Volvo Group strategic purchasing manager for marketing and travel Stephan Hylander is the 2014 Business Travel News Multinational Travel Manager of the Year. He wins the award for breathing new life into his company's airline deals at a time when, along with those of many organizations, they arguably were heading toward obsolescence. Travelers often could find fares through public websites that were cheaper than the negotiated fare, leading to lower compliance with the travel program as a whole. Hylander's solution was to negotiate a discount on every fare offered by preferred carriers, so that travelers knew they always could rely on a better deal if they stayed inside the program.
The result has been a victory for all parties, with lower fares and higher compliance for Hylander's team, higher safety levels and less work for travelers (by booking through official channels) and increased market share for Volvo's preferred carriers. In addition, Hylander achieved all these improvements by influencing rather than commanding travelers, a much better fit with the group's typically Swedish business culture of consensual management.
Hylander is a 30-year veteran of the travel industry, starting his career with SAS before moving to travel management company Bennett BTI, later acquired by Hogg Robinson Group. In 2001 he was recruited as travel manager by one of his clients, Volvo Group, which primarily is a manufacturer of trucks—Volvo Cars has entirely separate ownership—and spends 1.5 billion Swedish kroner (US$205 million) annually on travel.
Hylander three years ago started to overhaul his airline program after becoming alarmed about the shrinking reach of his negotiated deals. "The market was becoming more fragmented, with airlines offering 20, 30 or even 40 fares per route," he said. "Twenty years earlier, our travelers didn't have a clue which fares to book and called our agencies to do it for them, but now they were becoming much more educated. I realized their selections were moving more toward published fares because they knew where to look for them, although that meant they were spending more time on the Internet and deviating from our authorized booking processes. It also meant our preferred airline deals weren't very relevant anymore because carriers weren't recognizing our public tickets in terms of volume."
Hylander concluded the solution was to secure a discount on all fares, "even if it was only 1 percent lower." However, persuading preferred suppliers that they would gain by agreeing to this strategy was no easy matter.
Getting Airlines On Board
"The first time we spoke to the airlines, they looked at us with horror," Hylander said. "But we met their senior management and yield management people to explain. We anticipated their arguments and pointed out that a 1 or 2 percent discount is almost nothing, and that availability of those fares is limited, but that it was important our travelers should always notice they were getting a slightly cheaper fare if they needed one. It was all about our ability to communicate internally that no matter what the fare, they will always get it cheaper through us."
Home carrier SAS and Brussels Airlines were the first to take the bait, introducing the new-style agreements in 2011 and 2012. A sliding scale of discounts is based on availability in each class on each route, with the largest discounts on classes where most seats are available. Since then, neither Volvo nor its suppliers have looked back. The average fare paid by Volvo in 2013 fell 10 percent year over year and in 2014 fell another 2 percent, following several years of moderate increases. On some routes, the average fare has fallen as much as 40 percent.
Meanwhile, the number of expense claims for air tickets bought outside the approved agency and booking channels has declined. Use of the official booking tool is up, which Hylander believes has also contributed to the average fare decline. "We have realized savings are to be made not by driving suppliers down to the bitter end but by changing traveler behavior," he said.
A New Approach
Volvo's shift in focus from supplier management to traveler management extends not only to promoting preferred suppliers but also encouraging advance booking and even rethinking meeting times. "One of our entities has said there will be no meetings until after lunch on Mondays," said Hylander. "The first flights on a Monday are usually very expensive, and it also saves some of our people traveling on Sunday to be there, which improves their work/life balance."
For suppliers, the reward has been more business, because Volvo tries to avoid having more than one preferred carrier per major route. Market share for preferred carriers before the new deals typically averaged 65 to 70 percent. "Our goal was to give them 80 percent share on major routes, but they have ended up with more than 90 percent to important destinations like the United States, China and Japan," Hylander said. "The best recognition for what we did was SAS telling us it was very pleasantly surprised with the results."
Some airlines, however, had to adopt the new Volvo agreements the hard way.
"Lufthansa refused to accept our proposal or even negotiate with us," Hylander said. "We told our TMCs to do anything they could to decrease our market share with them." The tough approach worked. In 2013, Lufthansa came to the negotiating table. Although Volvo still doesn't have the across-the-board discounts it would like with Germany's flag carrier, the number of fare classes to which discounts are applied has increased to 15 from three.
Since then, Volvo has gone further, signing a deal in July 2014 with Star Alliance that applies to flights by member airlines originating in Europe and Asia. All of Volvo's top two dozen routes, accounting for 75 percent of its business, now are covered by the new-style airline deals.
Air is one of five travel sourcing categories for which Hylander is responsible, the others being TMCs, hotels, rental cars and payment. Sourcing strategies for each are renewed every three years and, in keeping with the group's consensus culture, need to be validated by multiple stakeholders, including senior management, policyholders and purchasing. It is a process that takes three to six months. "We try to avoid governance by the headquarters in Sweden," said Hylander. For that same reason, Volvo is distinctive for allowing each of the 25 countries in its managed travel program to select its own TMC, although they by no means have an entirely free hand. National entities are obliged to set up a sourcing project to make their decisions, with Hylander's team specifying a baseline of requirements.
Five TMCs (HRG, American Express, BCD Travel, Carlson Wagonlit Travel and Egencia) handle 90 percent of Volvo's managed spend, but Hylander believes it would be a mistake to consolidate further. "The value of awarding a regional or global contract is weak," he said. "TMCs are global brands but do not deliver globally, not even data. In reality, they are operated locally. A second reason is that we do not want to make countries dependent on a global contract. We want them to have the freedom to switch."
Hylander has not found consolidating post-trip data, used for sourcing purposes, from different TMCs a problem. To date, HRG has acted as lead consolidator, but Volvo is set to switch to Concur (using technology inherited through its 2013 acquisition of TRX) to give it pre-trip data for traveler tracking.
Although it's not enough of a nuisance to change Volvo's strategy, Hylander acknowledged that the lack of TMC consolidation does cause some duplication of effort. "If we need additional data or have to give instructions on specific issues, it means we have to contact several different agencies," he said. "We haven't had pushback from suppliers except when it comes to hotel rate loading. I have 450 hotel contracts, and some of them have to load separately for each TMC."
Reflecting the Volvo travel team's journey from focusing on supplier management to traveler management, ownership of the group's travel policy will shift, starting Jan. 1, 2015, from finance to human resources. Hylander expects communication to become an even higher priority in consequence, so perhaps it is not surprising that, asked for his advice to other travel managers, this year's BTN award winner said: "Have a balanced policy. Make sure it complies with senior management requirements but also with current market conditions, and make sure also that it makes sense. The majority will comply with policy if they understand it."
This report originally appeared in the Nov. 24, 2014, edition of Business Travel News.