31 minute read
Passenger Travel Outlook
Recently, I watched a rerun of “Catch Me If You Can.” One scene in particular caught my attention. A story was told about two mice that fell into a bucket of cream; one drowned while the other kept paddling, so much so that he whipped the cream to butter and was able to escape. It is an amusing anecdote, but it carries a meaningful message for those of us engaged in the Passenger Travel business.
Ask anyone—regardless of profession—how business is going these days and you will hear the same thing; they are either doing MORE with LESS, or expect they will have to do so in the future. Why is this? The answer is not as simple as it seems. Over the past several years, the world’s economy has scrambled a number of eggs and some countries are emerging stronger than others. Brazil, Russia, India and China, the BRIC countries, are expected to contribute much more to the global economic growth this year. BRIC may further lead the world economy in a post-crisis era, should their aggressive industrial restructuring and the transition of economic growth patterns be realized. Furthermore, the BRIC countries also have ample funds to better overcome crisis. To more fully understand what we are dealing with, let’s look at some facts.
The Power of Creative Thin kin g The recent unrest in Middle East and Africa and the March 11th earthquake in Japan remain causes of near-term concern across all industries. Continued gains in manufacturing, exports and employment are expected to fuel growth, though a weak housing sector, high gasoline prices and the impact of Japan’s earthquake on the automotive industry may impede recovery. In the travel industry, options that reduce waste and cut costs that are passed on to the end user will make the difference. Creative solutions in transportation, lodging and even conD o in g M o re W it h L ess
struction will prevail. Doing more with fewer resources will become the new rule. Travel managers are asking employees to spend fewer nights on the road, stay at lower cost hotels, rent smaller cars and, in some cases, book cheaper flights that aren’t nonstop.
Industr y Indicat ors The May update of USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing from 3.0 percent to 3.4 percent during the second half of 2011. The US Department of Commerce released the real US travel and tourism output from fourth quarter 2010, pulled from US Travel and Tourism Satellite Accounts (TTSAs). According to its report, output increased (adjusted for changes in price) at an annual rate of 2.5 percent, following an increase of 8.6 percent in the third quarter of 2010. By comparison, real gross domestic product (GDP) increased 3.1 percent during the fourth quarter. As one of the top-grossing US exports, the travel and tourism industry’s effect on the United States’ economy and international commerce, in general, has been an area of nationwide focus. The travel industry’s recovery is a crucial piece in recovery, and tracking this economic indicator provides insight into the state of the US economy and highlights both potential and emerging trends. This is interesting as the real travel and tourism spending increased 2.5 percent, representing the fourth consecutive quarter of growth. In percentage terms, real spending on shopping exhibited the largest gains, increasing 6.2 percent during the quarter, followed by traveler accommodations (5.8 percent) and passenger air transportation services (3.6 percent). Furthermore, overall growth in prices for travel and tourism goods and services increased 3.4 percent in the fourth quarter, following a 0.2 percent (revised) increase in the third. The slowdown in real spending on tourism mainly reflected a deceleration in international air transportation, primarily due to a strong upturn in prices and a slowdown in revenue. Employment in air transportation services increased 1.6 percent in the fourth quarter. This increase was offset by decreases in traveler accommodations of 3.3 percent and recreation and entertainment of 5.2 percent.
In the fourth quarter of 2010, US economic output returned to its pre-recession level and the economy is expected to grow faster in 2011. Although business travel spending remains stagnant due to the implementation of smart traveling policies, it was initially driven by cost cutting measures. As business travel is making slow gains, the industry is enjoying the outcome. According to Associated Press; “The average price of a domestic roundtrip ticket before taxes climbed to $350 last year, 12 percent higher than in 2009. Over the same period, the number of fliers on US airlines rose about 4 percent”. However, since the price of oil dictates the percentage of profitability for the airlines, at $100/barrel, airline fuel costs make up 35 percent of all operating costs. Ten years
ago, fuel comprised only 15 percent of the operating cost (see the airline subcommittee report in this issue).
Hotel occupancy climbed nearly 8 percent last year, according to hotel research firm Smith Travel Research Global (STR). However, average nightly rates have remained flat at around $98 because more rooms are available than needed, the result of overbuilding during the boom years. With improvement in the US economy and the consequent rise in operating metrics, most hoteliers are beginning to report strong quarterly results. Based on the positive estimates, profits are expected to rise further in 2011. The industry has been witnessing a return of the business traveler and a growing demand for leisure travel.
Asian /Pacific Perspectives China is set to bring about a recovery in global tourism, and by 2020, is expected to be the world’s largest travel destination. China and India, major growth markets within Asia and the Pacific, seem to be unaffected by the global economic turmoil with ever rising growth rates. Doing more with less is another reason why since late 2010, transition to an “asset light” business model has gained momentum in the hotels industry. Asset sale remains a long-term strategy to strengthen financial flexibility, which would help the companies grow through management and licensing arrangements instead of direct ownership of real estate. A higher concentration of management and franchise fees reduces earnings volatility and provides a more stable growth profile. This is an interesting way of increasing profitability while minimizing risk. The business becomes capital efficient as owner/developer partners provide the capital and the company earns a fee by managing/franchising the property. As demand exceeds supply, STR projects that the hotel industry will end 2011 with increases in all three key metrics. The expected growth is 1.8 to 58.5 percent for Occupancy; 4.2 percent for Average Daily Room Rate (ADR) to $102.21; and 6.1percent for Revenue By Dr. G.R. “Rocky” Mobaraki, MBA, PhD Director, Global Government & Strategic Programs The Hertz Corporation
Per Available Room (RevPar) to $59.78. While supply is projected to inch up 0.7percent, demand growth is estimated at 2.5percent.
Another area of focus is our heavy dependency on oil, an addiction that has a creative cure. Oil supply risks have taken center stage with the unrest in the Middle East and North Africa (MENA) since late January 2011. The spread of unrest to oil exporters in the MENA region has raised oil supply risks and led to some small oil supply disruptions, as output losses in Libya have largely been offset by higher production in Saudi Arabia and other producers in the Persian Gulf. In response to this shock, oil prices rose from about $95 a barrel in late January to $110 in early March, partly reflecting increases in desired inventories for precautionary reasons. According to IMF 2011 report, OPEC production decisions will play a key role in determining oil market outcomes. In the medium term, even assuming that supply disruptions in the MENA region are short-lived, oil prices are expected to remain high, reflecting the tension between continued robust oil demand growth and the downward shift in the trend growth rate of global oil production. Inn ovati on Pr ovides Positive Outc omes It is never too late to do the right thing and to create initiatives to do more with less (starting with less oil). President Obama pledged to “out-innovate” competing nations in clean technology. With this initiative in place, the US Government is now very interested in the use of clean energy in all segments. The travel industry is undertaking global initiatives in this regard. Airlines, hotels, travel agencies and car rental companies are taking serious actions to innovate and support this important initiative. In response to consumer demand, car rental companies as well as manufacturers are expected to increase their inventory and investment in new technologies to make available more fuel-efficient vehicles.
The growth in acquisitions activity is likely to be high, and forecasts for the next four years indicate the biggest changes in terms of automotive restructuring may be coming. Manufacturing over-capacity was very high, especially in North America. However, with the recent earthquake in Japan, we should see further adjustments in the dynamics and the forecasts. Despite the crisis and the slower than expected recovery, the rental car industry is now looking at manufacturers to increase the production of Hybrid and Electric Vehicles (EV). In addition, the industry is counting on the government to institute policies supporting the rental of these fairly expensive vehicles. The industry and the government must join forces to create a suitable infrastructure to support utilization. Ta kin g Ris ks and Ma kin g Them Wor k Creative solutions are generally unfamiliar, but when they work, they result in success and prosperity. Innovators are courageous individuals who are not afraid to try new ways of doing things. However, seeing friends and relatives out of work has most people afraid to rock the boat. People are fearful to present ideas that challenge conventional wisdom. Most tend to agree with the phrase, “Necessity is the mother of all inventions”. A surviDoing more with less is another reason why since late 2010, transition to an “asset light” business model has gained momentum in the hotels industry.
vor knows that change is the only constant, so when the environment changes, one needs to adapt, innovate, suffer or die. If that is truly the case, human life has a distinct link to adapting and innovating. After all, the status quo has never accomplished anything long term. Recently, people working for big companies go from task to task and meeting to meeting. It’s hard to encourage trying something new when we juggle fewer workers to do more in less time and with fewer
resources. On the surface, you may think that people are so busy that they just don’t have time to think any more. Yes, creative thinking takes time away from structured activity and companies may pay a heavy price in lost creativity. However, this is exactly the time to think outside the box and become creative. If the issue really is about doing MORE with LESS, then get organized! Understand your organization’s mission, keep a positive outlook, get behind the idea, collaborate and find better ways of performing and being profitable! At the same time, companies and governments should be willing to take the necessary risk of presenting ideas with solutions that no one has tried before. The travel industry has done a great job in this regard; they no longer give clients all that they want. Rightfully so, no creative person or company should do that. Instead, they should offer clients only what they need. Creative thinking aligns itself with advances in technology. Technology has moved forward with such speed, that some organizations struggle to keep up.
Throughout the industry, the new world order is doing more with less in more creative ways. It is the key strategy to tomorrow’s successful business. The challenge is to increase the value to the customer, at little or no cost. Organizations taking on the challenge will not simply succumb, they will survive and they will prosper. Just like the mouse that managed to rise above the cream! DTJ
AIRLINES Delta Air Lines Denny Clifford* FlightWorks, Inc. Cynthia Karnik Kalitta Charters, LLC Steve Green North American Airways Lois Wilson Omni Air International Trisha M. Frank Southwest Airlines Merrill Taylor United Airlines Tom Billone World Airways Lois Wilson BUS Transportation Management Services (TMS) Kevin O’Conor Brad Kurtz Bob Leitzel* CAR RENTAL Advantage Rent-A-Car Lori Leffler, Rocky Mobaraki* Avis/Budget Rent A Car Robert Krapf, Mike Washkevitz* Dollar-Thrifty Automotive Group Mark Cronin, Randy Tietsort Enterprise Rent-A-Car Bryan Scott Europcar Frank Langbein Fox Rent A Car Jose Giraldo The Hertz Corporation Lori Leffler, Rocky Mobaraki* Payless Car Rental Kathy Johnson EXTENDED STAY LODGING Equity Corporate Housing Kathy Lane Extended Stay Hotel Toni Kleinops*, Rachel Tyler Korman Communities Scott Foster Oakwood Worldwide Daphne Medillo Virginian Suites Ms. Noelani Berkholtz HO TELS Best Western International Dave Brogden, Mari Ann Gray Carlson Hotels Worldwide Linda Colovos Choice Hotels International Lisa Kenner Hawthorn Suites-Alexandria Stacie Liverpool Hilton Hotels Corporation Scott Lamb* Hilton Waikiki Prince Kuhio Newton Wong Hyatt Hotels & Resorts Chris Keane InterContinental HG Judy Silcox La Quinta Jake Paine, Lynn Shatterly LTD Hotel Management Eunice Gibbs Marriott International Randy Griffin Radisson – Waikiki Newton Wong Resort Quest Hawaii Kathy Ahsam Starwood Hotels Christopher Robertson Suite America Kim Dunbar Wyndham Hotel Group Denise Benyak
PASSENGER RAIL AMTRAK TBD*
TRAVEL AGENCIES Carlson Wagonlit Travel | SatoTravel Shelley Bickner, Kelly Kuhn*, Monnie Riggin, Phyllis Leeth, Marc Stec, Craig Thompson McNair Travel Karen Bacordo Omega World Travel TBD
TRAVEL PUBLICATIONS & SERVICES AmeriForce Publishing Brian Dunbar OAG Worldwide Christina Kosac Runzheimer International Kraig Rodenbeck
TRAVEL TECHNOLOGY INNOVATA Paul Chrestensen, Cathi Massi, Judy Smith Northrop Grumman Rod Forry* Sabre Travel Network Jeffrey Goodell
GO VERNMENT Defense Travel Management Office (DTMO) Paul Joyce, Chief Commercial Travel Div.; Andrea Carlock, Dep. Chief Commercial Travel Div.; Tracey Ramsey, Chief Travel Mgmt. Branch; Howard Hicks, Team Lead
PTSC COMMITTEES & CHAIRS PTSC Committee Chair Dr. G.R. “Rocky” Mobaraki, MBA, PhD, Director, Global Gov’t & Strategic Programs, The Hertz Corporation PTSC Vice Chair & Airline Subcommittee Chair Denny Clifford, Director, Military & Gov’t Sales, Delta Airlines Car Rental Subcommittee Chair Mike Washkevich, Director, Gov’t Sales, Avis & Budget Rent A Car Hotels Subcommittee Co-Chairs Scott Lamb, Director, Gov’t Sales, Hilton Hotels Corporation Judy Silcox, Director Gov’t Sales, InterContinental Hotels Travel Agencies Subcommittee Chair Kelly Kuhn, President, Carlson Wagonlit Travel | SatoTravel Travel Technology Subcommittee Chair Rod Forry*, DTS Program Manager, Northrop Grumman Bus Subcommittee Chair Bob Leitzel, GM Gov’t. Transportation Svcs., TMS Extended Stay Lodging Subcommittee Chair Toni Kleinops, Extended Stay America Passenger Rail Subcommittee Chair TBD Travel Publications & Services Subcommittee Chair Christina Kosac, Advertising & Marketing, Director, OAG
EX-OFFICIO Ken Wykle, President, NDTA Denny Edwards, VP, NDTA
*Subcommittee Chairman
Govern ment Travel Pr ogra ms & Updates
AIRLINE Subcommittee Chair : Denny Clifford, Director, Military & Government Sales, Delta Airlines
The short-, medium-, and probably longrange future of the airline industry can be summed up in one word—oil. All foreseeable financial roads for airlines lead to—and through—this ancient energy source, which after a few conversions, is aviation fuel.
A bit of history here may put things in perspective. Ten years ago fuel comprised 15 percent of an airline’s operating expenses. Five years ago, that number was 29 percent. Today, with the world market price for the benchmark West Texas Intermediate (WTI) being $100 per barrel, an airline’s fuel costs make up 35 percent of all operating costs. Many financial experts who specialize in oil and gas are predicting that over the long term the price of oil will go up significantly. Goldman Sachs recently raised its forecast for WTI from $120 per barrel to $130 by the end of 2012. Others are predicting $150 per barrel within the next twelve months, and still others are indicating that $200 per barrel is not out of the question over the next few years.
What is driving this increase? Well, a number of factors. The more “artificial” ones being the weakness of the dollar— when the dollar is weak against foreign currencies the price of oil goes up—speculators in commodities trading, the political instability of the Middle East (which threatens oil production), the civil war in Libya (which reduced worldwide production by 2 million barrels per day), and the status of the worldwide economic recovery.
But the real driver that underpins higher oil prices is quite basic—supply and demand. The thriving economies of China and India, and related consumption of oil, is the primary catalyst behind increased worldwide demand. The economies of Saudi Arabia and Brazil also add to the demand curve. On the supply side, many experts suggest that worldwide production is decreasing. Exxon recently reported that it is replacing every 100 barrels of oil it produces with only 95 barrels of newly founded oil. That does not bode well for matching worldwide demand with commensurate supply.
All of this presents unique challenges for airline operations moving forward. How do airlines cope with the challenges of much higher fuel costs? In the short to medium term, hedging is the most effective means to control an airline’s expenditures on fuel. At least the use of hedging gives an airline some control over what it will pay in the future for its aviation fuel. How does hedging work? Simply put, hedging is making advance purchases of fuel at a fixed price for future delivery to protect against the shock of anticipated rises in price. Hedging has become quite
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sophisticated, with complex formulas and algorithms being used to determine the best time to hedge and at what levels. Hedging often involves not just setting a ceiling on the price of fuel, but also floors. It often produces a range within which an airline can operate with some cost predictability, at least for the fuel that is purchased in advance. Airlines typically do not “bet the farm” and hedge 100 percent of fuel—the risk is too high in the event prices actually fall. A more likely ratio of hedging is 40 to 60 percent of total fuel consumption over a period of time, say six months or a year. As hedging contracts expire they are renewed or cancelled depending on the price of fuel at that time. Aside from the risk issues associated with hedging, another challenge for airlines is that hedged fuel is typically paid for up-front in cash. This favors airlines that have large cash funds available—the
CRUISE SHIP Ind ustry Overview Facts
The cruise industry is the fastest growing segment of the travel industry—achieving more than 2100% growth since 1970, when an estimated 500,000 people took a cruise.
• Roughly 14.3 million passengers traveled in 2010, a 6.3% increase over 2009. • The cruise industry is the fastest-growing category in the leisure travel market. Since 1980, the industry has experienced an average annual passenger growth rate of 7.4% per annum. • Since 1990, more than 154 million passengers have taken a 2+ day cruise. Of this number, more than 68% of the total passengers have been generated in the past 10 years and nearly 40% in the past 5 years. • The average length of cruises is 7.2 days. • The cruise product is diversified. Throughout its history, the industry has responded to the vacation desires of its guests and embraced innovation to develop new destinations, new ship designs, new and diverse onboard amenities, facilities, and services, plus wide-ranging shore side activities. Cruise lines have also offered their guests new cruise themes and voyage lengths to meet the changing vacation patterns of today’s travelers. • The cruise industry now has more than 30 North American embarkation ports placing cruise ships within driving distance of 75% of North American vacationers. With the added convenience of avoiding air travel, cruise lines have attracted a wider customer base. • From a capacity standpoint, utilization is consistently more than 100% (104% in 2009). • The Caribbean is the number one destination, with an estimated 37% of the total in 2010. • Twenty-six new state-of-the-art ships are contracted or planned to be added to the North American fleet through 2012, at a cost of nearly $15 billion. • Because only approximately 20% of US adults, and far less of the world market, have ever taken a cruise vacation, there remains an enormous untapped market. • Ninety percent of all cruise vacations are booked through travel agents. • There are more than 2000 ports of call around our planet that cruise ships can visit. • There are more than 300 cruise ships in the world today with a collective capacity to handle more than 250,000 passengers. • Three major cruise line groups (Carnival, Royal Caribbean, and Star/NCL) control roughly two-thirds of the world’s cruise passenger capacity.
From daVinci Institute; April 26, 2011
economic adage that profitable (ie, having sufficient cash) companies usually are able to take on more risk than those who do not applies. If they are correct in their hedging assumptions, then profitable airlines will have a competitive edge over less profitable airlines and the cycle will continue— at least until the point where fuel costs are manageable for the entire industry.
Airlines can respond to higher fuel prices with immediate changes such as reducing capacity in unprofitable markets and retiring less fuel efficient aircraft as well as other cost reducing initiatives. These actions continue to take place within the industry as fuel prices increase. In the long term, the most consistent way airlines can manage higher fuel costs is by developing a plan around the expectation that higher costs will remain in place for the long haul. Proactive planning is the solution, not reactive or knee-jerk reactions to a largely uncontrollable cost item. Those airlines that implement the former will in the end be the survivors in this challenging marketplace.
In other airline news, the industry is working with GSA to implement ticket time limits on contract fares. Further analysis by GSA is being conducted on the merits of this proposal. If approved, any changes would not take place until the FY13 city pair contract. The airline industry feels strongly that changes in this area need to be made, with terms similar to those on commercial fares but allowing for differences due to the unique composition of government travel. All thirteen airlines that participate in the city pair contract voted yes to this change at the Pre-Solicitation meeting held by GSA in February, which is a unanimous result.
Lod gin g Co-chair : Scott Lamb, Director, Government Sales, Hilton Hotels Corporation Co-chair : Judy Silcox, Director, Government Sales, InterContinental Hotels
Lodging accounts for more than 60 percent of the Per Diem costs of travel. Making the best use of these dollars makes sense fiscally and has a huge impact on moral. Rested, refreshed, and healthy troops are mission ready and able to focus on the job at hand. The lodging industry (and specifically the member companies of NDTA) are developing new programs
Cr isis Abroa d: Tips for International Travelers
By Scott McCartney (excerpts from the Wall Street Journal 06/09/11 and the Department of State)
Going abroad this summer? Be prepared. Civil uprisings, earthquakes, ash clouds, terrorism warnings, and violence have all disrupted travel in the past year.
The top three sources of trouble for travelers are the weather, health, and petty crime. Food and water safety often contribute to health problems in underdeveloped countries. Vacationers tend to be more exposed to street vendors with weak food preparation practices than business travelers. Vacationers are also more prone to accidents, such as walking or biking injuries amid unfamiliar traffic patterns.
A key preparati on : Call your health-insurance provider and confirm your overseas coverage and update as necessary. Also, get telephone numbers for support overseas.
Vacationers can easily stumble into high-crime areas in any city— consult with locals and hotel concierges before heading out. Consider carrying a credit card used solely for travel and leave personal and business cards at home.
Far down on the list of dangers is terrorism, but civil uprisings have grown more common and aren’t limited to Arab countries. The important rule to remember: Don’t gawk and get caught up in it. Get back to your hotel. Avoid the temptation to head to the US embassy or consulate—that could be exactly where an antiAmerican mob is protesting.
Travelers need to pack a small “go bag” with essentials (passport or a copy, medications, energy bars, a first-aid kit, and a flashlight). This tip comes from lessons learned following 2008 attacks in Mumbai. Ten locations in India’s largest city, including two five-star hotels, were targeted. Have someone track your trip from home to keep you informed of activities in the country where you are staying. Information from the US often comes faster than through local media or hotels.
Natural disasters present very difficult challenges. Some basic first-aid skills are important to deal with cuts, broken bones, and shock when medical professionals may not be available. But the most crucial issue is safe drinking water. It wouldn’t hurt to carry water-purification tablets in your luggage. After a hurricane, for example, water may not be safe, and facilities to boil water may not be an option for tourists. Drop the proper amount of tablets in a water bottle and shake it up—you’re good to go.
>> STEP The US State Department’s Smart Traveler Enrollment Program (STEP) offers a way to keep communication lines open with home should an emergency arise. Register at http://travel.state.gov to enter itinerary, hotel, and other contact information that will keep everyone in touch. In accordance with the Privacy Act, details won’t be disclosed without your permission and will be destroyed after your trip ends.
STEP enrollments averaged 4000 a day in May, an all-time high for the 7-yearold program. The program sends out relevant “warden messages”—local email alerts for US citizens abroad, which are more detailed and timely than the travel advisories. Messages include updates on the time and location of protests in a country, for example, whether commercial flights are still running in a crisis or updates on flooding after a disaster.
STEP works both ways—if there’s a family emergency back home you can be notified. Or if the government is arranging chartered evacuation flights from a hot spot, or even if you lose a passport.
This year, the government evacuated 2350 people from Egypt; 17 from Tunisia; and 200 from Libya. In Japan, buses were sent to Sendai for US citizens. If email services shut down during a crisis, text messages are sent to phones. In many crises around the world, text messaging has worked even when email, Internet, and cellular voice service didn’t.
and facilities to help Commands and travelers manage their lodging spend more easily and efficiently. The result—more with less!
Energy costs drive lodging costs. As energy prices began to rise in the 90s, hotels started to develop programs to save energy through recycling and laundry programs, as well as energy management initiatives. Now these efforts have evolved into key strategic initiatives focused on sustainability at all of the major hotel chains in the United States. Like government agencies, our companies have specific, measurable goals aimed at reducing our carbon footprint, eliminating waste, and improving our environment. Your partners at NDTA can share these programs with you and help you meet your sustainability goals. By asking your travelers to stay at “green” hotels and requiring your meetings and conferences to use facilities with sustainability programs, you can spend your travel dollars wisely and affect our environment.
Extended TDY is becoming more and more common. With forces stretched thin and bases consolidating, we often need to “borrow” human capital for extended periods. On top of that, complicated systems and projects demand dedicated teams for weeks and months, rather than one or two people. The best kept secret in the lodging industry is the “long-term stay” hotels. Some are dorm-like and others arranged like apartments, but both offer savings and amenities that make sense for TDY max! Kitchens, laundry facilities, common areas, and convenience stores are common features. Many offer breakfast, dinner, and social hours as part of their package. Free internet, fitness facilities, and local shopping services are also regular amenities. On top of this, the longer you stay—the lower your rate! This segment of the lodging industry has exploded in the last 10 years, which means many of the hotels are new. This is the perfect example of getting more—for less—and your NDTA partners will be glad to help you navigate their programs.
The Defense Authorization Act of 2002 allows Federal employees to retain frequent flyer miles and other travel awards for personal use. However, the benefits these programs offer the traveler can save money and time in performance of their mission and should be part of the travel matrix. Airlines, car rental, and lodging companies offer their frequent guests free or reduced cost amenities that others may have to pay for. Internet, parking, meals, fitness facilities, upgraded rooms, cars, and airline seats all make official travel easier and less costly for the traveler and ultimately their service. As hotels become more competitive, these benefits continue to grow.
Finally, the US lodging industry is expanding rapidly overseas. US travelers will see familiar brands in more locations, in more countries across the globe. Better amenities, higher standards, and increased availability will make your travel easier, safer, and less costly because these hotels are “where the action is” in the growing markets of the world.
Have a question about your lodging program and how you might do more with less? Contact your hotel partner in NDTA. We understand your challenges and stand ready to help you accomplish your mission.
Car Rental Subcommittee Chairman: Mike Washkevich, Director, Government Sales, Avis & Budget Rent A Car
The car rental industry remains cautiously optimistic about 2011 trending, despite facing many early-year obstacles outside of the industry’s control. Snowstorms curbed many travelers earlier in the year. Threats of federal government shutdowns due to budget negotiations not only halted government employees from traveling for several weeks in March and April, but also had a tremendous impact on leisure travelers. Many vacationers simply weren’t willing to risk traveling to national parks, federally funded museums, etc., with looming possibilities of their destination spot not be open for visitors. But as many industries have realized, the car rental industry has been aggressive in addressing aspects of their business models where they do have control.
“Doing more with less” has been a major theme in the industry. Obviously, the largest cost for car rental companies is fleet. The industry as a whole has become much better at managing their fleet costs, which represent 30 percent of total costs on average. But negotiating favorable deals on vehicle purchase from original equipment manufacturers is only part of the equation. Other factors include mix (some makes hold residual values better), sale price (which is increasingly influenced by remarketing distribution channels), and the time the vehicle is off-rent prior to sale. All of these factors are where the car rental industry has used creative thinking to trim their costs.
Fleet Mix The auto rental companies have increasingly diversified their fleet mix by make as well as model. This helps manage residual value risk and many of the new OEM suppliers’ vehicles hold their residual values better. Fleet diversity also offers the customer more choice in the type of vehicle they drive, provides for better negotiation strategy for car rental companies, and increases the opportunity for more original equipment manufacturers to get in to the rental market and allow consumers to test drive their vehicles.
Higher Return Marketing Channels Increased use of higher return remarketing channels should continue to drive lower per-unit fleet costs over time, as well as reduce the dependence on wholesale auction prices. More car rental companies are choosing to sell their used cars directly to consumers, and the used car market is large and growing larger.
At the same time the industry continues to find ways to cut costs, customer service has actually been strengthened. Anyone knows you can cut costs down to nothing, but can you satisfy customers and maintain client retention at the same time? That is the key to a successful strategy. In many cases, car rental companies have greatly improved their counter automation and pick-up/return processes to enhance and improve customer satisfaction.
The car rental industry still faces many dynamics as the remainder of 2011 unfolds. Increasing fuel costs could possibly have major effects on the industry. As airlines continue to battle increased fuel costs and lower seat capacity, fewer deplaning travelers means fewer people renting cars at airports. The leisure traveler remains skeptical about any signs of a strengthening economy and lower unemployment. Federal government shutdowns still shadow the budgeting process, and other influences such as weather and war will always remain outside the control of the industry, but the creative thinking of “doing more with less”
has boosted the car rental industry’s ability to formulate profitable business models for their shareholders while keeping rental rates attractive to their customers!
Travel Agenc y Subcommittee Chairman: Kelly Kuhn, President, Carlson Wagonlit Travel / SatoTravel
Doing More with Less As everyone in the travel industry is aware, revenue streams and profits run on tight margins. Well-managed travel agencies have recognized this fact for years, regardless of the ups and downs of the economy. A pioneer in the travel industry once said, “If you want to make a small fortune in travel, invest a large fortune!” The common mantra within the travel agency community is to run lean and mean, meaning the key to long-term success is tightly controlling overhead costs, specifically personnel costs. Within the military and government travel market, where transaction prices play a decisive role in competitive procurements, travel agencies employ a number of strategies to keep costs down, increase productivity, and ultimately, generate a profit margin that satisfies its shareholders.
In keeping with the theme of “Doing More with Less,” travel management companies seeking the competitive advantage in a tight market are utilizing automation tools such as global distribution system (GDS) scripts, automatic call distribution (ACD) telephone systems, or the use of Voice Over Internet Protocol (VoIP) to reduce telecommunications costs, increase productivity, manage capacity, and ensure adherence to customer service level agreements (SLAs). Scripts efficiently and quickly guide the frontline travel agent through the reservation process, ensuring adherence to the client’s travel policy as well as prompting the agent to sell ancillary products and services such as prepayment for excess baggage and making hotel and car rental reservations. Effective use of an ACD telephone system affords the travel company the benefit of managing capacity—managing the peaks and valleys of call volume as well as the ability to maximize overall capacity to cover surge and/ or emergency call volumes (such as sudden activation military units or disruption to air traffic due to storms or other natural events). VoIP allows companies to reduce the per call costs.
Another facet of “Doing More with Less” is how travel management companies manage themselves. Cutting costs usually means reducing hours or eliminating personnel from the ranks. However, no matter how many hours are reduced or positions eliminated, the work behind the contracts and the support needed to fulfill customer expectations remain nonetheless. To manage those very real and contractually binding expectations requires a significant shift away from the traditional hierarchal organizational structure to a more fluid and responsive structure referred to as a matrix organization. Today, successful travel management companies are cross-utilizing support personnel across departmental lines to quickly respond to customer support requirements and implementing new and improved processes to ensure that the overall organization’s objectives are protectively and consistently met. DTJ
