Why Lufthansa Will Change Our Industry for the Better

Lufthansa Group announced a bold move to charge 16 euros for each ticket issued through a GDS.  Like any other unilateral cost increase,  it’s unwelcome. Travel managers are fuming; many of you seem really angry.

It reminds me of the withering challenges Continental took on back in the day when they forced corporate accounts to accept Prism’s contract monitoring as a condition for getting corporate discounts.

Today, contract monitoring is widely used because it benefits those buyers who meet their market share commitments.

So, deep breaths everyone.  Let’s consider the longer-term implications of Lufthansa’s unbundling the distribution value of the GDS channel.

First, this is another form of ancillary revenue for the airlines.  It just happens to be aimed at the travel manager, rather than the travelers.  Like travelers facing choices about fare families and other forms of bundled benefits, you travel managers have to decide if the GDS-bundled price is worth the value.

No doubt, there is real value in booking via the GDS/TMC channel.  Easy comparison shopping, immediate itinerary support from your TMC partner, and full data integration come right to mind.  The good news is that you still  have this well-oiled, high-value channel available to you.

Whether the GDS channel is worth 16 euros is your call. What used to be “free” is now out in the sunshine, where free markets can more easily decide its true value.  The debate needs to be about the price, and not Lufthansa’s right to charge it.

Now let’s imagine what may happen if other airlines adopt this same unbundling strategy, enough so that most travelers – leisure and business – have the same choice every time they want to buy a ticket on most any airline.

Will the leisure traveler place the same value on easy comparison shopping, TMC support, and data integration?  Of course not.  So all those leisure transactions will move to the lower cost, lower value channel of airline-direct booking, which is where most of them are anyway.

Guess what?  A big chunk of business travelers book just like leisure travelers.  They are price sensitive.  They book in advance.  They don’t change their travel plans.  And they don’t worry about needing a dedicated agent if something goes wrong.

Call these the commodity travelers of the business world.  They will naturally gravitate to the cheaper booking channel, removing a not-insignificant volume of transactions from the GDS engines.

All you travel managers in low-cost cultures will feel pressure to help them do this.  You’ll shift some of that pressure to the airlines, your TMC partners and other parties to bring you back the data you need from all those airline-direct bookings.

Those pipes will grow.  Maybe not great pipes, but good enough for the essential job of providing duty of care data and some purchase/policy information.  You’ll get by, and you’ll save some money by swimming in this cheaper distribution channel.

But with the GDSs losing notable volumes of their bread-and-butter transactions – the basic trips, no itinerary changes, no refunds or exchanges – their profit margins will take a hit.

The GDSs are left to handle the complex ticketing jobs on smaller volumes, and so will raise their fees to the airlines.  The airlines will respond by adjusting their GDS channel surcharge, until the market stabilizes in favor of the airlines.

Why will the airlines win?  Because GDSs set their prices to airlines in multi-year contracts, while the airlines can change their channel surcharge prices overnight.

But here’s the magic of free markets.  When all the airlines are charging GDS surcharges and reducing their distribution costs, they have to decide what to do with their new profits.

Well, we’re seeing this movie play out with traditional ancillary revenues.  Airlines are using those profits to fund new terminals, buy new planes, invest in the traveler experience…all good things for an industry criticized for treating passengers as an afterthought.

On an even more optimistic note, assume that the airline industry gets its fill of new terminals, new planes and happy travelers.  What then?  Will they be able to keep their fatter profit margins, or will the typical airline revenue management models takeover, and seek more volume by reducing fares?

I think that’s what will happen.  In the long run, these GDS surcharge revenues will get competed away in the form of lower airfares, until the airline profit margins are back to where they are now.

And don’t think this is all bad news for the GDSs.  This surcharge shock will give them every incentive to prove  – and improve – the value of their channel.  Look for significant upgrades in the way they commercialize their shopping assets, and  sell and service travel bookings. Amadeus’s new Exchange Relief product is a good example of this type of value-creating innovation.

On an even more optimistic note, what if this surcharge shock transformed the daisy chain of money being passed around this industry?  Wouldn’t it be great if everyone knew the costs of each step in the channel?  Even better, if they had choices about which steps to pay for?

Silver linings, folks…this will eventually be good for our industry.

Posted in Airlines, Travel Management | Tagged , , | 2 Comments

GDS Surcharges: What’s A Fair Price?

Now that Lufthansa Group has announced its €16 surcharge for bookings made in the GDS channel, let’s tackle the fundamental issue it raises.

If the GDS channel offers a better value to corporate buyers, then what is  a fair price for using that channel?

GDS Surcharge - Fair Value?

Asked the other way, if booking directly on an airline’s website offers less value than the GDS channel, how much of a price incentive does the airline need to offer its customers?

Lufthansa has set that price at €16.  If the price were €1, the corporate travel industry would still be having a tizzy fit, but only on principle.  You couldn’t credibly claim that the benefits of booking in the GDS-TMC channel are not worth such a small amount.

Just to make this more debatable, assume that instead of setting a surcharge for bookings made in the GDS channel, an airline offered its corporate customers a €100 discount on all tickets booked directly via its website.

Of course the airline would see a huge take-up on that offer, because at that price, the disadvantages of the direct booking have been more than offset by the direct-channel incentive.

The point is that there must be a price at which the benefits of booking via the GDS channel matches the value received.

It is unfair to both the GDSs and the airlines to pretend otherwise.

So why shouldn’t an airline set a price and see what happens?  How else will the market really know what the true value is?

More coverage on this issue here, here, here and here.

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Posted in Airlines, Distribution, Travel Procurement | Tagged | 8 Comments

Lufthansa Accelerates Managed Travel 2.0

Broken pavement grayLufthansa Group announced it will charge 16 Euros for each booking made in the GDS channel.

This is a seismic event for the corporate travel industry for these reasons:

  • Channel steering becomes a differentiator for legacy carriers
  • GDS/TMC  and GDS/airline economics will need re-shaping
  • TMC/Corporate deals and service levels will need re-engineering
  • The value proposition for TMCs gets murkier while their need for adding non-booking value becomes crucial
  • Closing the data loop for corporate direct bookings becomes imperative

My best guess about the steady-state result?  Managed Travel 2.0 will be widely enabled, if not adopted.  (Kindly recall that MT 2.0 is not the same as Open Booking.  The former closes the data loop between supplier-direct bookings and the corporate buyer; the latter does not – that’s called unmanaged travel.)

But much depends over the next few years on Continue reading

Posted in Distribution, Managed Travel 2.0, Travel Management, Travel Procurement | Tagged , | 4 Comments

Manage Travelers and Their Taxes with Traveler Data

Editorial license from istockphotoSure, payroll taxes are not in scope of a travel manager’s job.  But there is a great way for travel managers and TMCs to add real value here by being proactive with traveler data.

Curious?

The Problem

Many countries and other taxing jurisdictions are aggressively seeking more payroll taxes from business travelers.  This means their pay could be docked for spending just one day in a foreign country on business.

This article reports that “more than 100 countries have joined The Global Forum on Transparency and Exchange of Information for Tax Purposes, which is working toward automated exchange of immigration reports, hotel stays and airline reservations. Better-informed enforcement bodies will have an easier time catching non-compliant firms and individuals.” (emphasis added)

The problem is not limited to international travel.  In the US, many states have some form of traveler tax, according to this 2013 Pew report.

The Solution

File this under “Being a proactive problem solver”.  These traveler tax issues place the burden of proof on the employer.  So travel managers should reach out to their payroll tax liability folks to discuss the types of travel data needed to manage these risks.

There is the historical travel angle, and the future travel angle.  The key is to analyze each traveler’s location and duration history, and calculate how many days the traveler has until triggering some type of tax liability.

Complex? OMG, yes.  Fortunately, there are at least two firms working specifically in this area.  Blackspark uses TMC booking data and is integrated with Concur, while Monaeo uses the traveler’s mobile phone data.

The point is that there are automated ways to feed traveler data into the equation.  This can keep travelers from triggering significant tax liabilities – and from refusing to travel for fear of losing more of their hard-earned pay.

TMCs, you should raise this issue with your clients.  If you get enough traction, why not incorporate pre-trip alerts to help manage these future tax liabilities?

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Posted in Data, Travel Management | Tagged , | 4 Comments

Travel Managers, Choose Your Career Path

Compass in hand, fork in trailYou travel managers have very challenging jobs.  You also have two very stark career paths in front of you. Let’s start with where you’re at today:

You’re managing a complicated and ever-changing mix of problems.  One hour it’s all about traveler service issues, the next it’s a rash of technology speed bumps, followed by constant demands for reporting cost savings.

You get sucked into endless supplier meetings, do your best to reconcile messy data points, and pray that the new travel policy proposal gets past the latest stakeholder review checkpoint –  all while trying to stay on top of 200 e-mails a day.   There’s more, but this makes the point.

A big tip of the hat, folks – you’re doing important work across a variety of disciplines, with many stakeholders ready and willing to critique your results.  It’s a pretty unique job in many ways, and chances are good that you enjoy most of it.

But you need to ask what’s the future for a travel manager.  What type of role will you hold in 3 years, 5 years, 10 years?  Will ever-more automation and ever-better analytics put your current job to pasture? Continue reading

Posted in Managed Travel 2.0, Travel Management, Traveler Friction | Tagged , , | Leave a comment

Survey Says: Biggest Analytical Pain Points Are…

* Quantifying savings (36%), and measuring the traveler experience (16%)

* Working with travel technology tools, e.g. self-booking, expense reporting and data reporting tools (34%), and the airline category (20%)

* Deciding how to structure the analysis (22%), getting good data (20%) and proving cause and effect from the data (20%)

* Meeting the analytical demands of Senior Executives (28%), Procurement (26%) and Finance (24%)

This comes from my recent survey of 50 anonymous and self-proclaimed travel buyers  – so take this as directionally interesting; not statistically significant.

It’s curious to me that this group is still struggling with Continue reading

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Travel Buyers, What’s Your Big Analytical Pain Point?

question-mark-in-mazeA lot of folks in the travel industry don’t enjoy the numbers side of the business nearly as much as they do the people side.  Fair enough, as the whole industry is built on the premise of building better interpersonal relationships.

But what is it about the analytical efforts that are really causing you the most pain?

Maybe if we understood those pain points better, our industry could do a better job of making the numbers side a bit easier on everyone.

If you are a travel buyer, please take 2 minutes to answer five quick questions here:

Travel Buyers: This Quarter’s Travel Data Pain Points?

The survey is anonymous, and meant to shed some directional light on the problems.

I’ll publish the results here and on LinkedIn.

Please share this as you see fit.  Thank you!

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On Concur’s Future

Planet earth in spaceIt’s easy to be a Concur critic these days.  But “these days” ain’t the same as “in the future”.

I attended Concur’s annual customer event, Fusion, this week.  Let’s start with the negatives:

  • Concur clearly knows their user base has been frustrated by poor SaaS lately.  It’s a major sore point with customers, and a central issue for management. Will management make good on these promises? TBD.
  • Concur is playing catch-up with KDS on making expense reports easier to write, and making the booking process easier to use. No signs this year of any breathtaking innovation.
  • Understandable concerns about how the acquisition by SAP will affect Concur.
  • TripLink, Concur’s key to closing the gap on unmanaged spend, is stuck in low gear. Lots of sales, very few proof points of it adding value – yet.
  • Palpable angst from TMC execs about the future of their business models in the face of TripLink’s potential to enable off-channel bookings.

So if you’re not a fan of Concur, stop here, because the rest of the story is much brighter.  Continue reading

Posted in Travel Industry, Travel Technology | Tagged , , | 4 Comments

A Better Way to Manage Road Warriors, and Their Costs

You road warriors are a hardy bunch, aren’t you?

You spend over a hundred hours a year on planes, take trips on short notice, cross too many time zones, lose sleep, gain weight, get up way early and come home late, and give up more than your share of weekends.

All while being squeezed by travel policies that leave you shaking your head, wondering if the people who approved these policies really, truly understand how hard it is to be a heavy-duty road warrior.

The Travel Friction Concept

Let’s call all this wear and tear you’re taking on “travel friction“.  You get it, right?  The more trips you take, the tougher those trips are, the more you get burned out by being on the road.

Fun fact: Real road warriors, those in the top 10% of all travelers, absorb Continue reading

Posted in Sustainable Travel, Travel Management, Travel Procurement, Traveler Friction | Tagged , , | Leave a comment

Why TMCs Need a Dramatically Different Sales Approach

An uphill struggleEver notice how Travel Management Companies (TMCs) have a hard time selling their value?

It’s not a complicated value proposition.  “We’ll help you book travel at low prices and help your travelers on the road, so you’ll save money and sleep better.”

That’s a pretty easy benefit statement to grasp, right?  So that’s not really the problem.

Two Big Problems

TMCs compete on the wrong metric, and they sell to the wrong people. Continue reading

Posted in Travel Management, Travel Procurement, Traveler Friction, Trip Friction | Tagged , , , | 6 Comments