Orbitz Travel Blog
BTC TravelBlog
(McTravel @Orbitz)
February 4, 2004
After reading TravelBlog’s comments from the Business Travel News exposé on the PhoCusWright conference, I was reminded of the Orbitz/McDonald’s article that appeared in The Wall Street Journal a few months ago (10/28/03). I’m sure every BTC subscriber is familiar with the McTravel@Orbitz announcement that appeared in most of the Trade Press around the same time. However, when the WSJ told the tale of how McDonald’s Corp. was turning over most of their U.S. travel bookings to Orbitz, the entire business community got a peek into a possible emerging trend. The title of the story (Dropping the Corporate Travel Office) is about as ominous as the reference in the BTN/PhoCusWright piece – “the demise of the corporate travel management company.” Yet, despite such a foretelling headline, staff reporter Melanie Trottman, actually seems to be simply hinting at a possible corporate development. Ms. Trottman points out that McDonald’s move away from their traditional TMC (Carlson Wagonlit), to an online agency, is thought to be the first by a major corporation (certainly not implied by the headline). The article states that “… travelers have become as comfortable with booking online as with, say, ordering fast food at drive-thru windows.” Ironically, the last two sentences of this story also cite, with no further explanation of any of the variables, that traditional agencies charge $40 to $60 per transaction while Orbitz charges (the infamous) $5 for each online booking. I would guess more than a few corporate travel buyers were fielding calls from the executive suite after that story ran.
It would appear that McDonald’s has done their homework – actually conducting a nine-month test of the Orbitz for Business product and comparing the services to their current agency. Although this is a bold decision, I get the impression that the fast food giant is prepared and determined to make it work. The online model may also be right for some other large companies. However, approximately 38% of corporate America is known to change agencies every two years. This tendency means that online agencies will now have the same chance to get fired just like any other TMC. Some of the most common reasons for a company to switch agencies (according to Runzheimer) are the need for more skilled staff, better management information, and improved service – surprise, surprise! So, while a few firms like to be on the cutting edge, companies still need to apply the same procurement and business principles to travel vendor selection that are relevant to all other corporate purchases. Interestingly, Orbitz may not have passed the strategic sourcing muster of some companies. Many firms have very specific criteria that must be met in order for a supplier to become an approved vendor – but that’s another story!
The agency transaction fee is only one small component of the travel expense pie (typically, less than 5% of total T & E). Corporations should focus more on assessing all the expense basics to ensure that cost savings are being measured and maximized in every travel-related category. Optimizing policy, payment, compliance, and enforcement procedures will yield the bulk of cost savings. Some companies just don’t place enough emphasis on these nuts and bolts and, instead, look for some miracle fix (certainly not the case at McDonald’s). I remember a story that a seasoned travel manager once told me; in the middle of the RFP process, with all the major agencies vying for his company’s travel business, he was quoted as saying “the company doesn’t need to change travel agencies to save money; we just need to change travelers.”
The brand online agencies will be a factor in the corporate arena! These companies are well financed, have incredible travel content, industry clout, and the resources to quickly acquire the experience and services necessary to confront the marketplace. A recent BusinessWeek (12/12/04) article stated that from an investment perspective, “we expect the online agencies to win their fair share of corporate customers because of their recognized brands, easy to use Web sites, and cost advantages.” Every corporate win by Expedia, Orbitz, and Travelocity is going to get plenty of sophisticated spin and hype. Orbitz spent $83 million in the first nine months of 2003 on sales and marketing. Now, as a public company, they are likely to spend more in 2004. InterActive Corp., the parent company of Expedia, Hotel.com, and Hotwire.com, spent $500 million on marketing in 2003 and plans to spend $900 million in 2004. It is a sure bet that a good portion of those marketing resources will go towards growing their newly developed business travel units.
In the end, a corporation is going to retain the TMC (traditional or online) that best matches their culture, travel management objectives, and program requirements – at a reasonable price. These factors are constantly changing but a low transaction fee can often be a strong inducement. However, transaction fees can sometimes be over-simplified. For example, if a company that has $50 million (85,000 transactions) in air volume and pays $50 per transaction, the agency fee amounts to $4.2 million per year. Using the notorious $5 per transaction, the annual agency fee would supposedly amount to $425,000 for a difference of $3.8 million dollars. Now, that’s not how I would see things and travel managers certainly know the issues with that scenario. However, try explaining that to the CEO or CFO the next time PhoCusWright has a conference or the Wall Street Journal runs another story about a corporate giant who has just switched to an online agency.
Submitted by
Ed O’Connor
Corporate Travel Directions
294 Hunters Point Drive
Thousand Oaks, CA 91361
805.496.2733 Office
805.497.7033 Fax
www.ctdirections.com
