FutureView: Horizon 2012

Strategic Drivers for Success

• Demonstrate Flexibility and Decisiveness - As we continue to manage through challenging economic conditions, companies must demonstrate flexibility in their business models to respond to changes in customer needs, marketplace demand and regulation. This increased flexibility needs to be combined with speed and clarity in decision-making to execute the changes required.
  
  
• Deliver and Communicate Rational Value - Customers are increasingly focused on Rational Value. Consumers are highly informed and empowered and, with the global economic downturn, they are even more critical and analytical when it comes to their spending decisions - and they are continually assessing the value received vs. the cost paid for products and services. This increased level of customer engagement can be an advantage for companies that can deliver strong rational and emotional value and also identify and control the channels through which they communicate value beyond price to their customers.
  
  
• Deliver the Brand Promise - Many companies are faced with assessing how they can cut costs in response to reduced demand without sacrificing the premium value and quality that is aligned with their brand promise. The companies that can balance the immediate need to reduce costs and still maintain the integrity of their brand will be the ones that continue to build customer loyalty in the current economic environment and also will be the ones that are in a stronger position when conditions begin to improve.
  
  
• Leverage Marketing Effectiveness to Drive Innovation - Now, more than ever before, we are seeing that businesses are looking for "quick-to-market" marketing solutions, which can be deployed in direct response to new targeted opportunities that are identified, and where immediate returns can be measured - with online and digital channels being at the top of the list. Information is the key to driving a more targeted, return-driven approach. Continued investment in information-led products and services will deliver strong returns over the next few years.
  
  
• Capitalise on Brand, Customer Relationships and Partnerships to Create New Revenue Streams - Increasing revenue growth in a low growth environment will require companies to establish new revenue streams to increase market share. Companies with strong brands, powerful customer relationships and the right partnerships will be best positioned to generate new revenues from additional products and services and grow in the future.

The Economic Outlook

By 2012 we will be in a period of growth after a slow climb out of recession

We are in for a slow climb from the recession. There is a general feeling that the slowdown has reached the bottom, but the upturn will not begin to be felt until Q2 2010.

The impact of the downturn on business travel

• One winner in the downturn has been the travel policy. Where travel managers may have found it difficult to make it stick, they now have the full support of the board. Employees travelling out of policy have felt the pinch; some companies are not reimbursing travellers for the full cost of their trip if they repeatedly flout the rules.
  
  
• Corporate clients who have annual contracts with air, hotel and other travel suppliers have started to review their deals more frequently. We have seen major clients go back to the supply chain three months after signing annual deals and demanding lower rates - generating incremental savings on their programme.
  
  
• In the TMC arena we can expect to see some consolidation between the medium and smaller players.
  
  
• As we all know air travel has seen sharp decline and down-trading from first/business to economy. By 2012 premium traffic will have returned on long haul destinations but short haul European destinations will not enjoy the same levels of premium traffic as before.
  
  
• Suppliers will continue to squeeze their distribution costs downwards as they try to cut their cost base.

Demand for Demand Management

By 2012 organisations will change the way they buy business travel

An economic downturn moves companies to control their travel-related expenditure more closely.

This will impact on the relationship between TMCs and clients and shifts will occur by 2012.

Some clients are already starting to look to their TMC to help manage the demand for travel within their organisation, to question whether trips are necessary and to be rewarded for averting the need for travel in the first place.

Where clients have internal meeting rooms and video-conferencing facilities, TMCs will take control of this inventory and balance against the need to travel externally when dealing with bookers and travellers.

With the focus on using resources and travel budgets effectively the remuneration model will shift to reward the activities being carried out by the TMC and by 2012 we will see more risk/reward based deals where a TMC is incentivised to save money for the client by receiving a share of savings generated.

Sustainability

By 2012 sustainability will be front page news once again

Two years ago the environment was front page news for all of the business travel press and the wider media, now it has been relegated to a bit part player in the industry news as the economic climate takes centre stage.

The ITM conference in Edinburgh two years ago featured the environment as a major theme, and again in Dublin it was a big topic. However, when the ITM polled members of the audience at the start of this year's conference about what was the most important issue of the day the overwhelming majority stated 'the return of investment on travel.'

Environmental criteria still feature in many tender documents and there are many clients for whom environmental reporting has become a standard, but for those who may have been dipping their toe in the water, the environment has slipped down the list of priorities.

The environment has taken the back seat with many clients as they battle with the economic challenges that have a more immediate and tangible impact on their business.

However, the need to reduce emissions has not gone away and by 2012 there will be a renewed and vigorous focus on environmental objectives.

It is for this reason that CWT UK is continuing to develop environmental products for clients under our CWT Sustainable Solutions banner and has appointed a director to lead the organisation's sustainable agenda. We want to support our clients for whom this is already a priority and be ready for the others when they turn their attention to this issue.

Innovation & Technology

By 2012 technology will have improved the experience of business travellers

Innovation in travel management has featured largely on tools for the travel manager to review data, manage compliance, access inventory, drive costs down etc

By 2012 more innovations will have been created with the traveller in mind.

This July CWT is launching a web-based itinerary. The itinerary will promote a client's travel programme so will drive compliance, but at the same time will enhance the traveller's experience. As it is an online itinerary it will link through to destination information and other useful details - all aimed at making the life of the road-warrior that little bit easier.

This is just the start. The business travel sector will follow the consumer sector where consumers now interact with each other and exchange views on products online and informally via forums. Providing tools for travellers will open the way for them to share with other business travellers their experiences and tips.

Security

By 2012 it will be unacceptable for a company not to be able to locate its travellers in an emergency

The security of a company's travellers when they are on the move is something that even the economic downturn cannot mask. The passing of the Corporate Manslaughter Bill last year focused boardrooms everywhere on the need to look after their people.

The September 11 attacks on the US saw calls for traveller tracking systems gather momentum and these have been evolving with every new type of incident or threat.

Two recent incidents illustrate the need for traveller tracking

1. The Mumbai terrorist attacks saw many managers asking which of their people were in the area. If a company booked their air travel with us we could tell them who was due to be in the city. If a company had booked their hotels with CWT we could tell them if they had people staying in the affected hotels.
   
   
2. The threat of swine flu meant that many companies wanted to know who had been to Mexico recently, or who was scheduled to go.

Instances like this demonstrate clearly the value of mandating booking through a central source capable of delivering instant reporting. In both cases if a client had allowed travellers to book through multiple channels they would not have been able to track their travellers automatically.

All CWT clients have access to the CWT Programme Management Centre, which contains drill down maps that allow a travel manager to find out where their travellers are staying at the click of a mouse.

• The demand for executives to travel will continue but traditional methods of procurement will change. There will be an increased emphasis on day-to-day dealing and short term targets
  
  
• This change from long term to short term will be accompanied by an increase in individual responsibility to manage personal travel budgets which in turn will be supported by new technology
  
  
• The decline of First Class travel and private jet usage will continue due to an increased focus on hard benefits and shareholders demanding value for money
  
  
• The increase in the use of rail travel for domestic and shorthaul travel will continue, thus eroding the viability of shorthaul air feed into airports
  
  
• For companies to succeed in this new world will require rapid decision making and an ability to tailor products and services quickly.

• Business travel will not get back to trend and might still be sitting 15% below the 2008 peak in 2012 (see following IATA slide)
  
  
• Severe financial strain on major airlines will force consolidation, government bail out or bankruptcy.
  
  
• Airlines will seek cost cutting in order to survive with the accompanying risk of alienating their customers and staff.
  
  
• The need for cash will force previously unpalatable measures onto the agenda in areas such as aircraft delivery, product roll out and distribution, agency remuneration etc.
  
  
• Those airlines that survive will have their cash reserves virtually wiped out and it will take a decade for them to regain them.

• Future markets will be driven by a number of key trends that can be categorised as: 'political and macro economic', 'social and environmental' and 'business and industry'. Many of these trends are apparent today, but may be slow acting (e.g. demographics).
  
  
• The business structure of travel seems to veer continually between trends for consolidation and for fragmentation - what are the real drivers of a successful model?
  
  
• Are there genuine ways of personalising travel using modern communications with travellers/ users, or is the whole thing a bluff?
  
  
• How can the Travel industry effectively lobby governments in a coherent manner to reduce 'interference' or counterproductive action on taxation, security, regulation and so on?
  
  
• What effective means are there for monitoring the travel industry's health, and providing useful leading indicators?

• City centre hotel performance - Consumer confidence trending towards branded products
• Mixed financial results across the lodging industry- Change strategy and process is essential
• A dynamic shift in sales and marketing strategy has been required to drive sales whilst reducing costs due to changing trends
• Corporate travel cuts does threaten economic recovery
• The state of the market today - A changing landscape.

Supporting Information

City centre hotel performance - Consumer confidence trends towards branded products:
Four out of ten cities reported room occupancy over the 70 per cent mark. London's branded four and five-star hotels were the clear front runners with an average occupancy of 85.2 per cent. After Amsterdam in second place, Paris reported 76 per cent occupancy and Hamburg 72.5 per cent.

Mixed financial results across the lodging industry resulting in a change in strategy and process:
Figures for occupancy, average daily rate and revenue per available room ranged from double-digit losses to single-digit gains, depending on the market and the currency used for comparison. The European hotel industry reported mixed year-over-year results when reported in U.S. dollars, euros and British pounds for April 2009, according to data compiled by STR Global.

Key year-over-year market performers for April include (all currency figures are in euros):

• Edinburgh, Scotland, reported the largest increase in occupancy among the key markets, rising 7.3 percent to 76.8 percent.
• Three key markets reported occupancy decreases of more than 30 percent: Geneva, Switzerland (-33.1 percent to 50.7 percent); Düsseldorf, Germany (-31.8 percent to 47.6 percent); and Tel Aviv, Israel (-30.7 percent to 58.2 percent).
• Salzburg, Austria, reported the largest increase in ADR, which was up 28.9 percent to €126.49. Tel Aviv also reported a double-digit increase in ADR, which rose 23.0 percent to €193.51.
• Düsseldorf reported the largest decrease in ADR, which was down 46.5 percent to €79.85. Moscow, Russia, followed with a 38.0-percent decrease in ADR to €168.70.
• Salzburg was the only key market to increase in RevPAR. It was up 28.1 percent to €66.05.
• Seven markets reported RevPAR decreases of more than 40 percent: Düsseldorf (-63.5 percent to €38.05); Geneva, Switzerland (-46.8 percent to €100.47); Moscow (-45.6 percent to €106.76); Frankfurt, Germany (-43.6 percent to €50.81); Oslo, Norway (-41.0 percent to €53.39); Gothenburg, Sweden (-40.9 percent to €42.56); and Stockholm, Sweden (-40.9 percent to €53.16).

A dynamic shift in sales and marketing strategy has been required to drive sales whilst reducing costs due to changing trends:
While the recession has caused serious problems for many hotels across the board, the responses of more than 2,000 Leading Hotel guests from 95 countries, as well as 211 general managers, suggest that a strong rebound may not be far-fetched.

According to the study more than half of the respondents indicate that the global economic situation has had no impact on their intent to travel in 2009. Furthermore, 90% of guests say that "leisure travel is of the utmost importance to them and they may delay or cancel other leisure activities before canceling or delaying travel in 2009." With a mere 9% of general managers citing rate reductions as the strategy they are likely to implement to attract business, it is evident that a positive supply and demand situation is being recognized and forecasted from the hoteliers perspective as well.

Five profound conclusions, expanded further, are as follows:

1. Many luxury consumers intend to travel through the recession - 56% indicate that the recession has not had an impact on their travel plans. For a small percentage (15%), the current state of the economy may be an incentive to travel more. Conversely, the majority of business travelers surveyed said their company has changed travel policies to reduce travel expenditure and to avoid any hint of extravagance.
   
   
2. All geographies are not created equal - Travelers from many countries in Europe (e.g. Spain, Germany, Sweden, Switzerland, Austria and the Netherlands) seem to be less affected and report fewer modifications to their travel patterns than travelers from America, Canada, Middle East and Africa. This may be attributed to the social safety net in many European countries.
   
   
3. Use of the internet is growing fastest among luxury hotel guests -Nearly eight of 10 respondents said they have read user-generated reviews online and one in three has posted a review. As a result, more managers are focusing on the guest experience and engaging customers during their stays. Additionally, luxury hotel guests have shown the largest increase in internet bookings over the past two years.
   
   
4. The luxury guest is changing - Luxury travelers are demanding less pampering, more entertainment. The current economic climate is shifting the mood and type of experience travelers are seeking. Intercultural pursuits and opportunities for personal growth, such as shopping at village green markets, practicing foreign language skills and receiving a local gift at turn-down, now surpass the desire to be pampered.
   
   
5. Hotels are protecting the guest experience and ADR - With staff failures having the biggest negative impact on guest loyalty, hotels are being careful to not make hasty staff reductions. In unavoidable situations, managers will likely displace back-office employees or restaurant staff before cutting front-of-house, guest-facing staff.

Corporate Travel Cuts Does Threaten Economic Recovery
It seems that when companies have to cut costs, corporate travel is suddenly deemed unnecessary. A recent survey reveals, however, that most business leaders do not agree with decreasing travel budgets in a slow economy. In fact, 72 percent believe that increasing travel budgets will allow companies to gain a competitive edge by building market share and forging new customer relationships.

In a survey commissioned by the U.S. Travel Association, APCO Insight interviewed 401 business executives (at companies with more that $50 million in annual sales) and found that 82 percent feel travel is important to achieving business results. Additionally, 81 percent of business executives believe more client contact is necessary in an economic downturn, and 59 percent strongly agree that in-person contact grows business. Furthermore, 53 percent believe that companies reducing business travel give an advantage to their competitors.

The state of the lodging market today - A changing landscape
Having progressed from the state of Panic to Capitulation we are now seeing increased Foreclosures and look forward to the Depression followed by Relief and Optimism leading to recovery in 2011 and 2012

• Streamlining the Travel Experience - there will be consistent content and shopping across all Points of Sale. In the next few years, the industry will have resolved content fragmentation and payment solutions for ancillary services, enabling agencies and travellers a more streamlined, consistent and transparent way of shopping, booking and ticketing travel.
  
  
• It's all about the Customer - customer service levels will improve significantly. Data will be transformed into meaningful business intelligence that can be used by agencies to optimise the travel experience and enhance loyalty. This will improve the way corporations manage their travel programs (security, traveller tracking, environmental reporting etc), while travellers receive a more tailored service that takes into account their travel demands and personal preferences.
  
  
• Demand Management - demand management will become an integral part of all travel programs - not just a buzzword. Corporations will structure their travel programs around "travelling smarter not travelling less", not just "how" to travel but also "whether" employees should travel. Procurement solutions will be far more sophisticated, enabling corporations to apply corporate policy compliance across all points of the travel purchase.
  
  
• Web 5.0 - Consumer-Generated Media (CGM) will have fueled an information explosion through blogs, traveler reviews, tags and videos, changing travel behavior and decision-making. Web-enabled mobile devices will become the key channel for shopping and booking travel services - on the go. Purchasing behavior will be heavily influenced by online reviews and social networking communities. These same behaviours will carry across to travel purchasing decisions, and subsequently, suppliers and agencies will rely more heavily on these channels to influence buying behavior.
  
  
• The key question for the future is: will distribution relationships once again become an opportunity to generate sales and revenue and not simply a target for cost savings? We believe that there is a need to rebalance the discussion, re-establish the shared value proposition, create a model which delivers benefits to all stakeholders and exploit new opportunities together.

• There will be an oversupply of new hotel stock, and a consequential negative impact on rates, spawned by "easy" money for property development in the last few years. Certain emerging markets, such as China and the Middle East, have already created enough supply for the next five years, while the explosion in resort hotels and private residences in new destinations is equally concerning, especially at the luxury end of the market.
  
  Prediction: Expect achieved average rates to decline over the next 2-3 years, with rate growth relative to 2008 not being achieved until after 2012
  
  
• The growth of the on-line travel agent ("OTA") is a danger to hotel owners and operators. These cash-rich, on-line giants are getting stronger in recessionary times, as customers look for better deals. They therefore squeeze higher and higher commissions from the smaller hotel groups and individual hotels, threatening their livelihoods by lowering their rates and cutting their profit margins.
  
  Prediction: If hotels do not co-operate on countering this threat, the independents may find themselves essentially "owned" by the bigger OTAs
  
  
• Tensions will grow between hotel owners and operators, providing opportunities for new brands and new operating models to emerge. As margins are eroded, and owners see their operators still taking their fees, while not sharing the owners' downside or risks, there will be growing resistance to the traditional operating model, especially with brands that have not reinvented themselves for decades.
  
  Prediction: Expect hotel owners to manage their own hotels, create their own brands. Expect the mega-chains to create more new brands; and expect lower-cost franchise and alliance models to thrive.
  
  
• Today there is a proliferation of national and low-cost airlines, thousands of independent hotels and brands; and the travel industry supply chain - including travel agency networks, distribution systems, technology etc. - is fragmented and confused
  
  Prediction: The global groups will get stronger and the smaller independent hotel groups, airlines, travel companies, distributors (especially on-line) and technology companies will be acquired and consolidated into larger organizations. The on-line space will become clearer as mega-players emerge and smaller entities disappear
  
  
• Consumer power will grow and poor quality products, shabby service, "rip-off" pricing etc. will be punished by growing social networks of on-line customers, teaching each other how to get the best from their travel experiences
  
  Prediction: The lower end of the market will thrive where efficiency, well-delivered service and a "commodity-style" product will appeal to price-conscious customers. However, at the luxury end of the market, hotels and airlines will have to react and adapt much faster to rapidly-changing trends and shifting customer choices, all linked to social networking. Product, service-delivery and personal recognition will be more important than ever at the top end of the market. Mediocrity will not be tolerated because the choices will be vast and the customers extremely well-informed

Unifying corporate paradigm - Can innovation continue during a downturn?

The keys to this will include:

Emerging technologies (next wave of disruptive..?) and travel related e-Business

Mobile platforms - we are not just talking about reformatting existing web content to mobile browsers, but real innovation coming from smaller companies and Spacial Technologies which utilise unique point & click apps, local context and broadband wireless. Will 2010 be the year Travel embraces mobile?;

• Corporate & Leisure social networking: Twitter & Yammer - which will change the conference experience with immediate feedback on presentations/speakers, and more critically, become the key route for customers to compare their experiences/complain about service provided. Imagine the positive or negative impact a thought leader or band of consumers using Twitter could have on how a service/product/brand is perceived in real time. This is about reputations in a social networking space.
  
  
• App stores - Apple, Nokia, T Mobile, Google and RIM Blackberry will collectively be offering more than 120,000 downloadable apps by 2010. What proportion of these focus on travel location based services and navigation? The proportion will inevitably be high. Thus, the Travel Industry needs to create apps today for the current Apps, not just retreads of current websites but offering innovative ways to combine location, context and personalisation to deliver unique value to the traveller;
  
  
• AI expert systems to automate the travel process. We have still to see an agent or OTA use expert systems to enhance the travel planning and booking process.
  
  
• Trends in Organisational Change - will include globalisation (global versus local), diversity (flexibility vs stability), diversity (heterogeneity vs homogeneity), flat (centralisation vs decentralisation) and networks (interdependence vs independence). These trends need to be managed and include the need to reengineer HR and workspace simultaneously to better engage the employee and his/her IP. Key to this will be the application of SOA-driven organisational change management (SOA - service oriented architecture is a strategy that implements business functions by orchestrating reusable business services to provide for REUSE and AGILITY).
  
  
• By creating services that are configured to support business capabilities, organisations must change their MO from transactions to business processes. This requires a major paradigm shift, organisations must undergo transformational change from an organisational and sometimes cultural perspective, inc changes in employee roles, performance mgt as well as relationships between different functions within an enterprise.

June 1st 2012

• Economic growth has returned to the UK about 1-2 years ahead of the Eurozone which is still mired in poor demand and heavy unemployment, particularly in new entrant countries and the Mediterranean area. The financial services sector is on the road to recovery and is fuelling the upturn in the UK economy ahead of Europe which has lost ground to the City. New York and London dominate financial services, as always.
  
  
• The Pound is trading at 1.35 euros and 1.75 US Dollars
  
  
• Oil prices are trading in a range between USD 70 to USD 80 per barrel.
  
  
• UK interest rates at 2.5% are on the rise as inflation begins to surface as a result of the 'quantitative easing' measures introduced by the Labour government.
  
  
• The Political landscape has changed. A Tory government has shelved Heathrow expansion in favour of the Boris Johnson Estuary Airport focusing on connecting traffic and rail/air transfers. BA are now battling it out at Heathrow with a Virgin/BMI (LH owned) partnership.
  
  
• Yields for corporate business have never recovered from the recession as all companies are now focused on 'value for money' fares, hotel and car rental rates which are offered across the board by airlines, hotel groups and other suppliers, hungry for premium business.
  
  
• Online price comparison tools are now seen as key to the TMC offering providing transparency and a clear indication of what is available 'day to day' for all to see-travellers and corporate buyers alike. Specialist sites have also come onstream aimed at the SME market. With constant pricing initiatives in the Air and Hotel sectors, route deals and corporate hotel rates are becoming less and less relevant.
  
  
• Mobile technological development has become the main focus for online business with more and more content being delivered to hand-held devices allowing for ease of booking, purchase and payment on the move. Downloadable applications proliferate due to low cost and ease of access.