The ACTE Column: The economic tightrope

Getting your business model and travel programme right is a balancing act in these changing times.

OVER THE LAST DECADE the world's supply of coffee beans has far exceeded demand. Prices have plummeted and global coffee farming has fallen into crisis. Early in that same decade, the World Bank calculated that 600,000 jobs had been lost in Central America alone through coffee farms cutting work forces or going out of business entirely. With the livelihoods of millions of vulnerable peasant farmers at stake, there are concerns that desperation will lead them to cultivate drug crops, and that illegal migration will spiral to an unprecedented level.

One of the UK's richest educational institutions, University College London, had recently been lambasted for refusing to pay contract cleaners the living wage for the capital. The college has since capitulated, but what rankled many protesters was that UCL's president and provost was the second-highest paid university head in the country, with annual remuneration exceeding £404,000 - he was earning more in a fortnight than his cleaners were each earning in a year.

The world seems out of balance. Effective yield management and fair pricing is critical for a sustainable supply chain. Market forces dictate that we invariably hunt for the best deal. Whether in our personal or professional lives, we are tuned to habitually hammer suppliers for cheaper prices in an economic balancing act that inevitably affects those at the bottom of the supply chain most: we want the cheapest grocery bill and our employers want to deliver the best year-end results. Board directors apply downward pressure to reduce budgets and increase margins to satisfy shareholders. Pure supply and demand decides what we must ultimately pay, both financially and ethically.

Corporate travel suppliers have been battered over the last decade by increased competition, new entrant pricing, terrorism, strikes, legislation, oil prices, global financial crisis, Icelandic ash and a host of other factors. Economics forced many throughout the supply chain to claw back lost revenues and market share through creative pricing initiatives. Those initiatives gave birth to the now-common practice of unbundled pricing and the new headaches of defining processes and systems to capture, measure and reconcile data.

It is important to identify and understand just how much newly presented figures may cost the bottom line - yet, with shifting goalposts, we can't measure like for like. Cost reduction for one party often requires a new process for another. Effectively, while one area reduces costs, it usually passes an increased cost burden down the chain.

But on our industry roller-coaster, the balance of supply and demand is shifting again. It has been a buyers' market through global recession, where supply far exceeded demand. Then, corporate travel buyers cut an average of 40 per cent from budgets through reduced travel and new technologies. However, they will be in the boardroom reporting budget increases in 2011 and beyond. Demand will start to surpass supply.

How will the industry cope and still maximise growth opportunities, regardless of which side of the fence each party sits on? Only through open dialogue and sharing information will honest partnerships and equilibrium be maintained.

Recognising upcoming challenges, a volunteer planning team of senior industry representatives helped define the content for ACTE's London Executive Forum on December 2 at Grange St Paul's Hotel. A general industry 2010 vs 2011/12 status review will identify economic indicators including capacity, fuel cost and premium vs economy yield forecasts. Airline and hotel consolidation trends impacting profit and loss will be predicted and discussed, including load factors, changing inventory classes for corporate deals and the application of new technology. To help the industry work through these challenges together, panel speakers will share pricing, modelling and negotiation strategy tips so that buyers can maintain contract rate utilisation ratios through each contract period.

ACTE
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