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For Business, Corporate Travel & Meeting Buyers & Arrangers

Tackling intangibles

Jonathan Hart looks at the widening gap between buyer and supplier - and what can be done about it

So far, it's close but no cigar. In a unified, automated and clear-cut world, business travel professionals might be able to safely distance themselves in the consumer mindset from, say, politicians or bankers for working transparency and integrity, and be viewed by outsiders as trustworthy brokers fronting a competent, accountable industry that does precisely what it says on the tin.

The ideal situation, for both businesses and their customers, would be to say that what you see is what you get. This, though, is sadly not the case because, of course, nothing is all that unified, automated or clear-cut. This is an infinitely variable sector that arguably remains as fragmented and inconsistent in its relationships and delivery as it is in collectively convincing financially-pressed end users of its overall value proposition - not to mention being susceptible to the same human foibles and fudging as politicians, bankers or any other network tempted, under scrutiny, to blur the edges of clarity or skirt good practice in an acutely inquisitive, expense-sensitive age.

It doesn't help, in potentially double dipping economic times that, for all its focus on cost-cutting solutions, business travel revolves around much that depends on clients trading up, requiring a leveraging of outlay on travel and entertainment (T&E) that otherwise might be considered extraneous or surplus to immediate requirements.

Still lacking in uniformity and interfacing, driven by fierce competition and pivoting on constituents that are either perishable or of questionable investment, the net result is an industry intrinsically subject to tailoring or manipulating products or programmes to fit the constantly shifting dynamics of the day. Forced, so it might appear to cynics, to promising more than it can practically deliver to underscore its role as a select but essential facilitator.

There is no question, thanks largely to technology, that all segments of business travel have taken a quantum leap forward in professional acumen and client servicing efficiency since the industry's formative years as a somewhat glorified and commission-dependent niche - the inventor of the upgrade and provider of the proverbial curtain of rebated product and service privilege separating the big volume, higher yield company or loyalty scheme travellers from the rest.

Yet for all its peripatetic partnerships, solution expertise and ongoing investment in technological tools, together conjuring up an almost daily litany of fresh acronyms and intellectualised consultative jargon, brand business travel still appears to be hamstrung by a buyer/supplier divide in who is directly responsible for what in achieving the holy grail of universal, cohesive and fault-free end-to-end processing.

This is chiefly, argue technology providers, because a combination of exclusive distribution demands, fragmented channelling, manual tinkering and human error remain part of overall bookings systems that, for corporate buyers in particular, can and should be touchless and foolproof - an online process that stands as a primary raison d'être in optimising client spend and providing a guaranteed firewall against non-compliant employee travel or unauthorised expense.

One remaining obstacle to corporates achieving this comes from hotels which, along with meetings, comprise an industry segment in which said corporates now insist their spend must be properly audited as part of overall T&E trimming. They are demanding full accountability for every penny spent.

The trouble is that hotels, by and large, are not the most compliant of industry partners, mostly being geared to maximising occupancies and rates by the market conditions of day rather than adhering to a contracted period. By nature, they hold a wide and variable distribution brief and, having invested heavily in individual or group property yield management systems, owe first allegiance to these, according to Margaret Bowler, director for global hotel relations at HRG.

Also, in a market populated by so many different third-party channels, they have little interest in further investing in corporate-specific technology solutions.

This leaves the funding onus on the buyer to resolve a main auditing problem stemming from hotels being notoriously late or inefficient in loading or incorrectly loading negotiated rates, often manually and laboriously, on to global distribution systems (GDSs).

Partly as a result of the recent recession, when disposable corporate T&E has been as rare as hens' teeth, Bowler is one of a number of leading travel management companies (TMCs) or corporate travel managers to challenge the inconsistencies in hotel booking practices.

In essence they suggest that some hotel companies continue to be misleading at the request for proposal (RFP) stage, subsequently closing out pre-negotiated inventory or switching corporate clients to higher yield room categories without warrant or warning. A tactic, they claim, that represents a failure by hotels to meet their contractual obligations, resulting in often unaccountable and untenable extra spend.

"This is an age-old issue going back many years and likely to be around forever because, at heart, it combines rates with supply and demand which are cyclical," says Bowler.

"If the agreed rate for the applicable time is not on the GDS or is loaded incorrectly, which often can be the case, it creates no end of difficulties for corporate clients," she continues. "It confuses operations, deflates the expectation, distorts the process and reflects badly on everyone involved."

With hotels operating different systems and sometimes different rate indicator codes, this means that pre-agreed room prices or allocations can literally disappear into the ether, with different rooms allocated or higher rates charged. Moreover, after the event, the buyer has little chance of reparation unless he or she constantly monitors and audits the initial deal struck.

In tracing what rate should have been applied and when, the buyer can also face ancillary problems such as sifting through site 'squatters' (rates loaded by hotels not authorised to be in a programme), says Bowler.

An added difficulty is the application of last room availability (LRA) to programmes, now regarded as a must by many corporates. Different hotel groups have different interpretations of LRA and how and when it applies, Bowler says.

Robert Milburn, leader of hospitality and leisure at PricewaterhouseCoopers, says: "It can be disconcerting, to say the least, when the last available rate turns out to be, for instance, a best available rate or more expensive rate on the day. You need to agree at RFP precisely what is meant by LRA and how it is going to be applied."

Clare Murphy, director of T&E technology solutions at advisory firm Bouda, says: "All being fair in love and war, you can't really apportion blame on either side of the buyer/supplier divide when both are fighting to maximise revenue in tough times.

"While corporate buyers can't be blamed for turning the rate screw and squeezing the last drop of value out of their hotel contracts, neither can hotel revenue managers for optimising yields wherever feasible."

She says it's true that hotels can still be painfully slow in loading negotiated rates on to multiple central reservation systems (CRSs) and GDSs, sometimes lagging up to three months or more into the period when those rates should have been applied.

"If, for example, the rate sourcing is conducted, as is common, in September or during the last quarter of the previous year, it can take up to March or later in the following year, rather than from January 1, for hotels to load those rates," Murphy says. "And, because it's usually a manual process, it's prone to human error."

Ultimately, she adds, the onus is on both buyer and supplier at RFP to ensure, on a frequent basis, that the preferred rates are firstly loaded, then loaded correctly, and then correctly applied on every occasion as agreed. They also need to fully understand between them what each means by LRA.

Murphy says that, to date, most automated auditing solutions on the market are individual or group company-centric and limited in distribution reach.

However, she says, one that isn't is Lanyon's Rate Integrity tool. Texas-based Lanyon is an independent company specialising in RFP content and distribution solutions, providing tools for corporations, TMCs and agencies to manage their transient, group/meeting and engagement/project hotel spend.

Introduced last year, Lanyon's tool interfaces with all major distribution channels and enables corporate programme managers to automatically check their negotiated rates in booking systems to ensure they are loaded, at the correct rate, and available for nominated travellers from data pulled directly from individual RFPs.

Cost is on a per-transaction basis with a rough estimate that US$10 could be saved for everyUS$1 spent over a contractual season.

The tool not only audits rates but, according to Lanyon's chief commercial officer Michael Boult, can also follow up with hotels and chase rate loading, enabling managers to create a customised review window, check all preferred rates and send automated emails to properties, noting what days they failed to offer the rate and in what GDS.

Roland Tanner, Lanyon UK's Oxfordshire-based chief operating officer, says that one advantage of Rate Integrity is that Lanyon also encourages the hotel suppliers to provide rate loading and auditing solutions. In other words, its working credentials cover on both sides of the equation.

"One of the big mistakes for corporate buyers at RFP is to negotiate with a hotel's sales team rather than its data revenue management team," says Tanner.

Doing the latter helps to counterbalance the 'screen-scraping' process from negotiations and discussions around publicly quoted web rates. He says rate-parity tests indicate that 20 per cent to 30 per cent of negotiated rates are up to 40 per cent higher than publicly available prices. Having hotels reduce their prices to even match publicly available prices can yield savings of up to five per cent on spend.

Tanner adds that independent research suggests ensuring rates are fully loaded represents another two per cent saving in itself and with rate availability proving to be a problem with about 15 per cent of agency transactions, up to two per cent more can be recouped with the tool.

He says: "Our return on investment [ROI] indicator shows that not using the Rate Integrity solution could cost a client up to 30 per cent or more of their expected savings, representing between three per cent and eight per cent of their spend."

While Lanyon claims positive industry take up of its Rate Integrity product, it remains to be seen whether corporate buyers generally will adopt and fund automated auditing solutions they claim is the responsibility of hotels to provide.

In the meantime observers might hope that, to improve credibility and plausibility, the industry collectively puts its automated house in order and plugs the accountability gap.