Business travel took a major hit during the slowdown, but corporates are now once again spending on travel. For leading business travel company Carlson Wagonlit Travel (CWT), recovery in the Asia-Pacific region has been the fastest. CWT, which has operations in 149 countries, registered sales volume of about $24.3 billion in 2010, a growth of 13.5% over last year. In addition, the number of transactions managed by CWT increased by 11.9%. But it?s not only numbers that are defining the business of business travel. In India, when the 26/11 attacks happened, CWT quickly found out through its system that there were 13 of its clients staying at the Taj and the Trident. CWT?s call centre was constantly in touch with them, guiding them to keep their room lights off, put the phone on the silent mode and not make any noise. All 13 persons came out safe. Douglas Anderson, president and chief executive officer of Carlson Wagonlit Travel, tells Vishakha Talreja about the evolving face of corporate travel. Excerpts:
How important is the India market for you?
CWT India is now our wholly-owned subsidiary. Last year, India was the fastest growing market for us in the fastest growing region (Asia-Pacific region). India is in the top ten markets globally for us in terms of the number of transactions processed, so definitely it?s important. For the India market, we will now be focusing on the meetings, incentives, conventions and exhibitions (MICE) segment and also on energy companies that have very different travel needs. The India market registered a turnover of $372 million in 2010 and a growth of 35% in the number of transactions.
The slowdown had a major impact on business travel. Has there been a significant recovery?
Globally, last year was of tremendous growth. The market is still small in terms of the total spend of what it was in 2007. The slowdown is behind us, but there are a lot of other external factors, such as spiralling oil prices, that will affect growth this year. But the good news is that most companies have recovered and are spending once again on business travel. However, some factor changes happened during the slowdown and it will take time to change those. For instance, many companies introduced technology such as video conferencing to cut down on employee travel and now the chances are they won?t reverse such practices. But yes, in a nutshell, business travel has recovered.
There are some acquisitions in the corporate travel space that have happened in India. How has that changed the market?
Corporate travel in India is a very fragmented market. Around five-six years back when we were trying to do some numbers, what we saw was that only 5-6% of the business was being done by big travel management companies and the rest was with smaller players. Today, around 30% of the corporate travel market is with the top five-six players. Very clearly, this indicates that corporates have realised travel is a very specialised area and needs to be handled by organised players. Going forward, the market will witness some more consolidation.
As far as we are concerned, we have made eight acquisitions in the past three years around the world. We are not desperate to make an acquisition in India, but if something comes along and is a strategic fit, we are open to it.
In India, online travel agents (OTAs) have also started looking at the corporate travel space, handling business for SMEs. Looking at the cost-effectiveness of the OTAs, do they pose a threat to travel management companies?
Ten years ago, the Internet was supposed to be the end of the travel management companies (TMCs), but they continue to thrive. OTAs had 7-8% of market share around three years ago and that hasn?t changed much, although that still accounts for a sizeable share. Their growth is in the case of companies that have more of point-to-point travel. By providing online tools, we have responded well to the trend and that?s how TMCs have been able to get over the Internet phobia. Online agencies face a challenge in the corporate travel space. They are not full service providers and are not able to do complicated transactions. But companies that are looking at full service are looking at security, travel managers, expense management and other services TMCs provide. I am not saying online is not a threat, but for now, it hasn?t proved to be a major threat for TMCs.
So what are the challenges for corporate travel biggies like you?
Rising crude oil prices are a major concern. If prices of air tickets go up, it?s not good news for us, the industry and our clients. Oil is already $125 a barrel, higher than what it was forecast to be in the last half of 2010. It is already having a slightly negative impact on the demand and could get bigger.
Things we can control, we are comfortable about, but things that we can?t, become a major challenge. Also, there is a challenge to maintain cost-effectiveness as the market is highly competitive and fragmented as well. There have been a number of new entrants in the past couple of years that have snappier services. If you pick up an iPhone, you will find a plethora of travel apps available where a whole range of companies provide applications to make one?s travel easier and to win customer loyalty. CWT is also putting some apps in the market soon to keep up with the times.
With costs going up, is there a constant pressure on margins?
Last year was the best year for margins we have ever had, but this year might not be. So yes, there is a pressure on margins. We have to be mindful about our suppliers. We know that airlines are constantly working to bring their costs down and are having a re-look at their distribution systems. There is already a lot of noise about commissions on air tickets in India and some airlines have started making that noise in the US too. But we are accustomed to dealing with change. Going forward, the relationship with suppliers will continue to be very important.
How is the Indian market different from your other global markets?
The visa process in India is very complex. In the US or Europe, you will require a visa one out of eight times you travel, whereas out of India, you require a visa nine times of the ten times you travel. The travel approvals in India take more time than probably any other market. So the administrative burden is quite high per transaction. The second key difference is that the online booking adoption is very low in the Indian market. But that is also because the transaction cost is very small, so there?s isn?t much difference between the cost of an online and offline transaction.
Behavioural patterns of Indians are also very different. Everything is last minute. Today, 80% of the corporate bookings are between zero-seven days. If, say, we move them up to 7-14 days plus, there will be a saving of 10%. But to drive that change in India is very difficult, even though we know that last-minute airfares can be very high at times.