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Dive into the realm of category management in travel procurement to optimize strategic sourcing and stakeholder engagement. Analyze category profiles, spend data, and supplier relationships for enhanced decision-making.
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Category Management Travel Category Kathy Briski, C.P.M., GTP February 14, 2019
Global Procurement Processes Source: www.strategiccomputing.ie ; www.accenture.com
Category Management – Where did it originate? • The term “Category Management comes from the retail industry. It is retailing and supply management concept in which the range of products purchased by a business or sold by a retailer is broken down into discrete group of similar or related goods. • These groups are known as product categories (e.g. breads, washing detergents, vegetables, etc.) • It’s a systematic, disciplined approach to managing a set of products as a strategic business unit. • Category management is gaining ground in public and private sectors. • Rationale is still the same; products or services that have similar characteristics and similar supply markets are group together and treated as a discrete group Source: www.stateofflux.co.uk, www.capgemini.com
Category ManagementNew Procurement Operating Model • Prior to 1990’s, procurement was a back-office function whose primary objective was purchasing and ensuring cost savings • Starting in the mid 1990’s, technology created options and new processes, giving way to an era of strategic souring (eSourcing) • Today, to take the organization to the next level, the first critical step is to advance skillsets, mindsets, and modes of operation - shifting focus to category management in order to achieve breakthrough value. • Category Management – Strategic operating model by shifting tactical work away from the category manager and delegating it to a qualified execution-focused team, it allows the category manager to focus on stakeholder management and category strategy development, the two key strategic elements. Source: http://www.sig.org
Key Category Management Principles Category Management Transition to Success Stakeholder Engagement Cross Functional Team Approach Strong Supply Market Knowledge Facts And Data Corporate Governance Source: http://www.procurement-academy.com
Travel CategoryCategory Profile Drives the Strategy Internal and external drivers are used to develop the subcategory strategies Internal Profile External Profile • Understand internal business drivers and budget forecasts • Survey internal stakeholders to help define category priorities. • Analyze total and sub-category spend • Define category characteristics • Analyze TCO drivers and levers • Evaluate external market capabilities and availability • Understand the predominant business models by subcategory • Match the supplier base to the required activities • Identify key industry trends which affect cost and service • Perform competitive Market Analysis Category Strategy • Sourcing sub-categories with market intelligence and benchmarking for negotiations with incumbents or RFP via traditional bid process • Perform demand management analysis in key maverick spend areas determining a plan of action for behavioral movement, either through better booking choices or utilizing Grace’s preferred travel agency • Capitalize on the implementation of Global Expense Reporting Solution (GERS) for compliance which is an integral part of our ongoing category management system
Travel Category Profile Internal Profile
Internal Profile - Spend The scope of the project includes all global spend within Company. Total Spend: $XXXM Observations • Total spend was obtained using a combination of travel agency data, commercial card data (corporate card, P-card, and PO System • Date range used was December 1, 2015 thru November 30, 2016, • The majority of spend for airline, hotel and car rental is in North America • Some meeting/events spend is reflected in the commercial card total, and possibly in the hotel spend, but not in airline and car rental spend. • Meeting/events spend is understated due to decentralized program • Divisional Breakdown (based upon Travel Agency data): • Division 1 - Airline 55%, Hotel 47%, and Car Rental 58% • Division 2 – Airline 31%, Hotel 33%, and Car Rental 27% • Corporate – Airline 14%, Hotel 19%, and Car Rental 15%
Hotel Chain Scales • For Domestic Hotel Bookings (2018) : • Total Tracked Spend: $XXM • 45% of spend in Upper Upscale. Average Nightly Rate: $145 • 30% of spend in Upscale. Average Nightly Rate: $125 • Business Travel News: 2018 Corporate Travel Index: $180.12
Travel Category Summary of Major Contracts Observations • All airline agreements contain no financial commitments. • All hotel sourcing is done yearly thru the hotel sourcing tool. Rates and amenities are accepted via the tool, hence no paper agreements exist and no financial commitments are contained. • Car Rental has not been competitively bid and is on the schedule to be competitively bid this year • All parking agreements contain no financial commitments and cover top cities of Company’s travel pattern
Travel Category Profile External Profile
Airline Industry: Overview 2018 Global Airline Industry: 2018 Revenue estimated to reach $824 Billion. North America is the industry leader. Key Points • 2018 Global Airline Industry revenue estimated to reached $824 Billion. • Total airline industry net profit in 2018 will rise to $38.4 billion, an increase of around 4.7 percent in 2017. • The bulk of the profit generated next year will come from North America where, according to IATA, airlines in the region are forecast to record a combined net profit of $16.4 billion. • Top five airlines hold an estimated market share of 73%. Source: airlines.org, IATA, Wikipedia, Statista.com, MarketWatch.com
Airline Industry: PPI (Producer Price Index) – Scheduled Domestic Passenger Air Transportation The PPI (measures average change in prices over time) for passenger air transportation. Source: http://www.bls.gov/ppi/ (NAICS 481111)
Airline Industry: Jet Fuel Costs Fuel is one of the largest cost contributor to airlines’ operating costs. Key Points • Global airlines reduced their fuel costs in 2017, these costs accounted for only 17.3% of their expenditures. • For 2018: it is estimated at 23.5% of their expenditures • For 2019: 24.2% • Jet fuel consumption has not increased as much as air travel because airline fuel economy has continued to improve. Air travel fuel economy generally increases as carriers review their commercial fleets to modernize them through purchases or leases of new, more fuel-efficient planes. • Current jet fuel pricing is $77.69 per barrel. • The Air Transport Association estimates that for every dollar increase in the price of jet fuel (a derivative product of crude oil), US airlines incur an additional $445.0 million in fuel expenses. Sources: Airlines for America: www.airlines.org, www.bts.gov, www.iata.org, www.statista.com
Airline Industry: Air Travel Price Index & Ancillary Fees Air Travel Price Index for Boston Key Points • The cost of airfare flying out of Boston has been consistently with the national average • Airlines found several ways to grow revenue without raising fares – a la carte pricing: from charging for select coach seat assignments, boarding after elite status members and baggage fees. • 2018 Airline ancillary revenue – ~$92.9 billion globally, a 12% increase from 2016 The air travel price index measures the percents change over time in prices paid by travelers. Sources: Bureau of Transportation Statistis, Ibisworld.com, Airlines for America: www.airlines.org; Plane Stats.com, CarTrawler Yearbook of Ancillary Revenue (IdeaWorks Company)
Advito 2019 Forecast: North America Airline Pricing Source: Advito 2018 Industry Forecast
Hotel Industry: Overview The US Hotel Industry Revenue reached $166.5 Billion in 2015. 2017 Global Operating Revenue and Net Income (in billions) Key Points • The global hotel industry revenue is estimated to exceed $560 billion for 2018 • The US Hotel Industry Revenue is estimated close to $200 billion in 2018 • Over the five years to 2020, IBISWorld projects that the industry will continue expanding, with particularly strong growth in the extended-stay hotels, boutique hotels, spa and health retreats and resorts segments. • In 2018, the four largest operators, Marriot Hilton, InterContinental and Wyndham account for an estimated 13.8% of industry revenue, excluding their franchised establishments. Source: www.IBISWorld.com, MarketWatch.com, Smith Travel Research
Hotel Industry: PPI – Hotels & Motels, Guestroom Rentals, Full Service The PPI for hotel rooms have continued to climb since 2010 NAICS 721110 All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/
Hotel Industry: Overview The US Hotel Industry Revenue reached $166.5 Billion in 2015. Key Points 2011 - 2018 US Average Hotel Rates • The average daily rate in the US for 2017 was $126.43 • Top chart represents the monthly average daily rate hotels from 2011 to 2018 • Bottom Chart: Airbnb: Does your Travel Program Allow It? Average daily hotel rate vs Average daily Airbnb rates in 2016(in U.S. dollars) • Hoteliers are looking for ways to sustain their growth as online private accommodations aggregators are flooding the market with new inventory. Marriott, Hyatt, and Wyndham are investing in home-sharing start-ups to combat Airbnb. • For 2019, US hotel prices are forecasted to rise between 1% - 3% • Business Travel News – Average hotel daily cost: $180.12 • Boston:Ranked 3 • Upper Upscale: $299.42 • Upscale: $300.50 • Midscale: $265.08 • Average Daily Rate: $302.85 • Taxes: $41.64 • Total: $344.49 GSA Rate: $169/night Source: Smith Travel Research.com’, Statistic.com, busman.com
Advito 2019 Forecast: Hotel Pricing Source: Advito 2019 Industry Forecast
SAMPLE Car Rental Industry: Overview USlindustry spend is $42 billion of which 25.1% is business travel. Key Points • US industry spend is $42 Billion of which 25.1% is business travel car rental. 52.3% is on airport rental and 22.4% is off-airport. • The industry is segmented by business travelers, leisure travelers, car leasing and car sharing • Leisure market has grown larger than corporate business market • IBISWorld expects industry revenue to expand at an annualized rate of 2.1% over the five years to 2021 to $47.9 billion. • Hertz and Avis continues to expand off-airport locations to compete with Enterprise • Investing in technology to compete with car sharing such as Uber and Lyft. Source: Ibisoworld.com, Auto Rental News, Business Travel News
Rental Car Industry: PPI – Passenger Car Rental The PPI for car rental has decreased in 2011 – 2017 but making a small increase in pricing for 2018 NAICS 532111 All indexes are subject to revision four months after original publication. Source: http://www.bls.gov/ppi/
Car Rental Industry: Market Share The U.S. car rental market is highly consolidated among a small number of major players and is getting smaller. Key Points Top 3 Car Rental Companies By Operating Revenue • Market share: • Enterprise – 35.5% • Avis/Budget – 15.2% • Hertz– 15.1% • Top 3 rental car companies control 95% of the US rental car market • Suppliers offer different brands that focus on specialized markets. • Corporate Traveler – On-airport convenience – Hertz, Avis and National • Leisure Market – On/Off-airport Budget, Dollar Thrifty, and Enterprise • Additional Non-US regional players include: • Europcar (Europe and Asia Pacific) • Sixt (Germany and EMEA) • In high risk countries such as India, China, Thailand, Latin America, etc. the business model is to rent a car with driver. Cost is less than a chauffer / limo as a typical rental vehicle is used Source: www.autorentalnews.com; www.ibisworld.com, Business Travel News, 2017 Corporate Travel Index, MarketWatch.com
Car Rental Industry: Average Daily Rates Key Points • Based upon Business Travel News Corporate Travel Index, the average car rental rate is $46.51 (including tax, fees, etc) in the US for 2018. • Car rental companies have implemented a variety of new ancillary fees to help preserve some of the lost revenue in recent times, such as tacking on fees to extend a reservation, eliminating 60 minute grace period, or increasing the cost of a two-day rental • “Virtual rental technology” – enables customers to reserve, rent, access and return cars just about anywhere. ZipCar, WeCar, Connect. • Business Travel News – Average daily cost: $46.51 which makes up 15% of the total travel costs. Boston: #5 • Compact: $36.62 • Midsize: $35.71 • Full size: $40.12 • Average Daily Rate: $37.48 • Taxes & Fees: 52.88% • Total: $57.30 Source:, Business Travel News, 2012, 2013, 2014, 2015, 2016, 2017, 2018 Corporate Travel Index, rentalcarnews.com
Uber/Lyftvs Taxi and Rental Cars Key Points • Rental Car vs Taxi vs Uber/LYFT • Based upon expense report provider, Certify, in Q22018 an average ride for Uber was $26 for Lyft $22.37 • End of 2016, Lyft gaining market share. • 2018: Uber 78.9% Lyft 21.1% • Both Uber and Lyft understanding what corporations need: Liability coverage, etc • Both are competing for corporations business Source: Wolfstreet.com, Certify.com, Verto Watch
Advito 2019 Forecast: Car Rental Pricing Source: Advito 2018 Industry Forecast
Travel Category Strategy Travel Priorities Category Strategies
Travel Category Projects Projects Category Strategies Quick Wins Optimize travel spend by reducing TCO Supplier Performance Assessment Contract Analysis Influence smart/informed travel decisions thru a) appropriate booking tool content and b) demand management Sourcing Events Utilizing the Travel Agency or on line booking tool to book travel Utilization of appropriate procurement channels Meetings/Events Analysis Traveler communication & training Corporate Social Responsibility / Social Media for the future traveler / Travel Apps
Travel Category Additional Opportunities
Strategic Road Map (Next Steps) 2020 Q3-4 2019 • Analyze Meeting/Events Program • Benchmark airline program • Airport Parking RFP • Traveler Risk & Security RFP Q2 2019 • Commence Competitive Bids for: • Car Rental • Travel Agency • Challenges & Issues: • Resources • Stakeholder buy-in Q1 2019 • Implement Quick Wins • Identify timeframe for sourcing events • Start Hotel Sourcing
