2013 Business Travel Survey: Demand Patterns, Distribution Changes Create Uncertainty As Big Gets Bigger
Almasalla Travel News – Last year was a weird one for travel agency air booking volumes in the United States. For the agencies that handle most of the business travel in the country, those that ARC categorizes as "mega" and "other" in its transaction count breakouts, 2012 featured pretty wild swings, with growth appearing here and there for a couple months before a sometimes substantial dip.
The good news for these travel agencies last year was that a negative trend never occurred for longer than two months, unlike in the "online" travel agency category, where year-over-year comparisons went negative in March 2012 and never recovered. Even through March 2013, reductions followed one month after the next for the OTAs, an ARC category that by and large represents leisure air travel (though it does include some independent business travel and the managed activity of Orbitz for Business and Travelocity Business).
Yet, the OTAs’ recent losses may not be the travel management companies’ gains. Following a January 2013 survey of more than 2,500 consumers, PhoCusWright in April revealed that for the first time since it started publishing its U.S. Consumer Travel Report five years ago, more travelers indicated they typically purchase flights via supplier websites than via OTAs. "This shift in behavior marks an epic change not only from 2008-2011, but from consumers’ longstanding tendency to value price, an array of choices, and convenience over brand loyalty (or even interest in a brand)," according to PhoCusWright. "In 2012, supplier sites led OTAs by two percentage points, in stark contrast to OTAs’ four percentage point lead in 2011."
Are supplier sites a threat to TMCs? They may be a rival, especially if they continue to increase their unique content and functionality, but they don’t cater to managed business travel. Some say airlines and hotels really wouldn’t want to be in that business, and their websites mainly compete with their own call centers.
Eric Altschul, a former American Express exec who after more than a decade in consumer travel recently partnered with Deerpath Capital to buy ABC Corporate Services, said investors still ask whether travel agencies are going away.
"Do people still use them? Don’t they just book online?" Altschul asked rhetorically. "But if you look at the numbers, the travel agencies—traditional, leisure, corporate—have stopped losing share. OTAs took a big bite out of them, but that has really leveled off. Agencies have figured out how to demonstrate they have a lot of value, and you don’t see them shrinking like they did 10 years ago. TMCs have maintained their place in the food chain, but how they service their customers and how they want to be serviced and be compensated has changed. A lot of inefficiencies have been taken out of the industry, some forced by suppliers."
While corporate TMCs on the whole seemed more up than down last year, there were exceptions. American Express Global Business Travel was one of them, with global corporate travel sales dropping year-over-year in every quarter of 2012. The full-year figure was down 4 percent to $18.9 billion. The March 2013 quarter also showed a 4 percent decline. Global air, hotel and ground transportation sales volume at Carlson Wagonlit Travel in 2012 fell 1.1 percent to $27.7 billion, the company announced in February. Those two companies are members of ARC’s mega category, as is Omega World Travel, which again showed its exposure to government spending cuts; its ARC air transactions fell to 483,696 in 2012 from 534,745 in 2011, and ARC air sales dropped to about $310 million from $351 million.
On the upside, BCD Holdings claimed 2012 global sales of $22.8 billion, about 10 percent higher than the firm reported in 2011. Slightly aided by acquisitions, Egencia boosted total gross bookings volume to $3.6 billion from $2.6 billion, according to parent Expedia.
Big Consolidation In ‘Other’ Segment
The biggest U.S. TMC acquisitions in 2012 came from ARC’s "other" category, where Travel Leaders Group and Travel and Transport bought Protravel and Ultramar Travel Management, respectively.
Comprising Tzell Travel Group, Travel Leaders Corporate and now Protravel, Travel Leaders Group neared $1.6 billion in ARC air sales last year, up about 6 percent from where the three were in 2011. The combined company in 2012 topped 2 million ARC air transactions. All three units grew, but the smallest, Travel Leaders Corporate, led the way with 27 percent higher ARC air sales of $172.3 million.
With 1.2 million transactions and $779.6 million in ARC air sales last year, Travel and Transport, including Ultramar, recorded 3 percent more transactions than the year before.
Travel Leaders indicated it has made no layoffs following the Protravel deal. Ultramar and Travel and Transport actually have grown by 25 people since the businesses combined. Both Travel Leaders and Travel and Transport are keeping intact their acquired brands.
Not every year features two big deals like Protravel and Ultramar, each boosting the buyer’s total ARC transactions processed by about one-third, but consolidation continues unabated in the business. Other 2012 acquisitions included Adelman’s acquisition of Great Southern Travel, Altour’s deal for Passageways, Directravel’s purchase of Travel Management Corp. and CI Travel’s acquisition of the corporate travel division of Azumano Travel Services. Altour and Travel Leaders Group also completed several smaller deals, while Atlas Travel and Valerie Wilson Travel each bought one smallish agency.
Australia’s Corporate Travel Management acquired both Polk Majestic Group and, in 2013, TravelCorp. Sabre soon is expected to sell Travelocity Business. BCD Travel has said it is seeking acquisitions.
Travel and Transport president and CEO Bill Tech said M&A activity will continue, but not because of the proliferation of technology or compression in business travel. "We’re up to around 50 percent online booking," he said. "We couldn’t have continued to grow and find agents if not for that. No, I think there are a lot of people that will have to sell their agencies just because they’re not getting any younger."
Ultramar president and CEO Peter Klebanow said the consolidation of old was the result of agencies that "couldn’t adapt to the technology, but future consolidation will likely be driven by either people needing to exit" or any changes to the business model, such as a reduction in supplier income.
Revenue Uncertainty? Certainly
It’s just one part of a TMC’s revenue mix, but it’s an important one for a corporate travel agency, and anyone who claims they can read the tea leaves on airline compensation must be smoking them. This includes both the airline override commissions that still do exist, though not for everybody, and the income from global distribution systems paid out on airline segment bookings.
The biggest news of late is about the International Air Transport Association’s New Distribution Capability, which this spring had players up and down the corporate travel distribution chain giving an earful to the U.S. Department of Transportation. An odd request by IATA for DOT approval of NDC sparked the debates, and though DOT may not actually rule on the request, the intensity of the discourse is not unlike previous industry discussions on distribution. Like those, too, it may or may not augur big changes.
As has been the pattern, airlines are proposing changes that they say would not exclude global distrbutino system firms while GDS firms and the travel management companies they pay for air booking segments are not trusting IATA’s company lines. TMC execs are hopeful that airlines would use NDC to facilitate the sale of add-on services and merchandizing through the TMC channel—and that they would be compensated for that. Airline officials sometimes agree that TMCs should be paid for such work, but who would do the compensating, and how, has not been illustrated.
"It’s not that we’re greedy," said T&T’s Tech. "We have such slim margins and this will take more work, but no one is willing to pay us."
"We simply want more information," said World Travel Inc. executive vice president Dee Runyan during The Beat Quarterly webcast in April 2013. "We need some transparency of the downline effect of what type of change it would bring into the industry. There are costs to completely overhaul systems in place today."
"There are plenty of devil-in-the-detail questions," said ARC president and CEO Mike Premo during the same webcast. "Taking the 20,000-foot view, anything that’s going to provide content customers can get on airline websites through the third-party distribution community is generally a good thing. NDC wouldn’t exist if carriers weren’t trying to find way to put that content into the TMCs’ hands. GDSs do support ancillary sales, but the issue that creates concern within the carriers is more the ‘how.’ I think NDC will give them a more robust way to do that for the customers."
IATA aims this year to begin testing NDC with TMCs. According to IATA, "The rationale behind the New Distribution Capability is to increase competition, stimulate innovation, reduce distribution costs and improve consumer choice."
Competition, innovation and choice all sound good. It’s reduced distribution costs that worry TMCs.
Travel Agency Survey Methodology
Business Travel News again this year asked travel management company chief executives to sign release forms and send them to Arlington, Va.-based Airlines Reporting Corp., authorizing the U.S. bank settlement plan organization to release for publication each agency’s 2011 and 2012 ARC air ticket transaction and sales data.
BTN invited agencies that book more than half of their sales for business travel through ARC to release ARC data for wholly owned home offices and legal entities, including all branch and satellite ticket printer sales data and the percentage of tickets purchased for domestic travel. ARC provided only ARC air transaction and sales data and the percentage of sales booked for domestic versus international travel. ARC defined net air sales as the total fare amount minus the commission. The sales figures represent the home office location’s total net sales. Air transaction counts exclude refunds, exchanges and voids. All other data, including non-ARC sales and transactions, are self-reported. This volume may include purchases made with carriers that do not participate in ARC (such as Southwest Airlines), through vendor websites, sales to ARC-accredited Corporate Travel Department accounts and such bulk-buy programs as American Airlines’ AAirpass. Publicly held American Express and HRG, privately held BCD and Carlson Wagonlit and all online-originating players did not participate.
— With reporting by JoAnn DeLuna and David Jonas
This report originally appeared in the May 27, 2013, edition of Business Travel News.