricing Components 549 526 538 5380% 0 A. Company Information 0 0 0 02% 35 B. Rental Locations 35 35 35 357% 100 D. Safety & Fleet 78 88 76 819% 131 E. Services & Amenities 130 121 121 1241% 21 F. Billing 21 21 21 21

12% 185 G. Top 15 Cities - Rental Locations 185 185 185 1857% 100 H. Top 15 Cities - Trans Method from Airport 100 76 100 92

63% 954 II. Pricing Components 666 667 671 66810% 154 C. Additional Pricing Questions 92 93 97 9433% 500 National Daily Rental Rate 437 437 437 43720% 300 City Surcharge Rate 136 136 136 136

100% 1526 1215 1193 1209 1206

Car Rental Company

Evaluation Criteria

SAMPLE

Page: 40





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols


RFP Process

RFPs / RFQs

eAuctions


Conduct eAuction(s)


- AND/OR -

- AND/OR -





Page: 41

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-NegotiationInformationExchange

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

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

resource capacity

Page: 42





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Prepare Fact-Based










Page: 43

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: 44

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: 45





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

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



Fast Track for Quick Savings

Develop Sourcing




AssessOpportunity

Obtain Sponsorship

& ID Team

CreateProject

Plan

Project Plan



Page: 46

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

travel strategic sourcing kathy briski, c.p.m., ccte january 9, 2013

Documents

competitive supplier

team profile category

sourcing recommen dation

team slide

supplier evaluation

project plan project

requisition process

w incumbent suppliers