1 NBTA Convention & Exposition | August 8-11, 2010 Houston,
Texas Travel Procurement Workshop Scott Gillespie Author Gillespies
Guide to Travel+Procurement NBTA Convention & Exposition |
August 8-11, 2010
Slide 2
2 MODERN AIRLINE SOURCING
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3 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
Slide 4
4 Fair Market Share (FMS) A.k.a. QSI, or neutral share, or
share of lift Best estimate of carriers 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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5 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 DiscountNet Eff. Rate 10%J30%3.0% 20%Y 4.0% 40%M15%6.0%
30%T0%0.0% 13.0% Net Effective Rate =
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6 Fare Mix Issues Buyers use historic fare mix data Airlines
may use non-historic fare mixes when bidding Buyers calculation of
Net Effective Rate, and savings, will differ from airlines No
practical way to guarantee inventory availability or the future
fare mix Standard practice is to use last years fare mix But check
with each airline!
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7 Airline Supplier Map Spend at Fair Market Share $3.0 MM $0.0
Ability to Move Share Very LowVery High DL AA UA Primary, or Tier 1
Secondary, or Tier 2 Tertiary, or Tier 3 US AC
Slide 8
8 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 buyers savings for each
scenario
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9 9 scenario modeling
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10 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
Slide 11
11 Buyers Focus on Scenario Savings Last years net program
spend - Scenarios projected net spend = Scenario Savings
Weaknesses: Uses last years published fares and last years fare mix
** Understates savings when fares fall
Slide 12
12 Sample Scenario Results (Illustrated) Scenario Scenario
Total Net Spend Scenario Savings ($000s) DLs Net Spend ($000s) 1.
DL, then Star2,95050700 2. DL/AF/KL, then Star2,94060600 3. DL+AA,
then UA+AC2,93070400 4. Star, then DL+AA2,96040300 5. Avoid
DL2,97030200 Last years Program Net Spend was $3,000K
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13 Scenario Implications Scenario Scenario Total Net Spend
Scenario Savings ($000s) DLs Net Spend ($000s) 1. DL, then
Star2,95050700 2. DL/AF/KL, then Star2,94060600 3. DL+AA, then
UA+AC2,93070400 4. Star, then DL+AA2,96040300 5. Avoid DL2,97030200
Buyer prefers No. 3 DL prefers No. 1 SkyTeam prefers No. 2
Slide 14
14 Hotel Clusters 101
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15 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
Slide 16
16 Clusters are actionable markets Clusters are small areas,
maybe 1-3 miles in diameter Clusters are built around your programs
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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17 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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18 NBTA Convention & Exposition | August 8-11, 2010
Houston, Texas Slide 1 detail (Arial 44) From a Hotel Usage
Map
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19 NBTA Convention & Exposition | August 8-11, 2010
Houston, Texas Slide 1 detail (Arial 44) To Hotel Clusters
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20 NBTA Convention & Exposition | August 8-11, 2010
Houston, Texas Slide 1 detail (Arial 44) Including Unused
Hotels
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21 NBTA Convention & Exposition | August 8-11, 2010 Modern
Hotel Sourcing
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22 Hotel Sourcings Typical Annual Cycle NBTA Convention &
Exposition | August 8-11, 2010 Data Collection RFP Implement &
Manage SummerFall / WinterWinter >>>
Slide 23
23 The Missing Step: Sourcing Strategy NBTA Convention &
Exposition | August 8-11, 2010 Data Collection RFP Implement &
Manage SummerFall / WinterWinter >>> Sourcing Strategy
Summer
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24 Strategy Studys 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 managements appetite for
savings and change
Slide 25
25 Socialize with Senior Management =
Slide 26
26 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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27 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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28 Whats 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
Slide 29
29 Some Key Metrics Spend Under Contract $2.0 million (80%)
$0.4 millionNegotiated Savings Average Discountx 20% Average Hotel
Quality3.7 stars -10% YoY Average Booked Rate$143 -22% YoY Total
Hotel Spend$2.5 M -30% YoY
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30 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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31 Chain Fitting
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32 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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33 NBTA Convention & Exposition | August 8-11, 2010
Scenario Option Risk Score Expected Savings Quality Policy Mgmt.
Relationship Strategic Value Discount or New Price Projected Spend
X
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34 Well, lets look at our historic spend by chain
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35 Evaluate chain-wide deals on Neutral Share not just Actual
Share Strong Candidates! Share of beds in the selected
clusters
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36 NBTA Convention & Exposition | August 8-11, 2010 Know
which chains best fit your program