Cabin Pressure

1
Cabin Pressure

• Scott Gillespie
• Vice President General Manager
• Travel Analytics
• TRX

2
Todays Agenda

• Airline Costs, Capacities and Fare Prices
• Framing the CFO Discussion
• Thoughts Going Forward

3
Scott Gillespies Background

• TRXs Vice President and General Manager, Travel
  Analytics
• Previously Founder and CEO of Travel Analytics,
  Inc.
• Developed TANGO and BRAVO for airline sourcing
  projects
• Analyzed in excess of 20 Billion of corporate
  air spend
• Recipient of ACTEs Industry Professionalism and
  Distinguished Fellow honors
• Named by Business Travel News as one of the
  travel industrys most influential executives
• Previously A.T. Kearneys global expert in
  strategic sourcing of travel suppliers
• MBA, University of Chicago

4
Learnings From Past and Current Clients

• ABB
• Agilent
• Bank of America
• Baxter
• Coca-Cola
• Chevron
• Dell Computer
• Deloitte
• John Deere
• Ernst Young
• Ford
• Hewlett-Packard

IBM KPMG Lockheed Martin Microsoft Procter
Gamble Nortel Networks Novartis PricewaterhouseCoo
pers Roche Shell Tyco WPP
5
Airline Costs, Capacities and Fare Prices
6
Jet Fuel Costs Trending Upward, With More
Volatility
7
3-Year Trend-line suggests cost of 4.40 per
gallon by early 2010
4.40
8
What If Jet Fuel Hits 4.40 per Gallon?

• Adds 23 on DFW-Houston roundtrip
• Adds 86 on DFW-Chicago roundtrip
• Adds 167 on DFW-Boston roundtrip
• Adds 509 on DFW-London roundtrip
• Adds 749 on DFW-Beijing roundtrip
• Adds enormous problems for all of us

Note Assumes average jet engine fuel economy of
63 ASMs per gallon and 75 load factors
9
In Late 2005 The U.S. Government Forecasted A
Much Lower Cost
4.40
10
Where Is The Airline Capacity Going?

• Worldwide capacity grew by 3,076 MASMs (4.9)
• US Domestic capacity shrank by 122 MASMS (-0.9)
• US?International capacity grew by 460 MASMs
  (4.1)

Note All capacity data is based on weekly
schedules in Sep. 05 and Sep. 06 MASM Million
Available Seat Miles
11
Transatlantic Capacity grew 6,
whileTranspacific grew 1
Growing
Shrinking
12
US-based Carriers

• Contributed 18 of the net new global capacity
• Accounted for 39 of net lost global capacity
• Gains and losses were NOT distributed evenly

13
Capacity Gainers and Losers
14
Worlds Largest Airlines as of Sep. 06
15
Most Domestic USA Airfares Have Risen By 4-7
Source ATPCO, TRX Analysis
16
Domestic Business-oriented Airfares Have Risen
More Than Fuel
Note The Jet Fuel Cost Increase is measured from
9/10/04 to 9/10/06 based on spot prices and 75
load factors
Source ATPCO, U.S. Dept. of Energy, TRX Analysis
17
Most Carriers Have Raised Existing Y-Fares Well
Past The 499 Barrier
Note Data includes each carriers top-tier Y
fares
18
Average New Y-fares (new markets and/or new fare
basis codes) Are More Than 499
Note Data includes each carriers top-tier Y
fares
19
Four Airlines Have Been Quite Aggressive About
Y-Fare Hikes
Note Data includes each carriers top-tier Y
fares
20
Framing The CFO Discussion
21
What Do Travel Managers Manage?

• Tough goals
• Tight budgets
• High-pressure bosses
• Complicated technology
• Convoluted industry dynamics
• Confusing and imperfect data
• Suppliers with agendas that dont always match
  our own
• Travelers who are not shy about complaining -
  and advising

Just Part Of The Job
22
What Do Travel Category Managers Really Do?

• 1. Demand
• Mgmt.
• Policy language
• Policy enforcement
• Pre-trip approvals
• Travel alternatives

• 2. Trip
• Mgmt.
• Shopping
• Booking
• Complying
• Fulfilling
• Changing
• Paying
• Complaining
• Reporting

• 3.Sourcing
• Mgmt.
• Airlines
• Hotels
• Agencies
• Ground
• Card
• Other Suppliers

• 4. Spend
• Mgmt.
• Data collection
• Analysis
• Audits
• Bench- marking
• Reporting
• Contract monitoring
• Reimburse-ment

• 5.Stakeholder
• Mgmt.
• Senior Mgmt.
• Suppliers
• Travelers
• Internal Audits
• Finance
• Human Resources
• Sales (reciprocity issues)

Five Primary Functions
23
What In The World Are We Talking About?

• A curvi-linear extractor of friction-based seals
  in narrow-necked silica-fused containers

• A single-use portable low-BTU short-duration
  ignition system powered by a friction-based
  chemical reaction

• A manually-powered torque applicator for
  light-weight metallic slot-headed fasteners

The point Strategies should be stated as simply
as possible
24
Just As Form Follows Function
So Should Strategy Follow Goals
25
What Are The Big Picture Goals? (Hint Think
Shareholder Value)
Corporate Goals
Travel Implications

• More Trips

• More Revenue

• Lower Unit Costs

• More Trips

Happier Customers

• Lower Unit Costs

• Fewer Trips
• Better Trips

Happier Employees

• Lower Unit Costs

Lower Costs

• Fewer Trips
• Worse Trips

26
Strong Travel Policies Help Drive Down Costs
27
But They Also Drive Up Costs Due To Poor Traveler
Retention, Productivity And Satisfaction
Trips Purchase Cost
Type Of Travel Policy
28
Whats The Right Travel Policy Level?
The Policy Level Which Minimizes The Total Cost
Trips Human Capital Cost
Trips Purchase Cost
Type of Travel Policy
29
High-level Strategies Are Predictable Once You
Know The Goal
Strategic Path
How Much Savings Are Needed?
30
Thoughts Going Forward

• Mid-way airlines gt Slight positive for buyers
• Micro Jets gt Scary negative for carriers
• Mergers gt Marginally less competition
• Macro-economics gt GDP drives air demand
• Mega-markets (India, China) gt Big increase in
  demand for jet fuel, gasoline, aircraft and pilot
  labor

Overall Continued upward pressure on fares so
long as the global economy is healthy
31
Thank You!

• Questions or Comments?