Innovation and Patents: Pros and Cons for Procurement

Are patents good or bad for the end consumer?  OK, that’s pretty broad…how about this specific example concerning Virgin Atlantic and Delta Air Lines:

Virgin recently filed this patent infringement case against Delta over Delta’s use of a herringbone-style seating configuration in its BusinessFirst cabin. Virgin Complaint Against Delta

At issue is Virgin’s patent, granted by the U.S. Patent Office two years ago.

The implications for travel buyers are interesting.  Virgin came up with a clever way of arranging its seats in the business class cabin.  The advantages include easier access to the aisle, and more seats in the cabin for Virgin.

Airlines invest significant sums in their seating designs, and clearly hope to gain competitive advantages by doing so.  In this case, Virgin, by virtue of its patent, has the right to exclude other airlines from copying the features covered (claimed) in its patent. Less competition means some combination of more traffic and higher prices for Virgin.

Let’s set aside the issue of whether or not Delta is infringing this patent.  The facts are not clear, and Delta likely believes that either the Virgin patent should be invalidated, and/or there is no infringement. Best guess is this will be  settled in court within two years.

More importantly, what do all you travel buyers and suppliers have to say about the pros and cons of a supplier who has patents covering elements of its offerings?

Should innovation be rewarded with this form of protection, essentially as a way to create more incentive to risk R&D funds?  Or do the implications of paying higher prices for what amounts to a monopoly on a product turn you off? Vote here and let’s see what you all think.

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Air Sourcing Academy a Big Hit

The first-ever one-day workshop on airline sourcing was a big success!  About 70 delegates worked their way through the key success factors for sourcing this important spend category. NBTA‘s post-event survey measured two key factors:

The change in the level of understanding of airline sourcing (definitely improved, above), and the overall satisfaction with the event (quite high, below).

Why Ancillary Revenues Don’t Much Matter

Let’s cut to the nub of this issue.  No one will  ever know for sure if ancillary revenues make airlines more profitable.  There are just too many moving parts in an airline’s  revenue stream.  Sure, airlines may report an extra billion dollars in ancillary revenue (AR, from here on) – but what did fares do?

If fares went down, then maybe the extra AR revenue

Top Reads from 1st Quarter 2010

Last quarter’s most popular topics covered travel ROI, savings, metrics and reverse auctions:

ROI on Travel and Meetings – Why Bother? – challenges the feasibility of placing ROI metrics on trips; says there is a “good enough” alternative.  It’s called management.

The Real Question Behind Travel ROI – searching for post-trip ROI is a long walk in the hot sun.  Far better to focus on this essential question: “What’s the most effective way to achieve my goal?” Sabre and Cisco showed an interesting approach.

Travel Benchmarking Done Well – the Travel GPA tool focuses on actionable benchmarks – stuff that travel managers really need to pay attention to.

Savings Metrics, Rat Farms and KPIs Gone Bad – takes a critical look at three common definitions of savings, and the unintended consequences of each.

Reverse Auctions for Hotels and Car Rates? – wonders if travel suppliers may offer more reverse auctions for their inventory, and the implications for buyers, TMCs and GDSs.

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Job and Flight Roulette, Courtesy of D.O.T.

If Jeff Smisek, Continental Airline’s CEO, was a gambler, he probably wouldn’t play roulette.  Why not?  The odds are stacked too far in favor of the house.

Mr. Smisek’s risk tolerances came to light at an investors’ conference earlier this month.  He made it clear how Continental would handle the risk of being fined up to $27,500 per passenger* by the Department of Transportation for excessive tarmac delays.

“Guess what we are going to do? We are going to cancel the flight.”

Continental is absolutely right.   Do the math and you’ll see the DOT could levy a 3-5 million dollar fine – per flight.   Newsflash: No airline can afford to gamble that much money.

Bigger newsflash: No flight operations manager is going to play job roulette in the face of such sanctions.

The net result?

Three Myths About Sourcing Airlines – Part 2

(See Part 1 in this series here)

Why Buying in Bulk Doesn’t Work

Bulk buying (a.k.a. pre-paying) makes sense for many commodities, but not airfares.  Why? Because it’s complex and expensive.

It’s Complex

Let’s say you want to bulk-buy $1 million in airfares from your primary carrier. You write the airline a check – simple. But now:

Which departments in your firm will be charged for their part of the bulk buy?

Three Myths About Sourcing Airlines – Part 1

Given that air travel is typically a large spend item for most companies, it makes sense for procurement folks to attack it with extra energy and creativity.  Here are three ideas that often come up:

1. Consolidate air spend across a few firms to get better negotiating leverage
2. Buy air travel in bulk
3. Leverage frequent flier miles by stripping them out of the fare price, or by pooling them for corporate use.

Unless you’re the type that likes to take long walks in the hot sun, you can forget about using any of these methods – they just don’t work.  Here’s why:

Baking and Data Reporting

What the heck does baking have to do with travel data reporting, you ask?

It makes for an interesting metaphor.  I used this concept in the speech I gave at the ACTE Canada conference this week in Toronto.  I’ll admit that the skit was a bit hokey, but the points about poor preparation of data, half-baked analysis and hanging Christmas lights on plain-jane data were too good to pass up.

Once I got beyond these process-related problems, we dived into

Top 5 Posts – Last 40 Days

Here are the five most popular posts on this blog from the last 40 days:

1. Trippy – Tomorrow’s Biz Trip Planning Tool? (Trippy is a mash-up of Google Wave, Google Maps and Lonely Planet content)
2. Travel 101 (a 4-minute video introduction to the travel category, and four posts covering Travel Data 101)
3. Travel Procurement’s Fighting Words (started by a slam against using procurement principles in the travel category)
4. Future Innovations in Airline Distribution – Condensed (a summary of problems and  innovations needed in the airline distribution channel)
5. Why Travel Disses Procurement (explains the friction found between travel and procurement staffs and what to do about it)

I’m surprised that two of these posts don’t relate directly to travel procurement (“Trippy…” and “Future Innovations…”).  You’re saying it’s OK to cast a wider net in terms of topics.  Cool.  I’ll continue to bring in this type of content from time to time.  What else would you like to see here?

“Future Innovations in Airline Distribution” Condensed

Here are the highlights from my recent presentation at CASMA titled  “Future Innovations in Airline Distribution”.   The original deck has about 50 slides, but because it was designed for a live 60-minute speech, it’s hard to get the meaning of many of the slides (nearly all pictures) by themselves.  So here’s the 3-minute version:

Channels have limits.

Distribution channels are essential to commerce, but they have limits.  The Panama Canal has to build wider locks to accommodate the newest and largest cargo ships.  This is a metaphor for the GDS distribution channel, as it cannot handle the “wider” content that airlines want to distribute today.

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