An untapped opportunity: corporate aviation
Lynn Woods
Corporate travel managers are beginning to tap a resource that's traditionally been reserved for the corner office—the corporate jet. Utilising this much coveted mode of transport for more mundane ends, such as enabling a team of managers to visit several company facilities in a single day, is becoming more feasible thanks to several industry developments
2008-10-12
Corporate jet sales are booming, thanks in part to higher corporate profits. There’s a wider array of executive jet options, including fractional jet ownership, jet-card membership, and charters. Consulting services offering everything from auditing of charter operators to compiling data on corporate aviation spend are proliferating. And the near ubiquitous use of web-based travel tools enables corporate aviation to be seamlessly incorporated into the travel programme.
Five years ago, recession and the high cost of business jets caused many corporations to forgo purchasing their own aircraft in favour of using charters and participating in fractional ownership programmes (a company buys a portion - typically a one-sixteenth share - of a business jet). The advantages of these options over using commercial airlines were intensified by security concerns in the wake of 9/11, cutbacks in the carriers’ capacity as they struggled to make ends meet and the hassles of dealing with airport security. New options became available, notably jet card memberships, in which the traveler purchases flight time by the hour—usually, in blocks of 10, 25, or 50—and is guaranteed a plane with little advance notice. But with the US economy now growing at a steady clip, sales of corporate jets have bounced back, just as the growth of fractional ownerships, constituting 10 to 20 percent of annual worldwide business jet sales, has flattened.
Call-out box
The corporate aviation industry was worth $13.2bn in 2006, a 28 percent increase over 2005, according to the Aviation Research Group/US (ARG/US), a corporate aviation research firm and consultancy based in Cincinnati. Honeywell Aerospace’s 15th Annual Business Aviation Outlook, released last October, found that the number of corporate aircraft delivered in the first half of 2006 worldwide was up almost 26 percent compared to the year before, and demand is expected to continue in 2007. While the U.S. accounts for 61 percent of the market, international demand is growing, particularly in Asia, the Middle East, and Africa. There are currently 23,121 business jets worldwide, and 376 of the Fortune 500 operate business aircraft, according to ARG/US.
Over half (54 percent) of the nearly 40 U.S. based corporate travel managers responding to an ACTE survey last month said their company owned at least one corporate jet, compared to only 13 percent participating in a fractional jet ownership program. Most travel and corporate flight departments are separate: only a fifth of respondents whose companies had a fleet of corporate jets said it was managed by the travel department. Thirty-five percent said their company tracked corporate aviation data, such as cost per seat mile, compared with the amount spent on commercial airlines—indicating that most corporations are still in the dark about the possible cost benefits of folding executive jet usage into the travel program.
“Travel managers need to create a relationship with the flight department or those overseeing charter activity to understand the capabilities and limits of corporate aviation,” said Phil Roberts, president of PAR Travel Technology Inc., a business-travel consultancy based in Dayton, Ohio. “They need to look at the city pairs that are highly traveled or cost more because people are making one or two stops en route. This type of thing can be well served by corporate airplanes. Business jets can increase the utilization of employees and their ability to get the job done for the company.”
Some companies are including corporate jet flights in their on-line booking tool. Xerox Corp., for example, operates a corporate shuttle between White Plains and Rochester, New York, twice a week every other week that utilizes the company’s two 12-seat Challengers and is incorporated in the firm’s on-line booking system. Corporate flights are booked using a dummy ID number, which enables them to be tracked and the booking tied into the company’s reporting tool. “The travel manager is closely linked to corporate aviation,” said Sue Bader, Xerox’s director of corporate general services.
Xerox takes other steps to ensure efficient utilisation of the two jets, which fly a total of 1300 hours annually (140 of which are for the shuttle). General Services asks the division presidents to submit their proposed trips for the year and prioritising them by importance and indicating flexibility. Two dispatchers then schedule as many of these as possible, using certain criteria to negotiate in cases where multiple requests conflict; if they can’t be negotiated, then Xerox may supplement with an approved charter operator. “We gave consideration to fractional ownership because our demand exceeds our capacity, but because it’s so expensive to buy into a fractional programme, we instead use careful scheduling to help us prioritise our most important trips,” said Bader.
The National Business Aviation Association (NBAA), a trade group based in Washington, D.C., offers a software product called Travel$ense to help travel managers quantify the best flight option for their needs. Generally, it makes sense for a company to own a business jet if it does more than 300 hours of private-aviation travel a year and to consider fractional ownership if it ranges between 100 to 300 hours, said Ed Bolen, president and CEO of the NBAA. If it flies less than 50 to 100 hours a year, it’s best to use a jet membership card or charter. Whether the trips are round-trip or one-way as well as length of stay also affect the choice of option. “It’s important for travel managers to understand where the company’s needs are now,” he said. “There’s a lot out there to choose from. Business aviation can enhance productivity, enable executives to discuss proprietary strategies without worrying about being overheard by a competitor, and hit many points in one day.”
Jim Christiansen, who works in the office of the chairman at NetJets, the Columbus, Ohio, fractional ownership company that is the dominant player in the fractional marketplace, noted that most corporate clients are using fractionals to supplement the lift of their own corporate aircraft. Companies are also taking a more rigorous look at their flight operations: “They’re making sure they’re investing appropriately and have the right mix,” he said. NetJets can help with this, providing “a one-year snapshot of a company’s travel, including which flight legs are deadhead, which are live, the passenger counts and what the cost of the flight activity would be if NetJets replaces or supplements existing aircraft.” The firm also estimates the cost of using the optimum aircraft on each leg—such as replacing a ten-seat Falcon 2000 with a smaller Hawker 400XP if the former is flying out with just one or two passengers.
Corporations who contract with Delta for their commercial air travel and are looking to use a fractional or charter might get more bang for their buck by using Delta AirElite, which partners with fractional provider Flexjet, manages corporate fleets for clients and offers charters of its own. Delta AirElite’s Jet Card users earn instant Medallion status when they sign up for the program, and passengers on a Delta AirElite charter earn qualifying Medallion miles.
“Companies are looking at everything right now,” said Joe Moeggenberg, president at ARG/US, a corporate aviation research and consultant firm that also audits U.S. charter operators. “We have clients who own corporate aircraft and have bought a fractional share and a jet card. They’ll do whatever makes sense for that trip.” Moeggenberg added that while the cost of a fractional ownership—including an upfront payment for the ownership segment, a monthly maintenance fee and flight charges is generally not negotiable, the card programs are very competitive and will negotiate with corporate clients on the basis of type of aircraft and volume.
In fact, there’s much more leeway than in the past for these options to be tailored to the company’s needs. Cleveland-based Flight Options’ Fractional First programme, for example, bills the client only 80 percent of the monthly management fee, meaning that if a company bought a 100-hour share it could fly from 80 to 120 hours and still be within the terms of the contract. Also, taxi time—which normally consists of ten minutes deducted from the front and back end of a roundtrip flight—is included. Flight Options’ JetPASS program enables users to fly any size aircraft they like for the same price and offers flight rate discounts during off-peak times.
Marquis Jet Card, which is owned by NetJets, is launching an online booking tool this spring that is targeted to the corporate market. It is password protected and provides detailed data on a client’s account, including updates on itineraries, access to a flight-time estimator, the ability to update profiles of who can book, printed directions, and the ability to book ground transportation.
Jet card programmes have so increased the number of owners on the fractional fleets that availability of planes has become an issue. Some programmes have implemented black-out days and charge more for last-minute bookings, and during peak times, the traveler has to be flexible about departure and arrival times.
Because the FAA doesn’t have the manpower to oversee the nation’s thousands of charter operators, CTMs need to be especially vigilant in checking out the operators used by the card programs as well as charters, which are often brokers outsourcing the flights to other firms. “Find out the age of the equipment, its condition, who owns it, and whether the maintenance is done on site,” advised Gil Wolin, vice president of corporate communications at TAG Aviation USA, a charter company with a large corporate clientele. Training of the crew is also important, with corporate jet pilots required to review their skills at one of two flight-training schools every six months. CTMs should check that the pilots have the specific license that fits the particular type of plane they’ll be flying and also make sure the charter company carries proper insurance (Wolin said TAG Aviation carries liability insurance of $300m on every flight.)
CTMs should also carefully eyeball the contract and make sure their pre-payment is placed in escrow, added Ngaire Duncan, marketing manager at Florida-based Miami Air, which charters out its fleet of eight 737s to companies for meetings and incentive travel. The operator should also include a guarantee to get you there. Miami Air goes so far as to have a flight mechanic on board every flight so that minor problems, such as a malfunctioning seat belt, can be fixed right away to avoid delays.
Detailed information on checking out a charter is available in the Aircraft Charter Consumer Guide is available at http://web.nbaa.org/public/ops/charter/. ARG/US (aviationresearch.com) audits almost 400 charter operators and does background checks on 15,000 pilots annually; the registration number of the plane is all the firm needs to do a check. The National Transportation Safety Board posts annual reviews of all reported incidents and accidents for the airlines and general aviation operators on its web site (ntsb.gov).
In Europe, Lufthansa launched Lufthansa Private Jet in 2005. Agents can now book Lufthansa scheduled service in conjunction with Lufthansa Private Jet flights.
While many corporate buyers are adding charters, fractional jet ownership and VLJs to their aviation mix, there jobs might seem easy after reading the story below about some of the complexities of sports travel management.
What to expect in 2008/09
By David Grossman
Here are some of the industry issues that will continue to be of great concern to travel managers in 2007:
Safety and security
With constant reminders of airport chaos and continuing violence around the globe, it is no wonder that safety and security is the number one concern for ACTE members everywhere. Although travel managers, travel suppliers, and travel management companies often don’t see eye to eye on many issues, safety and security seems to be paramount to everyone.
“Security is the number one thing and affects everything that we do every day,” says Caro Cook, chief, transportation section, at the International Monetary Fund. For Cook, it’s all about knowing where her travelers are at all times. Even if you have systems that record where people are and have rules and regulations in place, people can always slip through the system, especially if they make changes en route, says Cook.
Tom Barrett is concerned about consistency in the security process. “How much time do you need to go to the airport on any given day?” asks the global sourcing director for American Standard Companies. “Some days it can be one hour and other days it can be two and a half hours,” says Barrett. Barrett wants to keep his travelers informed of the latest rules on liquids, baggies, or shoes that might impede their trek through the security maze.
“When you hear stories that people are able to be boarded in foreign countries with Swiss army knives which would have been confiscated in the U.S.,” Barrett gets concerned. “You begin to say to yourself, ‘Well have we set the right standard and expectation about where our safety really lies in this sort of things?’” Barrett expects to be searched when going through security. “I feel good…because I know that somebody’s doing their job and I feel safer to fly today.”
Content fragmentation in the GDS
Another area of great concern for ACTE members is the airline-GDS distribution issue and content fragmentation. “The ‘opt-in’ issue is still not resolved,” says Jo-Achim Hamburger, corporate travel manager at AB Electrolux. “The content issue is my major concern when the airlines do not allow our online booking tools to access their application programming and their web sites.” Hamburger cited the exclusion of Air Canada Tango fares and Southwest Airlines as threats to his corporate travel management program. He finds it difficult to get complete policy compliance when travelers are continually finding better prices in other booking channels.
Hamburger is not the only travel manager with compliance concerns. “Because of technology an employee will shop two or three different sites very efficiently in order to find the lowest fare and if it’s not with your travel management company then you risk the performance of the entire program,” says Barrett. And eventually his CFO will want to know why they are paying the travel management company.
Despite the airline-GDS fracas, “Some corporations may have been successful in standing firm in their agreements or maybe negotiating around them,” according to Barrett. But Barrett ultimately believes that corporations will eventually feel the impact of the GDS agreements. “It’s either pay me now or pay me later”, but somehow everyone will get paid in the end, Barrett asserts.
Barrett is skeptical of products that have rushed to plug the content fragmentation gap with GDS bypass. “I’ve often said that I’m prepared to adopt any strategy that lowers my cost of distribution both through the travel management companies or the airlines directly,” says Barrett. But he also adds “In order for me to do so I have to adopt strategies that don’t cause me additional stress or processing time which are not seamless to the system.” So far Barrett has resisted implementing one of these products. “I need to have something that you can invest in the long term strategy,” he says. “I can’t have something which has not been fully developed and fully proven.”
This implementation problem is not limited to GDS bypass software. Travel managers are faced with a cost of implementation for any new technology whether it’s a meetings planner, a new self booking tool, or an entire expense reporting system. “We can’t underestimate the task of implementation and the complexity.” Barrett says he has limited opportunities within his management structure to develop strategies which will return long term savings initiatives to his organization. “The problem is the return on investment of these things for the cost of change…stifles the opportunities to capture new technologies,” according to Barrett.
Airline consolidation
Airline consolidation is something that worries many corporate travel managers. No one really knows for certain if it will happen, but most see it as a significant worry. Hamburger is very concerned about the negative impact on airfares had the US Airways and Delta deal gone through. Most hope that consolidation among financially strapped legacy airlines will lead to improved hospitality and service, but most travel managers are also worried about the impact on fares.
While there has also been talk of low cost airlines combining in the U.S., Hamburger thinks that consolidation among the low cost airlines in Europe is also inevitable. “You’ve seen that DBA, the German British Airways, has recently been handed over or bought by Air Berlin,” says Hamburger who thinks there will only be four or five major low cost airlines in Europe within a couple of years. With Air France-KLM and Lufthansa-Swiss Europe could also be headed for further consolidation of legacy airlines.
Privacy
Privacy is a major concern for many travel managers. Most want to insure the privacy of their travelers by being certain that they have the right contacts in place with the right people and that also includes any third parties who handle her data. Some think the privacy issue in travel has not been addressed and many wouldn’t be surprised if the European Union decides to look at travel in a much more direct way in the next two or three years.
Travel management company costs
Travel management company costs are of great concern to corporate travel managers and travel management company staff as well, although this is an area where there could be conflicting objectives and viewpoints from each side.
Barrett feels that transparency in the travel management community is more apparent and needed now more than ever. But Hamburger would like to see a little more transparency in his collaboration with a travel management company. “I still don’t see the full transparency which was promised to us after the commission cuts,” says Hamburger.
Not surprisingly, Chris Cowley, head of sales, BCD Travel Logistics UK, has a different viewpoint on travel management company costs. “The most significant debate that is not happening is the true cost of products and services,” says Crowley. “There’s such a thin profit margin in the (travel management company) business that…there seems to be an unrealistic appreciation of what products and services actually cost.”
Crowley points out an inequity where a corporation may be spending $100 million on travel and $2 million to service that travel requirement. He claims the buyer will negotiate harder on that $2 million than on the air and hotel piece that makes up the $100 million. Crowley feels that this situation is perpetuated because the travel management company’s pricing is far more transparent than the travel supplier.
10 mistakes to avoid in travel procurement processes
(From a Buyer’s Perspective)
By Mark Walton
Time and Timing: In most procurement processes, Request for Proposals (RFPs) are issued and they detail the timeline for the process. Invariably deadlines are missed (and some by large measure). Whatever time you may think it takes to complete a bid process, add more time between each stage. Suppliers will appreciate it and you will have more credibility internally.
Data: In order to obtain a response to an RFP that will be of optimal value (and to maintain integrity), data supplied to bidders needs to be accurate and complete. Whatever the category; airline, hotel, car, travel agency, card, etc., a supplier needs to fully understand the opportunity. Undervaluing the bid because of bad data will yield a less than competitive response, while overvaluing may cause problems in the future should a company not be able to produce at the levels proposed. When asking for data from the supplier, only request data that is relevant to the RFP decision. A request for data that is not relevant becomes extremely frustrating to suppliers and is counterproductive.
Requirements: In order for suppliers to respond effectively, they need to understand the prospective client’s business requirements. As an example in a travel agency bid, it would be critical to understand if the company has a requirement for VIP servicing; perhaps they have a significant amount of hotel-only reservations that would require a hotel desk, or the account requires multilingual agents in Canada, etc.
Bidder List: Companies are inviting poor results if they do not take the time to match up their culture and requirements with prospective bidders. It is costly for suppliers to bid on new business, and it takes time for the procurement team to review each proposal. Make sure that each bidder has a realistic chance to be a winner in that particular procurement project. Incumbents should always be included, even if experience has been problematic.
The Right Team: Make sure that the right team is assembled from your company to effectively evaluate the bidders and their proposals. Some procurement projects have a technology component, so it would be advisable to have IT/IS represented on the team. Depending on the category, it may be a good idea to have a cross-functional group representing different parts of the company and various user groups.
Evaluation Factors: Try not to keep suppliers in the dark in terms of what is important to your company in this particular sourcing initiative. Giving them as much information as possible will only improve the responses.
Lengthy and Irrelevant RFPs: This generally reinforces the theory of “garbage in/garbage out.” RFPs that result in 100-page responses are a waste of paper and time. Virtually nobody is going to read that much material, and the supplier is going to provide standard marketing-produced responses.
Print vs. eRFPs: Consider the use of Electronic RFPs (not to be confused with eAuctions) that can provide improvement with the problem of cycle time and be more succinct in responses to RFPs. The ability to evaluate responses can be improved by using an eRFP tool as well. To improve decision clarity, you can use an eRFP tool’s automated functionality to calculate scores weighted by your choice of emphasis.
Objectivity in Reviewing RFPs: One of the biggest dangers in a procurement process is failing to establish an objective methodology of evaluating suppliers. Without a formal structure for reviewing RFPs, evaluators fall into the trap of becoming overly influenced by marketing and sales presentations.
Be Thorough: This is a complex industry with many component parts. A procurement process for almost any category within travel represents a large purchase. It requires a very detailed and deliberate process. Pre-evaluation of suppliers needs to be completed; assessing accurate and consolidated data is a requirement; developing a strong evaluation team that includes subject matter expertise; producing a well crafted RFP; having a comprehensive process in order to evaluate bidders objectively, and allowing yourself time are all extremely important components of such an important sourcing process.
Mark Walton is a Principal at Consulting Strategies, LLC in Chicago, IL.
