ABTN speaks to David Radcliffe, HRG’s CEO, about the relationships between travel managers and travel management companies, the distribution debate, and getting on the acquisition trail.
Many had hoped 2011 would be a little calmer than 2010, but it hasn't turned out that way, with civil unrest, natural disasters, and even the odd ash cloud. What has the effect been on HRG and the business travel industry in general?
Obviously we wish it wasn't so tumultuous, but having said that to be honest all of those activities underpin the value of a company like ours. So without being too corny, if you look at geopolitical events, we've recognised where travellers are often before their own companies know they're there and extricated them. The ash cloud fortunately wasn’t anywhere near the effect of last year, but nonetheless we still had to get hold of people and reroute them and make sure they got where they were supposed to be. At the end of the day, I think all of this underscores to companies the value that we deliver.
From conversations you’ve had with travel managers, how do you think they are feeling – are they nervous?
I think travel managers are a pretty stoic lot and I think that most of the ones that I know take this in their stride. I know that some were hugely involved with the tsunami in Japan, and that caused extra working hours, long weekends, etc. But, to be honest, I think that kind of goes with the territory. It’s a bit like underpinning the value of the TMC to the corporation. I think those travel managers who are experienced are really worth their weight in gold to their companies.
Has HRG’s relationship with its clients got closer?
The two points of contact that our organisations would mainly have between each other is travel management and procurement. Maybe on a case by case basis there will be occasions where it has, but I like to think that we generally have a pretty close relationship with them anyway. I think there would have been certain circumstances where working together perhaps leads to a greater understanding.
What do you think about the relationship between the travel manager and their travel management company? Do you think that it is supported enough, in general, by companies? Do you think it’s something that could improve?
I think it’s evolving. I think the relationship between the travel manager and the travel management company is far more professional nowadays. I think it’s less reliant on quick favours and far more reliant on quality data, on analysis, and on helping the travel manager in their organisation get the best value for their expenditure. I think in that respect it’s far more professional and it’s a far more transparent playing field.
HRG’s annual results revealed 2010 was a strong year. Do you think that is partly to do with more stuff coming under the travel management umbrella?
I think it’s more to do with the fact that our model is increasingly developing into one where we get paid for activities in what we do and our model is far less reliant on volume as it relates to how much is spent. Using your term “stuff”, I think yes, but not necessarily the stuff that you would normally expect. I would say there’s a far greater demand for our technology – there’s a far greater demand for us to put in technology and work with the client on training programmes and communication programmes. It’s that type of stuff I think which is adding value.
What’s happening is we are seeing signs of some clients trying desperately to come out of the recession. They are travelling again, but they want to make sure that they really are getting the best bang for their buck. In helping them do that, they are open to more innovative ideas than they have been before.
For example...
We’ve seen a big uptake in online technology from clients where we’re actively encouraging some clients to book direct with us online. We extract the data and we’re able to save the direct cost that’s associated with those bookings. Therefore we can redeploy our costs far more effectively. Another example is data. We’re running data warehousing for our clients, analysing the data, and then making recommendations based on the results of that data and on benchmarking analysis from the market.
On the subject of technology, do you think the dispute between airlines and global distribution systems is something the industry should be worried about?
I think worried in our case is probably the wrong word. I think I would swap the word worried for aware. I certainly think that if you look down the path, and if you take out the personalities, and you just look at the principal of what the airlines are trying to do... They’re not trying to do anything different to any other manufacturer or service industry, or anyone that supplies a product. What they’re trying to do is distribute that product in the way that they want to distribute it.
Historically, the airlines were part of building up the GDSs, they even used to own them at one time. Some of them still do. So they built this monster, which they now want to change. Clearly it’s causing a furore, but ultimately if you look at what they’re trying to do it’s quite simple. They want the ability to distribute their products and not be commoditised by a single distribution point. I have sympathy with that.
I also have sympathy with the GDSs’ point of view, from the simple philosophy that they are probably still the most efficient distribution method that there is. But, clearly, something is broken between the two of them.
Going back to whether we should be worried, I think no. Our role is to keep the client informed of what the best options are moving through this and to make sure as a company that we are capable of adding our value in the new distribution chain. I’ve been quite open to anyone who has asked me that we adopted a philosophy many years ago where we held on and developed our own technology. We do have the capability of direct connecting if that is the best path.
Is the technology that HRG is developing an answer to the problem of distribution?
Yes, it could be an answer. If this moves forward and if the momentum picks up, then what we have could be a solution on behalf of our clients. If on the other hand it doesn’t move forward and something else develops it is our job to make sure that we use the most efficient way on behalf of our clients. I think, putting it simply, some time ago we looked at it and said the world will change. The way that travel is distributed is getting old, and something will happen either financially within it, or practically around it. We need to be ready for that, and aware of it.
In the coming year, do you expect more aspects of travel to be managed more closely? Such as meetings, video conferencing or ground transport, such as taxis or chauffeur drive...
If we change managed travel to travel and its related expenditure, I think you would be spot on. We’re having far more conversations with clients now about managing video conference suites, chauffeur drives, taxis – all sorts of things around the process of travel. And we’ve also got our expense management tool, Spendvision, which is an online reclaim tool.
Do you think ground transport has been ignored in the past by travel managers?
I’m not sure they’ve ignored it. I think what has happened is that is has been on the travel managers’ radar, but it’s not necessarily been the agenda item within the corporation. We’ve got a piece of software which looks at the total cost of travel, and that drills right down into the cost of the individual, cost per hour, looking at cars versus taxis versus trains, etc. And there’s far more interest in that type of software and that type of process than there ever was. I think it’s a fairly simple dynamic that’s driving it. I think it’s increasingly companies saying we do need to save every penny, but at the same time we’ve got to travel. Let’s max the expenditure. I think although the travel manager has had it on their radar, they haven’t necessarily had the support that they’re now getting from within their organisations.
You mentioned Spendvision. From the results I understand that’s something that hasn’t done so well this year, compared to the previous year...
That is because they have signed a lot of business and they are getting to grips with it. Also they signed a lot of contracts where the activity behind the contract is really on hold until things begin to pick up within our client companies. So we’re still happy with it, but I think you need to put it into context. If you look at the relativity between Spendvision and the rest of the company, it is obviously still very small.
What is HRG planning for the rest of 2011 and further into the future?
The positive results from 2010 and the continuing momentum of our share price brings back on the table the chance to grow by acquisition if we can find the right bolt-on opportunities, the right add-on service companies. We’re not going to go mad about it, there’s not a huge acquisition planning spree out there, but it does bring back on the table growth via acquisition. Our focus over the next few years is growth.
Which areas may be the focus?
I think natural, bolt-on acquisitions to existing territories that we have would be interesting.
In the UK?
We don’t have to do something in the UK. I think if something came up in the UK that attracted us and was attractive to the target then we would consider it. Wherever we have a footprint in a territory it makes absolute sense to build on it if the combination of price and value is right. Equally, there may well be some additional service-type operations that are attractive for us to build as well.