Are Airlines Leveraging Loyalty Programs To Change Corporate Buyers Behaviour?

Recently, United announced a change to its frequent flyer program, which they called United Plus. The concept of the change is simple, travellers now will be rewarded miles based on the dollar value of their tickets, rather than the distance they travel. This comes on the heels of a similar announcement by Delta. Other airlines are expected to join the band wagon soon.

This change signals a new round of friction between corporate buyers and the airlines. In a love - hate relationship between the two sides, the dust hasn't yet settled from the fuel surcharges, baggage fees, air fare increases, and many other contentious subjects, here comes a new element that could cause change in the behaviour of corporate buyers. 

The corporate buyer, who is buying the tickets, has had no incentive to buy more expensive tickets, until now, as the more expensive the ticket, the more miles the buyer will obtain. Surely, the buyer will personally gain from the increase in the amount of miles they are accruing, and so do the airlines as they will benefit from the increase in revenue. 

The only outsider to this win-win situation is the travel or procurement manager at the corporation paying for the travel. They are faced with an invisible hand influencing the behaviour of their buyers when they are making buy decisions, which could undermine their efforts to optimize their travel programs, and achieve their savings goals.

Both airlines and travel managers need to discuss the shift transparently. It is in the airlines best interest to educate and explain to travel managers the value of the change, and the implications it will have with respect to their travel programs. Travel managers should be part of the win-win situation. They need to understand how this shift will help them with their optimization goals, and if not, how to use tools at their disposal to strategically combat any buying behaviour shift, without putting their partnerships with airlines, their corporate program goals, and their own travellers's satisfaction at risk. 

This loyalty program change will prove to be a major shift in the industry, and corporate travel programs must adapt accordingly.

How Does Cloud and VM Technology Help Modern Organizations

Deploying Cloud and VM (Virtual Machines) technologies has a number of advantages and benefits to modern organizations, regardless of their size and geographical distribution. Main benefits include:

• Focus on core business without the distractions of managing a complex IT infrastructure 
• Transform investments in corporate IT systems from capital expenditures into operating expenditures 
• Possess a flexible and more responsive IT infrastructure 
• Save much needed cash by outsourcing their hosting needs 

1. Focus on core business without the distractions of managing a complex IT infrastructure

Unless your business is in IT, you are much better off spending your time and energy focusing on your day to day operations. Information Technology has grown more complex and demanding during the past few years. This has increased a great pressure on senior management to keep up to speed with the new IT innovations causing them to spend time and money on new IT initiatives, or maintaining existing infrastructure. Time and money that would be better spent on the core business. By partnering with a reliable Cloud computing or VM provider, you will have a technology partner that proactively assesses your needs, and works with you on determining the optimal technology solutions your business needs. Such partner will set up your own VM environments, help you with deploying your solutions, and keep monitoring and hosting your VM environments.

2. Transform investments in corporate IT systems from capital expenditures into operating expenditures
Cloud computing offers your CIO the opportunity to convert investments in corporate IT systems from capital expenditures into operating cost. This creates more funding options for deploying new systems, and may benefit companies with limited capital expenses targets. Leveraging Cloud computing and SaaS model would enable companies avoid making multimillion dollar upfront investment in software licenses and computer room servers, by arranging to pay for the same capabilities with monthly per user contracts.

3. Possess a flexible and more responsive IT infrastructure

If your operational need requires that you add a new server to your IT infrastructure, there is a lead time (in many cases could be significant) to get the necessary approvals and funding to procure the new server, in addition to the shipping and set up time. Furthermore, you may not need the full capacity of the server, or the need could be for a simple pilot deployment that you are not sure if this could turn into a permanent hosting need. Deploying Cloud or VM technologies will help you by having any extra needed hosting capacity available to you at anytime (setting up could take from a few hours to a maximum of a few days with quality vendor), and for as much time and capacity your business needs. Hence, Cloud and VM technologies are ideal for a growing organization, as well as, for new pilot enterprise software initiatives that need high responsive IT infrastructure.

4. Save much needed cash by outsourcing their hosting needs

Maintaining a current and an efficient IT infrastructure is very costly undertaking that could deprive your business from much needed cash. Typical IT budget include allocation for hardware, software, licensing, and retaining experienced IT personnel to manage and administrate your IT infrastructure. If you are a small to medium sized company in a growth mode, deploying Cloud/VM solutions could help you focus your cash resources on your growth attributes rather than stretching your budget thin trying to build a strong IT department. Furthermore, if you are in a competitive industry, Cloud/VM technologies could provide you an edge over your competition by enabling you to cut back on your IT budget by outsourcing your hosting and infrastructure maintenance to trusted partner.

Doomsday in 2012? What Should Investors Do

Every weekend, I enjoy a nice evening with a circle of my close friends. We talk about our week, life, and businesses. Yet, the most important topic that attracts our attention is the stock market. When markets are up, we have an upbeat evening, with everyone bragging about a story that showcase his unparalleled intelligence, and heroic action in realizing a nice profit through making a few trades in the stock market. On the other hand, when markets are down, men turn into castrated stallions, hurt by a stranger’s hand that permanently mutated their financials, crying conspiracy of investment banks, blaming hedge funds and big rich guys and governments for their financial misery.

If you follow the news recently, you have an idea how our recent soirees have been. A friend would promise that he would never touch the stock market again, while the other, in violent agreement, curse the day he opened a trading account. While my portfolio has been hurt, like any other investor in the market, thanks to the recent financial gyration of world financial markets, and the incapability of world politicians in handling their respective economies, I would like to pause and think about the recent world events from a different lens. A very unconventional one…

2012 is around the corner. If you are a bookworm, like myself, you have probably come across some of Nostradamus prophecies, as well as, Mayan predictions of doomsday events to occur in 2012. While it is conceivable to shrug off these predictions as storytelling, and baseless soothsaying, they have certainly captivated the imaginations of millions of people around the world, including prominent thriller writers, Hollywood producers, and of course, conspiracy theorists. I wonder why real-deal investors haven’t really taken these predictions seriously?

The commonalities of the above-mentioned prophecies stipulate that 2012 would witness the end of the world as we know it. We need to focus on the “as we know it” a little more. With the European Union on the verge of collapse, and the United States on the brink of potential debt default, it seems very realistic to assume that both events – if materialized - would have drastic implication over the Chinese economy as well, since China is the largest debt holder of US treasuries, as well as, USA and EU are significant contributors to the Chinese economy as they are its largest customers. In the Middle East, a new reality is being shaped up with the collapse of authoritarian regimes with the rise of the voice of its people, and the struggle between Israel and Palestine is taking a new turn with the Palestinian application for statehood. In Africa, a growing famine and lack of water supplies, could instigate a water war that no one could determine its outcome or implication. All of these events, while not certain to materialize, we can agree that they are not pure fiction, and could occur in – let’s say – year 2012, prompting a true change to the world “as we know it”!

Indeed, if the stars aligned with the above-mentioned unlikely events, spurring some unforeseen natural disasters and calamities, like the Japanese tsunami, or Icelandic volcanoes, we could be in for a very bumpy ride that no economy, or individual would be immune from.

While I don’t possess any crystal ball that confirms that any of the above events are imminent, nor I consider myself a chicken little running around screaming the “sky is falling”, I surely attempt to answer some nagging questions. How should a small investor prepare for such a speculative doomsday scenario? How could we survive financially such hypothetically sweeping times that no history book can offer us any insight or guidance?

In my humble opinion, the near future would be all about survival. If you imagine yourself locked down in a disaster scenario at your home, what would you need to survive until the community is back up, and the economy is re-ignited? You would need: food, water, and oil for energy. You may need as well some medicine to keep you healthy. If I translate this survival need into investment jargon I would say the investment landscape in the near term would benefit the recessionary proof companies in pharmaceutical, food and food commodities, and oil and gas sectors. These are the essential services that people would continue to require regardless of the geo-political or economical environment state.

The next question would be, how to invest in these sectors? Should we buy stocks of these companies like we do in the world “as we know it”? What would happen to the companies if the doomsday scenario prevailed? What would happen to the US dollar? What would even happen to the shipping companies, railroads, and other essential services that we rely on to transport all that we need?

Since I am no Nostradamus, I have no mechanism to know the answer to any of the above questions. You could; however, start with a trip to your local Costco store and stockpile some of the physical food and beverage containers and store them in your basement. Nevertheless, for now, I am sticking with stocks.

I think that buying stocks during these uncharted times offers the minimum risk for a very simple reason; if doomsday were merely a figment of some ancient civilization’s imagination, then things would turn around nicely to investors’ favor. If doomsday were indeed a reality, and here to stay, then investors would be bound to lose their money in anyway – in best scenario…

How to Control Corporate Hotel Program Compliance (Hotel Compliance 4 of 4)

Most organizations control their corporate hotel program compliance - or at least try to influence it - by setting up the following 5 pillars that together provide the appropriate infrastructure to manage travel and control spend and compliance:

• Comprehensive travel policy
• Mandate the use of a global corporate card
• Mandate the use of a designated travel management company (TMC)
• Implement an online booking tool
• Generate consolidated reporting and dashboards

Travel policy

Almost all of the organizations with a travelling population has some form of a travel policy. A travel policy could be a simple document of 2 pages, or a rather complicated policy with more than 20 pages. It really depends on the nature of the organization, and how it would like to control its travel.

A good travel policy should include enough information for the travelers to lead them to be compliant. Although, having a good policy does not automatically mean that the organization would end up having high compliance ratios. What I mean by enough information to comply would include information about at least the following - from Hotel perspective (not including air, car, and meal):

• Who is the travel manager
• How to book hotel (corporate TMC, online booking tool)
• Where to find preferred properties (corporate directory, TMC, online booking tool)
• What to do in case no preferred property was available (lowest logical fare)
• How to pay for travel (authorized form of payment)
• How much to spend (per diem, lowest logical fare)
• How far in advance the traveler need to book (if possible)

Corporate Card to capture spend

Nearly all of the Fortune 500 organizations have a mandated corporate card that is used to capture all company and travel related spend. However, in reality, not all of them actually mandate the use of the cards for travel, which is really surprising.

Some companies do not aggressively force their employees to use the corporate card, and allow - even unofficially - the use of personal credit cards and other forms of payment to pay for business travel. This kind of lack of discipline could effectively render any compliance measurement or control diluted and ineffective. All spend that is not covered by the corporate card becomes invisible to the Travel Manager and is out of any reporting structure. Hence, the reported compliance ratios and spend level could be artificially high (or low) if significant spend is not captured on the corporate card.

The organization would lose, as well, great opportunity to gain better pricing at hotels if significant spend goes without appropriate tracking. For example, if the organization spend at a certain property $1 million, but half of that spend is not tracked on the corporate card, the Travel Manager may not be able to prove to the hotel the actual amount of spend at the property and end up getting a much lower deal than would be the case if he/she was able to prove the $1 million level.

Some companies may rely on expense reports to get a more realistic level of spend, but that in my opinion a lost opportunity. Until now, expense reporting - in many cases - are manual, less accurate, and prone to human error than what many corporate card companies are offering in terms of spend reporting accuracy. So, if your organization has a corporate card program in place, I strongly recommend that you mandate the spend through the card.

Having said that, we need to acknowledge that for global companies that could be difficult to attain across the board. In many cases, there could be some limitations to the use of corporate card in certain countries or regions due to coverage issues, financial systems, or even to cultural differences. Remember that what works in the United States does not have necessarily to work in China or Chile.

Travel Management Company

Hiring a Travel Management Company (“TMC”) is the third pillar for any organization to manage travel and control its travel and entertainment spend. A TMC could be any of the mega agencies recognized globally (like America Express, HRG, or BCD Travel), or it could be a more regional, smaller scale agency. It really depends on the organization and its travel patterns to determine what size and type of TMC it needs. However, all TMC’s serve the same purpose, that is, to help the Travel Manager in executing the travel strategy of the organization.

Typically, TMC’s could help organizations with the following:

• Booking travel
• Providing support to corporate travelers at home and on the road
• Supporting in the hotel program RFP, and sourcing room nights
• Rate audit (making sure that preferred rates in the GDS systems are accurate)
• Providing reporting on booking

Organizations may choose to go with a large global TMC, or with a smaller regional TMC; however, I strongly recommend, especially for global corporations to consolidate their travel business as much as possible. It is easier and more efficient for the travel manager to handle, it would provide a more efficient way to control travel spend, and conduct proper reporting. In many cases I have seen strong reporting coming from USA or Canada for example, and fragmented reporting from Asia Pacific region. Naturally, you will end up having a stronger program in the regions providing strong reporting, and more challenges in those markets with fragmented travel providers.

Online booking tool

Online booking tools are key to enable your travelers to comply. Not only you can control what properties and rate the travelers see when they are actually booking, but also, you can insert relevant messages pertaining to your travel policy that would aid the traveler in making appropriate decisions to enable him/her to be compliant.

For example, if a traveler is booking a trip to New York city, the online booking tool would highlight preferred properties along with the type of room the policy permits. If the traveler is selecting a higher rate room or a more expensive property when there is a lower preferred rate available, the online tool would highlight to the traveler that he or she is out of policy, and he or she needs to enter an explanation for the non-compliant choice. The Travel Manager could control these explanations by a set of drop down list of acceptable reasons.

Another benefit from implementing an online booking tool across the organization is to standardize the booking process through out the company, and make sure that all employees receive the same information pertinent to the preferred hotel program of the company, as well as, the travel policy alerts. This would help the Travel Manager tremendously in global organizations, as he or she would leverage a single enterprise solution to communicate travel policy and control travel booking.

Consolidated reporting

All of the aforementioned pillars would be incomplete and ineffective unless the organization has a robust reporting regime that not only would report spend numbers and compliance ratios, but also would provide meaningful intelligence, and actionable information.

Before the Travel Manager designs the reporting structure, it is imperative to understand the limitations of the collected data by each of data sources, for example:

Travel data from the TMC would have valuable information about how much the booked room rate was excluding taxes, but we need to realize that the total spend and room night figures are actually “booked” figures, and may not truly represent the “actual” figures. For example, I may book 1 night at a certain hotel, but end up staying for 3 nights. TMC data would show only 1 night booked, and hence, the Travel Manager need to rely on another data source to capture the remaining 2 nights. Another limitation of the TMC is that it will not capture any booking that is done outside the TMC. As much as we like to assume that 100% of employees would book through the incumbent TMC, reality shows otherwise.

Spend data from Corporate Card provides a better picture of how much spend the organization has on travel and hotel. Historically, more people are inclined to use their corporate card to pay for company expenses than they are to use the incumbent TMC. Hence, corporate card data offer a clearer picture of how much spend there is. So using the above-mentioned example, the traveler who stayed for 3 nights, would charge the total amount to the corporate card; hence, card data would give us the evidence that the travelers stayed for 3 nights as opposed to one night. However, card data gives us the total spend, not only room rate. For example, a $1,000 transaction by a travelling employee, would include room rate including taxes, as well as, other spend at the property including breakfast, food, video rental, and other auxiliary expenses. To capture what we call “transient spend”, which is the spend attributed to the room rate only, the Travel Manager would use a multiplier to make educated assumption. For example, industry standards show that between 70-90% of the amount spend at a hotel would be attributed to room rates (depending on the property and market). So, in case the traveler spend $1,000 at a hotel, then we would assume that only $700-900 of that amount is really attributed to the room fare.

An important limitation of card data is that it does not tell how many room nights the traveler actually spend. This is why it is a better practice to merge pertinent data from TMC with Card. So, you can get the room rate from TMC data, and integrate it with the calculated “transient spend” data from card, to come up with the actual room nights at the property. This merged data is of paramount importance in reporting for compliance, as well as, for strategic sourcing of hotel room down the road, as it tells you exactly how much you spent at each property, how much you had been charged in terms of room rate, and how many room nights you had.

Folio data; is now increasing in popularity, and more chains and card companies are offering folio data in North America and eventually, in other places around the world. Folio data offers tremendous value for reporting spend, as it itemizes the spend per hotel transaction. For example, if a traveler spend $1,000 at a property, folio data would show how much exactly the traveler spent on room rate, food and beverage, business center, telephone and any other item.

A new practice is emerging to report the room rates charged by hotels (although you can run the report from TMC data as well) and compare it to the accepted preferred rates. If actual charged rates are higher, then that could mean one of two things; either the traveler has upgraded the room or the hotel has charged the wrong rate. If further reporting indicated that this overcharging is repeated by the same traveler then the Travel Manager could alert the travelers that he or she has been consistently non-compliant, or if the repeat offense is coming from the same hotel with different travelers, this could mean that the hotel is over charging the travelers, or the appropriate rate is not visible to the booking agent, and so on. Sometimes, a lower than negotiated rates would be reported, and in few cases my clients had actually gone back and negotiated lower preferred rates at these properties


In conclusion, the above-mentioned 5 pillars, if structured appropriately, provide the Travel Manager with excellent infrastructure to control and monitor compliance with the organization.

How to Measure Corporate Hotel Program Compliance (Hotel Compliance 3 of 4)

There are different ways to measure corporate hotel program compliance. The most common way is the direct compliance ratio, which is basically the percentage ratio of spend at preferred properties over total spend. In addition, there is a number of other measures that could be tracked in complement to the direct compliance ration, the most important of which are compliance measure by geography, business unit, and folio data review to detect non-compliance.

Direct Compliance Ratio

This is the most straight-forward method is to divide how much spend at preferred properties by total spend. For example, if you have about $10 million of spend, where $7 million occurred at preferred properties, this would yield a compliance ratio of 70%.

Most of my clients prefer that method as it is straight-forward, easy to calculate, and easy to explain to senior management.

Compliance measurement by geography

In many cases, global companies have travelers come from different facilities and client sites around the globe. Hence, it might be advantageous to measure compliance by geographical location. This could be in one of the following two methods:

1. Measure compliance based on the traveler’s home base: for example you have a compliance ratio for US employees, and another ratio for European (or let’s say UK) employees for example. This measure will let you know which region is more compliance, and which region(s) is(are) less compliant. As a manager, you may want to consider replicating what you are doing well at high-compliance regions in those regions with less compliance rates
2. Measure compliance based on traveler’s destination: this is very useful when you are embarking on new RFP/Sourcing project. For example, the manager under this method would like to know that all the company’s travelers have 80% compliance ratio in London, UK, but they have 15% compliance in Paris, France. This indicates that Paris represents a good opportunity to source more coverage, and gain more savings down the road.

Business unit

Many organizations like to measure compliance at the business unit level. There could be many reasons for doing so. The size of the organization could be too large to derive any meaningful conclusion for a general compliance ratio. A major company with multiple businesses like manufacturing, financial, and consulting businesses could be interested in measuring how each business is doing in terms of compliance and procurement practices. Another organization with multiple cost centers pertinent to multiple products, would be interested in measure how each product division is tracking.

Another reason could be a financial decision to attribute savings/cost to certain cost centers, and as such, the organization would be interested in measuring how each cost center is doing in terms of compliance, which could impact the future budgets, rewards, and/or targeting of more strict control measures in the future.

In some cases, organizations tend to give certain business units - or functions- certain level of ‘flexibility’ not extended to other units within the organization. For example, in the consulting or pharmaceutical worlds, organization could show more leniency when flying a high-profile client or a medical doctor and allow their special travelers certain exceptions not available to the average employees. Such organization might be interested in tracking such travel and booking separately.

Folio review to detect non-compliance

A more complex way to measure compliance - although I have seen it gaining more popularity recently - is to measure the folio level of spend. For example, the organization would pull folio spend data from hotels that would tell them exactly how much John Smith spent for the room rate, food and beverage, and on other amenities. Then the manager would compare the rate and amenity inclusions to the preferred rate provided by the property. If the actually paid rate is higher than the accepted preferred rate, then this could mean one of two things: either John had upgraded the room (against policy for example), or the hotel is charging more than the preferred rate. In both cases, the manager has to investigate further to reach a better conclusion. Was there no available standard room, and John had no choice but to upgrade? Or did John actually book a standard room, but the hotel charged a higher rate? Or it could be simply the hotel uploaded the wrong rates to the GDS system, and so on.

This is the value of reviewing and monitoring the folio data, as it could potentially reveal many issues that could be impacting compliance and spend patterns the high level compliance ratio cannot possibly provide

Why is Corporate Hotel Program Compliance Important (Hotel Compliance 2 of 4)

There is a number of reasons why corporations monitor their corporate hotel program compliance metrics, and strive to retain them at high level. The top reasons include:

• Credibility with vendors 
• Best practice procurement 
• Generate potential savings 
• Avoid conflict with strategic partners 
• Other issues like safety, consistency, brand, and equity 

Credibility with vendors

High compliance metrics are typically a good indicator that the corporation is following best in class practices in managing its procurement and hotel program. Such indication is extremely useful when the company is sourcing new business or renewing its existing contracts. High compliance is often used as a proxy for corporate credibility with suppliers.

On the other hand, a company with poor compliance record may find it difficult to negotiate better deals with suppliers. When I manage on behalf of my clients RFP programs for their hotel, often the suppliers would ask about the client’s compliance record, especially when there is a new relationship forming. I find it very difficult to gain great concessions from these suppliers, when my client has a poor compliance record. Why is it that important for suppliers to know that the sourcing company has a strong compliance record, is because it would be harder for the suppliers to measure the size and value of the opportunity at stake. I may say that my client spends $1 million dollar on average at the supplier’s market, but if I add that the client compliance ratio is in low 20%, this means that being a preferred vendor does not really guarantee a business of nearly a fraction of the potential opportunity.

Best practice procurement

If you are a manager, you would like to see your compliance ratio in the 70-90% to be in the bull-park of best practice corporations. Low compliance ratio is frowned upon, and could mean that the corporation is not following best practices in procurement, or program management, or it implements a poor sourcing methodology. If you have a sound strategic sourcing process in place, then your compliance ratios should represent that with high percentages.

Generate potential savings

High compliance leads to satisfied preferred vendors, which consequently, leads to stronger relationship and partnership with them. Potentially, this will lead to better deals and favorable pricing down the road, with additional value and amenities to your travelers.

Avoid conflict with strategic partners

This is the opposite of the previous point. If you promise your vendors $10 million in hotel spend in 2011, and most of that spend leaks through to non-preferred vendors, you would be in a tough situation when it is time for your 2012 hotel program RFP.

In some cases, you would hear from your suppliers during your quarterly review, and some of them would withdraw their preferred rates or amenities since you are not fulfilling your part (sure there has to be legal document to allow them to do so, and many don’t do it to maintain good relationship with the client).

Other issues like safety, consistency, brand, and equity
This could be listed as an intangible value for compliance, but it is equally important. When travelers follow the policy and book at preferred hotels using preferred booking process, the company will be able to keep track of its employees. In many cases, the manager would specify certain safety elements at the properties her/his travelers stay at, especially in cities with lower safety standards. If travelers are non-compliant and stay at hotels that have not been checked by the manager or are not up to the corporate safety standards, this could put the traveler and the company in a risky situation.

Equity is another important matter. If a corporate policy states that employees must stay at budget or moderate tier properties, it would be unfair for a few travelers to be non-compliant and stay at upscale or luxury hotels, and still get the company to pay for their expenses.

Corporate Hotel Program Compliance (1 of 4)

Compliance is a measure of how much the buyer’s behavior is aligned with the corporate policy. If the traveling employee (the buyer) is following the corporate travel policy, and is staying at preferred hotels, then this buyer is compliant. If she or he is staying at non-preferred hotel (provided the availability of a preferred hotel at the destination city), and/ or is not following corporate travel policy by booking a suite rather than a standard room (for example), then this buyer is non-compliant.

One of the critical components of any corporate hotel program, or procurement best practice, is compliance. A procurement or travel manager (manager), when dealing with compliance issues, is primarily focussing on three things: how to measure compliance, how to control it, and how to improve compliance moving forward.

I have put together four articles that shed more light on the topic of corporate hotel program compliance. You can click on the hyperlink below to check them out:

• Why is compliance important
• How to measure compliance
• How to control compliance
• How to improve compliance

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