Travel Procurement Workshop
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Transcript of Travel Procurement Workshop
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NBTA Convention & Exposition | August 8-11, 2010Houston, Texas
Travel Procurement WorkshopScott GillespieAuthorGillespie’s Guide to Travel+Procurement
NBTA Convention & Exposition | August 8-11, 2010
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MODERNAIRLINE SOURCING
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Key Analytical Concepts
Fair Market Share (FMS)
Airline Supplier Map
Fare mix, discounts, and Net Effective Rate (NER); a.k.a. Weighted Average Discount
Scenario modeling
Program savings and CEO Map
Program optimization
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Fair Market Share (FMS)
• A.k.a. QSI, or neutral share, or share of lift
• Best estimate of carrier’s market share before pricing and loyalty factors
• Very important basis for all modern airline sourcing projects
• Drives minimum, maximum and goal share, and the corresponding spend projections
• Key variables are connection logic and interline logic
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Fare Mix, Discounts and NER(Net Effective Rate)Fare mix is key to calculating savings
Historic fare mix determines the spend-weighted Net Effective Discount
Share of Spend
Booked Fare Class
Discount Net Eff. Rate
10% J 30% 3.0%
20% Y 20% 4.0%
40% M 15% 6.0%
30% T 0% 0.0%
13.0%Net Effective Rate =
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Fare Mix Issues
Buyers use historic fare mix data
Airlines may use non-historic fare mixes when bidding
• Buyer’s calculation of Net Effective Rate, and savings, will differ from airline’s
No practical way to guarantee inventory availability – or the future fare mix
• Standard practice is to use last year’s fare mix
• But check with each airline!
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Airline Supplier MapS
pen
d a
t Fair
Mark
et
Sh
are
$3.0 MM
$0.0
Ability to Move ShareVery Low Very
High
DL
AA UA
Primary, or Tier 1
Secondary, or Tier 2
Tertiary, or Tier 3US AC
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Scenario Modeling is Critical
• Basis for modern airline sourcing
• Scenarios are “What if” options
• Typically involve Tier 1, 2 and 3 airlines• A.k.a. Primary, Secondary and Tertiary
• Can have Co-primaries, co-secondaries, etc.
• Easy to model alliances
• Calculates detailed carrier shares and buyer’s savings for each scenario
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scenario modeling
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Scenario Examples
• DL as Primary, Star as Secondary
• DL/AF/KL as Primary, Star as Secondary
• DL + AA as Co-Primaries, then Star
• Star as Tier 1, then DL + AA as Tier 2
• Avoid DL: Make FL/AA/UA/US as Tier 1
• Modeling tools test 50-250 scenarios
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Buyers Focus on Scenario Savings
Last year’s net program spend
- Scenario’s projected net spend
= Scenario Savings
Weaknesses:• Uses last year’s published fares and
last year’s fare mix• ** Understates savings when fares fall
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Sample Scenario Results (Illustrated)
Scenario ScenarioTotal Net Spend
Scenario Savings ($000s)
DL’s Net Spend ($000s)
1. DL, then Star 2,950 50 700
2. DL/AF/KL, then Star 2,940 60 600
3. DL+AA, then UA+AC 2,930 70 400
4. Star, then DL+AA 2,960 40 300
5. Avoid DL 2,970 30 200
Last year’s Program Net Spend was $3,000K
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Scenario Implications
Scenario Scenario Total Net Spend
Scenario Savings ($000s)
DL’s Net Spend ($000s)
1. DL, then Star 2,950 50 700
2. DL/AF/KL, then Star 2,940 60 600
3. DL+AA, then UA+AC 2,930 70 400
4. Star, then DL+AA 2,960 40 300
5. Avoid DL 2,970 30 200
Buyer prefers No. 3DL prefers No. 1
SkyTeam prefers No. 2
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Hotel Clusters 101
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How should you group hotels for negotiations?
Distance between hotels matters a lot
You want to group hotels into actionable markets
- Small enough to be create valid competition
- Regardless of artificial boundaries
Artificial boundaries:
•State borders
•City borders
•Zip Codes
•“Midtown”, “Downtown”
•“Near Airport”
NBTA Convention & Exposition | August 8-11, 2010
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Clusters are actionable markets
• Clusters are small areas, maybe 1-3 miles in diameter
• Clusters are built around your program’s high-stay areas
• Artificial boundaries (State, City, Zip Code, etc.) are ignored
• Clusters include non-preferred and unused hotels
• Clusters create actionable markets, much like city pairs
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Ignore Orphan Hotels!
Orphans are low-stay hotels outside cluster boundaries
They show up in TMC booking and credit card reports
• Ignoring orphans can eliminate 50-70% of booked hotels, 10-20% of Room Nights
• In no way weakens negotiations
• Significantly streamlines the Hotel RFP process
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NBTA Convention & Exposition | August 8-11, 2010Houston, Texas
Slide 1 detail (Arial 44)From a Hotel Usage Map…
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NBTA Convention & Exposition | August 8-11, 2010Houston, Texas
Slide 1 detail (Arial 44)To Hotel Clusters
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NBTA Convention & Exposition | August 8-11, 2010Houston, Texas
Slide 1 detail (Arial 44)Including Unused Hotels
21NBTA Convention & Exposition | August 8-11, 2010
Modern
Hotel Sourcing
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Hotel Sourcing’s Typical Annual Cycle
NBTA Convention & Exposition | August 8-11, 2010
Data Collection
RFPImplement
& Manage
Summer Fall / Winter Winter >>>
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The Missing Step: Sourcing Strategy
NBTA Convention & Exposition | August 8-11, 2010
Data Collection
RFPImplement
& Manage
Summer Fall / Winter Winter >>>
Sourcing Strategy
Summer
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Strategy Study’s Key Deliverables
Estimates the Major Savings Opportunities• Higher compliance to “as is” program
• Broader coverage (more preferred hotels)
• Less upgrading and/or more rate availability
• Better rate negotiations
• Realistic tier-down scenarios
Which then drives the Bid List• Depends on management’s appetite for savings
and change
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Socialize with Senior Management
=
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Clusters Create Meaningful Insights
Which clusters need more preferred hotels?
Which clusters have competitive alternatives?
Where is there non-compliant spend? Is it a rate problem?
Which clusters have lower-tier hotels? By how much do rates differ?
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Strategy Study Shapes Your Bid List
• Compliance savings > existing preferreds
• Coverage savings > add more preferreds
• Tier-down savings > bid lower-quality hotels
NBTA Convention & Exposition | August 8-11, 2010
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What’s the Total Cost of Stay? Models need:
• Prices for room rates - Last Room Avail., Non-LRA
- Best Available Rate (or AAA rate)
• Ancillary Costs (Internet, breakfast, parking)
• Utilization estimates for ancillaries
• Volume estimates per property
• Quality ratings (3 star, 4 star, etc.)
NBTA Convention & Exposition | August 8-11, 2010
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Some Key Metrics
Spend Under Contract $2.0 million (80%)
$0.4 millionNegotiated Savings
Average Discount x 20%
Average Hotel Quality 3.7 stars -10% YoY
Average Booked Rate $143 -22% YoY
Total Hotel Spend $2.5 M -30% YoY
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Drivers of Average Booked Rate
Quality tier of hotel (5 star vs. 4 star)
Preferred vs. non-preferred status
Room type
Negotiating process
Room night volume
Room availability
Local market conditions
Travel Managers are expected to
influence most of these factors
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Chain Fitting
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If you had $1 million in spend in these secondary markets…
Tacoma
Tampa
Toledo
Topeka
Tucson
Tulsa
NBTA Convention & Exposition | August 8-11, 2010
…Which hotel chain gives you the best coverage?
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Scenario Option
Risk ScoreExpected Savings
Quality
Policy Mgmt.
Relationship
Strategic Value
Discount or New Price
Projected Spend
X
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“Well, let’s look at our historic spend by chain”
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Evaluate chain-wide deals on Neutral Share – not just Actual Share
Strong Candidates!
Share of beds in the selected clusters
36NBTA Convention & Exposition | August 8-11, 2010
Know which chains
best fit your
program