travel strategic sourcing kathy briski, c.p.m., ccte june 24, 2013

Travel Strategic Sourcing

Kathy Briski, C.P.M., CCTE

June 24, 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

• 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 is currently merging —which would further reduce the number of airlines controlling the vast majority of passenger ridership to only four.

BOEING PROPRIETARY

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

2012 US Airlines Shares

Delta 16.3% United 15.1% Southwest 15.0% American 12.9% US Airways 8.1% JetBlue 4.9% Alaska 3.8% AirTran Corporation 2.9% SkyWest 2.3% ExpressJet 2.2% Other 16.5%

Page: 12

Airline Industry: Overview

• 2012 Airline Industry Revenue reached $636 Billion.

• North America is the industry's revenue leader, generating about 44.3% of industry revenue.

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

• In 2012, United’s net income was $589M and Delta earned $854M, while American lost $1.87 Billion. Alaska Air earned $245M, Southwest $417M, US Airways $637M and Jet Blue earned $376M.

• Business travel represents 35% of airline’s revenue• 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.

• In 2013, Airfare Average Ticket Prices are expected to be:

− Up 2-4% in the US− Up 1-3% in Europe − Up -1 to 4 % in Asia-Pacific (5-10% in India)− Up 5-10% in Latin America− Up 2-4% in Africa− Up 2-4% in Middle East

Key Points

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

2012 Global Airline Industry Revenue reached $636 Billion. North America is the industry's revenue leader, generating about 44.3% of industry revenue.

SAMPLE

United

Delta

Amer

ican

South

west

US Airw

ays

Jet B

lue

Alaska

$0

$5

$10

$15

$20

$25

$30

$35

$40

20

12

R

ev

en

ue

s (

in B

illi

on

s)

2007 2008 2009 2010 2011 2012 2013F

$538$582

$493

$561$590

$636 $660Annual Airline Industry Revenue

Re

ve

nu

e i

n B

illi

on

s

The PPI (measures average change in prices over time) for passenger air transportation. For 2012 the average amounted to 285.0 which represents a gain of 9.5% from 2011.

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

NAICS 481111 February– Mary 2013 Preliminary. All indexes are subject to revision four months after original publication.

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

186.5

200.6

200.4

205.7 205.8217.1

229.6

234.5

257.1

235.9

254.6

273.5

285.0282.0

278.7

286.6

281.2

276.9

180

200

220

240

260

280

300

Pro

du

ce

r P

ric

e In

de

x

2013 Data

Page: 14

Airline Industry: Cost Drivers

Source: www.rajcoaviation.com

2012 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, which together account for an average of 64.3% of an airline’s total cost structure.

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

• With revenues fixed by competitive ticket pricing and the majority of their costs out of their control, airlines are challenged to maintain earnings and gain competitive advantage by controlling less than 35% of their cost structure.

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. 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 2013, 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.

• For 2013 jet fuel prices averaging $124.60 per barrel

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: 16

Airline Industry: Air Travel Price Index

Sources: Bureau of Transportation Statistics, AMEX 2013 Forecast, CWT 2013 Forecast, Advito’s 2013 Forecast, Airlines for America: www.airlines.org

Air Travel Price Index for Chicago1 Key Points

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

• The cost of air flying into Chicago – O’Hare has been consistent with the U.S. average while Chicago – Midway has been consistently lower than the U.S. average.

• In 2013, Airfare Average Ticket Prices are expected to be:

− Up 2-4% in the US− Up 1-3% in Europe − Up -1 to 4 % in Asia-Pacific (5-10% in

India)− Up 5-10% in Latin America− Up 2-4% in Africa− Up 2-4% in Middle East

• 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 2012, the airline industry earned approx. $36.1 billion in additional ancillary fees, an increase of 11.3% from 2011

The cost of air travel have been very volatile over the past several years. The cost of airfare flying into Chicago – O’Hare has been consistent with the U.S. average while Chicago – Midway has been consistently lower than the U. S. average.

SAMPLE

$180

$230

$280

$330

$380

$430

2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1

Ave

rag

e A

ir F

ares

U.S.-Origin ATPI Chicago - O'Hare Chicago - Midway

Page: 17

Airline Industry: Baggage Fees SAMPLE

Source: www.bts.gov

Ranking * Airline 2007 2008 2009 2010 2011 2012

1 Delta 96,546 177,063 481,719 952,250 863,608 865,879

2 United 52,002 132,994 268,977 313,207 276,817 705,547

3 American 124,538 277,991 475,184 580,663 563,465 557,385

4 US Airways 27,738 187,082 432,280 513,623 506,339 516,206

5 Spirit 46,848 81,503 133,970 168,229

6 Alaska 16,151 22,028 58,669 108,997 157,013 151,475

7 Southwest 20,799 25,266 26,983 29,787 32,035 144,475

8 Allegiant Air 44,095 55,325 53,562 89,556

9 JetBlue 16,416 35,308 53,267 57,019 64,078 70,788

10 Frontier 4,618 15,156 55,160 62,115 54,862 70,173

11 Hawaiian 4,505 11,627 38,186 54,008 56,590 67,829

12 Virgin America 231 2,569 19,364 36,075 33,482 57,410

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

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

TOTAL 415,556 1,014,009 2,401,203 3,338,305 3,313,907 3,464,952

Page: 18

Airline Industry: Cancellation/Change Fees SAMPLE

Source: www.bts.gov

Ranking * Airline 2007 2008 2009 2010 2011 2012

1 Delta 16,331 18,927 406,039 698,611 766,795 778,398

2 United 331,193 354,471 309,866 321,539 324,129 660,943

3 American 469,883 449,899 471,369 495,158 517,708

4 US Airways 68,304 248,840 253,077 275,643 297,693

5 JetBlue 74,472 123,468 121,273 113,997 124,536 133,771

6 Southwest 32,470

7 Virgin America 943 9,761 12,866 18,151 15,851 30,644

8 Spirit 21,514 23,561 23,120 25,927 27,763

9 Alaska 54,700 67,077 60,590 50,357 10,598 23,210

10 Hawaiian 21,801 25,159 23,546 18,192 17,356 18,285

11 Frontier 33,081 34,279 21,494 16,685 16,562 14,217

12 Air Tran 20,820 24,339 42,766 50,416 49,964 10,400

13 Continental 227,868 237,446 249,831

TOTAL 553,341 1,217,182 1,948,608 2,272,960 2,372,350 2,545,502

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

Page: 19

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 2012 2012 vs 2000

College Tuition: Public (Year) 1 $3,508 $8,655 147%

College Tuition: Private (Year) 1 $16,072 $29,056 81%

National Football League (NFL) Game Ticket 8 $49.35 $78.38 59%

Prescription Drugs (Index) 2 285.4 440.2 54%

Major League Baseball (MLB) Game Ticket 9 $16.22 $25.98 66%

Unleaded Gasoline (Gallon) 3 $1.51 $3.64 141%

New Single Family Home 4 $169,000 $240,000 45%

CPI (All items) 2 172.2 229.6 33%

Movie Ticket 5 $5.39 $7.96 48%

First-class Domestic Stamp 6 $0.33 $0.45 36%

Whole Milk 2 156.9 211.27 35%

Grade-A Large Eggs (Dozen) 2 $0.91 $1.84 102%

Air Travel: Round Trip Domestic Fare 7 $314.46 $357 14%

Air Travel: Round Trip International Fare 7 $935.26 $1,209 29%

Apparel: Clothing/Footwear/Jewery (Index) 2 129.6 126.3 -3%

Television (Index) 2 49.9 5.4 -89%

1 The College Board - based on beginning of academic year

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

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

4 U.S. Census Bureau - median value

5 National Association of Theatre Owners

6 U.S. Postal Service - Publication 100

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

8 National Football League, average nonpremium ticket

9 Major League Baseball, average nonpremium ticket

Page: 20

Hotel Industry: Overview

• 2012 Global Hotel Industry Revenue reached $580 Billion. The US Hotel Industry Revenue reached $128 Billion in 2012

• In 2013 global hotel revenues are estimated to grow 2.2 % to $592.6 billion. Over the five years to 2017, revenue is projected to increase at an average annual rate of 2.3% to $650.9 billion. This will result from growth in business and pleasure travel, and rising room rates.

• In 2013, US industry revenue is expected to increase 3.5% to $127.8 billion.

• Global industry profit is estimated to account for 10.8% of total industry revenue in 2012, up from an estimated 6.5% in 2009, and similar to pre-2008 levels. US industry profits in 2013 are expected to be 9%.

• Smith Travel Research is projecting increases in all three key performance metrics during 2013: Occupancy is expected to rise 0.8% to 61.9%, Average Daily Rate (ADR) will increase 4.6% to $111.27 and Revenue Per Available Room (RevPAR) is expected to grow 5.7% to $68.86.

• Major US market segmentation: 28% transient business travelers and 25% conference travelers.

Key Points

Source: www.IBISWorld.com, Smith Travel Research

2012 Global Hotel Industry Revenue reached $580 Billion. The US Hotel Industry Revenue reached $128 Billion in 2012.

SAMPLE

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

20

12

Glo

ba

l R

ev

en

ue

(in

bil

lio

ns

)

21%

28%26%

25%

US Market Segmentation

Personal or family travelers

Business travelers

Vacation travelers

Conference travelers

http://www.ibisworld.com/

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 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

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

http://www.extendedstayamerica.com/

The PPI for hotel rooms have fluctuated during 2012 due to pressures from both buyers and sellers. The 2012 average ended at 131.4 indicating rates are raising.

Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals


NAICS 721110.1 February – May Preliminary. All indexes are subject to revision four months after original publication.

100.0

104.5

111.7

116.4

124.3

129.7

125.1

124.1

126.8

131.4

123.5

126.7

130.2

130.2

134.8

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0

Pro

du

cer

Pri

ce I

nd

ex

2013 Data

Page: 24

Hotel Industry: Cost Drivers

Source: www.IBISWorld.com

Operating Cost Drivers

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

25.3%

32.3%

6.7%

4.9%4.8%2.1%

13.1%

10.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 Global Cost Structure

Prof it

Other

Advertising

Depreciation

Utilities

Rent

Purchases

Wages

26.9%

38.1%

7.6%

4.8%2.0%

11.6%

9.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 US Cost Structure

Prof it

Other

Advertising

Depreciation

Rent & Utilities

Purchases

Wages

Hotel Industry: 2013 Expected Changes in Room Rates

Expected Changes in Hotel Prices

Mid-Range Hotel Forecast

Upper-Range Hotel Forecast

North America 2-7% 4-9%

USA 3-7% 4-9%

Canada 0-4% 0-4%

Mid-Range Hotel Forecast Upper-Range Hotel Forecast

Latin America 4-7.5% 3-6.5%

Brazil 4.5-8.5% 5-9%

Argentina 4-6.5% 3-6.5%

Mexico -1 to 3% -1 to 3%

Chile 1.5-5.5% 1.5-5.5%


Germany 1.5-4.5% 1.5-3.5%

France 2-5.5% 2-4.5%

UK 0-5% -2 to 4%

Italy -0.5 to 2.5% -3 to 2%

Netherlands 2-6% 1-6%

Sweden 0-4.5% 1-5.5%

Norway 1.5-4.5% 1.5-5%

Finland 3.5-6.5% 3-5%

Denmark 0-2.5% 0.5-2.5%

Russia 6.5-11% 6.5-12%


UAE -3 to 6.5% -3 to 6.5%

South Africa 3-6% 3-7%

Expected Changes in Hotel Prices


Asia Pacific 0-4% 2-7%

Australia 0-5% 0-5%

China 0-5% 2-7%

Hong Kong 3-8% 3-8%

India 0-5% 0-5%

Japan -1 to 2% -1 to 2%

Singapore 3-7% 3-7%

South Korea 3-8% 3-8%

Page: 26

Car Rental Industry: Overview

• Global industry spend is $30.5 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.

Key Points

Source: IBISWORLD, Auto Rental News, Business Travel News

Global industry spend is $30.5 billion of which 34% is business travel

SAMPLE

Rental Car Industry: PPI – Passenger Car Rental

NAICS 532111 February – May 2013 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 dropped significantly.

102.6

106.0

105.4

104.8

104.6

108.8

111.5

116.8

117.8

119.3

118.1

109.6

102.9

102.9104.4

106.9

103.0

100.0

105.0

110.0

115.0

120.0

125.0

Pro

du

cer

Pri

ce In

dex

2013 Data

US Car Rental Industry - Segmentation

• Leisure car rentals have been making up a larger portion of industry revenue over the last few years, largely in response the sizeable drop in business travel, which happened as a result of the economic downturn.

• Car leasing involves paying an up-front lease fee plus fixed monthly payments in return for taking possession of and operating a car for 12 months or more. This industry does not include cars leased to purchase or leased to own.

• The off-airport market, sometimes called the local market, includes car sharing; insurance replacement, and leisure and business rentals independent of the airport market.

Page: 28

Key Findings

Leisure car rental41%

Business car rental

34%

Car leasing19%

Car sharing6%

Services Segmentation

Business travelers at

airports30%

Off-airport market

35%

Leisure travelers at

airports35%

Market Segmentation

Page: 29

Car Rental Industry: Market Share

• After Hertz’s purchase of Dollar Thrifty, the top three rental car companies will make up 95% of the total on-airport US car rental industry revenues

• 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

• 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

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

• It is forecasted that that base rates will decline on average between -1.5% to -2% for business travel rental cars in the U.S. next year. However, ADR will increase by 1% to 2%, due to slight increases in ancillary fees, taxes, other fees, vehicle license fees (VLFs), and energy recovery fees.

Key Points

Source: www.autorentalnews.com, Business Travel News Corporate Travel Index 2012

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

SAMPLE

Top 4 Car Rental Companies By Revenue

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

Enterprise Hertz Avis Dollar Thrif ty

Cars

in

Serv

ice (

K)

2012 R

even

ue (

$B

)

2012 US Revenue & Cars in Service

2012 Revenue ($B) Cars in Service

47%

20%

18%

7%

2%

6%

US Market Share by Revenue

Enterprise

Hertz

Avis

Dollar Thrifty

Independents

Other

http://www.autorentalnews.com/

Page: 30

Car Rental Industry: Cost Drivers

Source: www.ibisworld.com, Auto Rental News

Operating Cost Drivers Key Findings

• The industry have slowly recovered as the demand for air travel, which is the industry’s primary revenue source, started to increase as of 2010:

• Profit margins turned positive again in 2010, growing to 3.5% in 2012.

• It is estimated that in 2012 the industry grew 5.6% and reached a revenue level of $33.7 billion.

• In 2013, industry revenue is expected to grow 3% to $34.7 billion. Car rental companies are forecast to purchase more new cars in 2013 for two reasons.

• The anticipated increase in the number of rental customers will force companies to field a larger rental fleet.

• Companies will likely replace older cars with new cars after letting the average age of their fleets rise to save money.

• Although the industry’s future looks brighter, rising gas prices may slow the recovery. As such, revenue is forecast to grow at an annualized rate of 2.8% from 2012 to 2017 to $38.6 billion.

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

SAMPLE

http://www.ibisworld.com/

Travel Management Industry: Overview

• The top 50 travel management companies represent over $160 billion in sales revenue in 2011.

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

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

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

• Many of the listees registered surges in year-over-year sales, a couple by acquisitions but most by generating additional revenue from existing clients or winning new clients.

• AMEX regained top stop over Expedia in 2011 by a slim margin.

• It was just announced that BCD was purchasing Travelocity

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

Key Points

Source: www.travelweekly.com Travel Weekly Power List 2012, www.bts.gov

The Top 50 travel management companies represent over $155 billion in sale revenue

AMEX

Exped

ia

Carlso

nBCD

HRG

$0

$5

$10

$15

$20

$25

$30

20

11

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 since and has hit its 2007 high once again..

TMC Industry: PPI – Travel Agencies

NAICS 561510 February– May 2013 Preliminary. All indexes are subject to revision four months after original publication.


121.8

123.3

114.0

112.5

108.6

107.4

111.5

113.2

111.7

111.5

112.4

113.0 113.4

113.8

113.0

113.8

114.3

114.6

105.0

110.0

115.0

120.0

125.0

Pro

du

ceer

Pri

ce In

dex

2013 Data

Page: 33

• 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• 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• Rajcoaviation.com• 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: 34





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Develop Sourcing

Objectives



Existing Supplier

Development



Develop Sourcing




Page: 35

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: 36

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: 37

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: 38

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: 39

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: 40

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: 41





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols



Supplier Selection

Decision Matrix

RFIs (optional)






Page: 42

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: 43





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: 44

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: 45





Recommen-dation

ImplementAgreements


Act

ivit

ies

Del

iver

able

s o

r To

ols

Prepare Fact-Based










Page: 46

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: 47

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: 48





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: 49

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 june 24, 2013

Documents

competitive supplier

team profile category

sourcing recommen dation

team slide

supplier evaluation

project plan project

requisition process

w incumbent suppliers