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Automation Negotiations, Default Protection and More

Automation Negotiations, Default Protection and More. CBTG 2009 Annual Group Meeting. Rose A. Haché Attorney at Law Telephone:(713)621-7253 E-mail: Hachelaw@aol.com. GDS Contracts. Accept lack of predictability Marketplace is in transition Clients range from $1M to $7B

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Automation Negotiations, Default Protection and More

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  1. Automation Negotiations, Default Protection and More CBTG 2009 Annual Group Meeting Rose A. Haché Attorney at Law Telephone:(713)621-7253 E-mail: Hachelaw@aol.com

  2. GDS Contracts • Accept lack of predictability • Marketplace is in transition • Clients range from $1M to $7B • No “typical” client

  3. Background GDS Contract • Length of commitment: 5 years • Productivity payments allowed • Mandatory participation by carriers • Loyalty could not be enforced Old Framework of DOT regulations

  4. Background on Today’s GDS Contract Old Framework of DOT regulations • Override connection to GDS deal prohibited • Co-terminus provisions part of contracts = restrictive covenants • Shortfall penalties part of productivity formula

  5. Current State of Marketplace • The importance of the agent has been the shocker. • Global capabilities are crucial. • Legacy GDS companies will aggressively protect their investments.

  6. Marketplace News • Aggressively Protect Contract Terms • UAL Credit Card Impact • Looming Summer of 2011 increase to $.80

  7. Today’s Contract Negotiations • Menu of optional services • Monthly cost-check • Contract commitment 1-7 years • Requirement for exclusive use, or percentage • Negotiate shortfall fee • Automatic renewal on adding equipment-Co-terminus provisions need to be added • Negotiate payback (pro-rate) • Include aggregation clause Range of contract terms:

  8. Today’s Contract Negotiations Particular Revelations: • Verify NWA lack of full integration on Amadeus affects exit row seats & FF • Travelport GUI Environment early to mid-2010

  9. Today’s Contract Negotiations • Negotiate shortfall, $.80 Content Fee, upfront payback and future fee impact • Promise longer contract if a perfect deal • Insert co-terminus clause • Negotiate Aggregation Clause

  10. Today’s Contract Negotiations In exchange for future opportunities: • Higher incentives • Explore ability to tie particular airline to higher incentive • Tailor incentives to favor preferred airlines

  11. Negotiation Strategy Key Questions: • Where do you see yourself one year from now? Three to five years from now? • How many segments do you realistically see producing over the next 12 months? 36months? 72 months? • Impact of Funjet type Web sites or UAL credit card on segment production

  12. Negotiations Strategy Do you start with your existing GDS? • Excellent beginning... • Call GDS competitors, when and if truly interested in converting. • Request 3 references of similar size and mix agencies: What were the pleasant and unpleasant surprises?

  13. Negotiation Strategy Ought you deal with more than one GDS? • Yes. If serious, test the waters. • Travelport will pursue new business. • Amadeus remains generous in every way. • Sabre adjusts to the marketplace, and often preferred for government business

  14. Negotiation Strategy Is it best to switch to increase inducements? Conversions: • Tolerance for change • Verify how segments are counted • Compare multi-leg ticket pricing/convenience, group bookings and ticketing, vendor (Amtrak) variations

  15. Negotiations Conversions: • Content/participation comparisons of air, cruises, tours, hotels • Do not assume: equal content capabilities • Inquire: How long are your full content contracts with my most important carriers?

  16. Negotiations Conversions: • Impact on productivity and efficiency • Get their best trainer who “speaks” both languages • Obtain and split bonus for employee time devoted to training

  17. Negotiations Conversions: • Check references • Some employees will embrace the change • Impact on productivity and efficiency • Data-merge must be perfect • What is your plan if it is not?

  18. Negotiation Strategy How long before your expiration date should you start to talk? • If no shortfalls-12 months if 50,000+ segments • If in shortfall-ASAP • Otherwise, 4 months….

  19. Shortfalls or Need for Change • Verify count • Do not procrastinate • Be friendly and direct • Delete what you don’t need or can’t afford • Re-contract or innovate a response

  20. Negotiations At what point do I contact a lawyer or other consultant? • Once you have the offer(s) call. • Some lawyers do more than just legal terms, and will coach you on economic incentives available for agencies with your production. • GDS Contracts are legally enforceable.

  21. Negotiations Get organized: • Data on past 12 months of segment production • Know your expiration date(s)-GDS and space

  22. Negotiations Get organized: • Will you need a free move? • How long is the perfect term? Coordinate with space lease term? • Check Virtuoso(Sabre), Odyssey(Travelport) and other deals… create your own LLC collaboration.

  23. Negotiations Get organized: What will my monthly bill look like under the new contract? Zero? • Scan numbers and impact of robotic software • Unbundled scan or bundled scan? • Variables cost?

  24. Negotiations • Software interface issues with chosen GDS • Commercial account requirements • Supplier requirements: Luftansa • Consider market share issues

  25. Financial Incentives • Cash signing bonus ranging from 4 to 6 figures • Address no de-installation charges

  26. Financial Incentives • Tiers: Ranges go from $.20 up to $2.85+/segment • Verify incentives start from #1 • Cumulative option: continue, renegotiate, or terminate the agreement • Backdate contract to recoup segments

  27. Financial Incentives • Verify no shortfall penalties or how to get there • If cash upfront, limit threshold to zero, provided loyalty percentage is met • Free move • Protect against debit memos: Auto price protection?

  28. Financial Incentives • Technology Fund • Acquisition Fund

  29. Financial Incentives • Development of Affiliate Program • Premier Account Status-Beta testing • BBR Booking credit

  30. Financial Incentives • Payment now due under old contract • Spend soft dollars • Waive penalties for re-contracting • Address services not used ex. Microfiche $26/month

  31. Financial Incentives Three rounds to obtain best offer

  32. Legal Amendments Verify meeting within 30 days to renegotiate contract if certain events occur: 1. Substantial Loss of Business 2. Loss of Individual Account 3. Loss of Particular Carrier

  33. Legal Amendments • Industry event • Technology change • Loss of Content • Period to review and object to the setoff

  34. Legal Amendments • Confidentiality language to protect travel agency’s database, pnrs, E-mail addresses, and contacts • Co-terminus language protection • Mirror indemnity language

  35. Legal Amendments • Options: Impact of potential Participant revenue reduction • No charge for deinstallation at end of term • Cessation of Business/Shutdown Clause

  36. What keeps the Company President awake at night?

  37. Client’s failure to pay $9,000, or $90,000 or hundreds of thousands of dollars • An independent contractor creates $150,000 in debit memos • Supplier default • UAL Credit Card Policy Affecting Everyone

  38. Use legal tools available to retain profit!

  39. Qualify the Client • What information do you collect about corporate accounts? • Do accounts submit an application for credit? • Do you conduct a credit check? • Have you updated your database for authorized travelers?

  40. Travel Services Agreements

  41. Travel Services Agreement Ideas • Right to offset-Deduct for defaults in payment against compensation due • Require a list of authorized travelers • Late payment provisions-add interest • Cancellation fees included • Anti-raiding provision

  42. Travel Services Agreement Ideas • Self-settling credit card • A/R on a 10 day to 30 day cycle-spell it out • ACH Options-Carefully understand it…

  43. Security Features • Personal Guaranty • Letter of Credit • Escrow

  44. Independent Contractor Debit MemosMicrocosm of a Corporate Account Qualify with a credit and background check: • Former travel agency owners • Top producers • Former employees of other agencies Written contract should spell out payment terms, including an offset provision, consent to apply charge to their credit card, and a Personal Guaranty.

  45. Failure to Pay • Cut off: Internal control • Documentation • Persistence • Face to face meeting • Final Resort: Need the written agreement and proof of use of services to successfully sue.

  46. Supplier Defaults

  47. Supplier Defaults • Credit cards-Fair Credit Billing Act • Escrow Account-Viking River Cruises • Pay net, deducting commission • Sell default protection insurance-No documents without insurance or a signed waiver • Preferred Vendors • Keep current with CNN Air Travel Update

  48. Insurance Availability • Independent provider • Bundle cost/include insurance • Implement execution of waivers • Document with e-mail • Non-preferred supplier form

  49. UAL’s Credit Card Policy • Sell another carrier & focus on booking patterns. • Obtain client’s written consent to charge credit card and do it on the UAL web site-Direct responsibility by UAL if there is a problem… • Eastman AutoLink solution? • Impact on GDS and card issuers

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