Note: This is a guest article by T.J. Clark, CEO of Limos.com.
“Chauffeured transportation should be your company’s biggest incremental travel savings in 2012.”
That was my mantra at the Global Business Travel Association conference in Denver, Colorado, in August. Understandably, people are skeptical.
“Our company has negotiated rates with a national limousine company.”
“We spend millions on air and hotel, which is where I need to focus my attention to reduce spending. Ground transportation is too difficult to address.”
“We don’t use private cars or limousines -- they’re too expensive. Our employees rent cars or take taxis.”
Let’s do some quick back-of-the-napkin math and say your company takes 1,000 round-trip flights per year. For each of these, there are four possible ground transfers -- to and from the airport -- or 4,000 per year. Conservatively, let’s say each transfer costs $60. That’s an annual cost of $240,000 spent just on rides to and from the airport.
Now, imagine this scenario for a company with 15,000 travelers averaging 2-3 trips per year. The annual spend for airport transfers alone could easily range between $5 and $10 million.
Any chief procurement officer would agree that strategically sourcing this category could yield significant savings opportunities. Indeed, when Goldman Sachs is cutting costs by reducing the size of its coffee cups from 12 ounces to 10 ounces, companies of every size on every continent need to take a fine-toothed comb to expenses in order to survive the current global economic climate.
Some quick facts:
- Businesses worldwide spend approximately $20 billion annually on private cars for employees, with $10 billion spent in Europe and Asia and $10 billion spent in North America;
- Globally, 95% of private car services are still booked offline. In contrast, over 70 percent of air travel, hotel rooms and car rentals are booked online.
- There are more than 20,000 licensed operators of private cars globally. Most of those operate exclusively in local markets and approximately 70%-80% are contracted by well-known limo operator chains.
So how has this sizeable travel segment remained virtually hidden from the Internet? Why can’t people search, compare and book private cars online just like we do with flights, hotels and rental cars?
Mainly, it’s because the private car industry is highly fragmented with thousands of small, regional operators whose inventory is not broadly available in a GDS or online. Without the overhead costs of international chains, these operators can charge significantly less for the same excellent service and a full range of vehicles, from the Mercedes Benz to stretch SUVs.
We estimate that consumers and businesses can save 30% to 40% on private cars when they have easy access to local operators, transparent pricing and online controls, all of which have been instrumental in helping companies save millions in air and hotel spending for more than a decade.
The Internet is proven as the perfect solution for travel -- small, local suppliers offer online travel agencies discounted rates in exchange for incremental customers they have neither the brand power nor marketing budget to reach.
The challenge lies in building the centralized, online repository of private car inventory.
After helping to build the flight and hotel supplier network at Hotwire circa 2000, I know that plugging in 20,000 operators throughout the world is a major undertaking, but I firmly believe that establishing a quality supplier network, as opposed to an affiliate model, is the best way to build a world-class online travel service for both consumers and suppliers.
In fact, it’s the only way to ensure consumers are being served by legitimate, licensed operators, and suppliers are gaining incremental customers rather than basic, unqualified leads.
Reliable and legitimate service is more relevant now than ever, as travel to and within Brazil, Russia, India and China grows at unprecedented rates, in tandem with foreign investments and economic growth in these regions.
Ensuring employees have licensed, legitimate and reliable private cars when traveling in these developing countries is a matter of productivity, safety and risk management. Time is money, and leaving employees to navigate foreign places via rental car or rogue taxi is an invitation for trouble.
When asked, most procurement and corporate travel managers know to the penny their company’s annual spend on air, hotel and rental cars, because they have the online tools to manage them. When it comes to taxis and private cars, they don’t know where to begin – and they don’t see the category as a large savings opportunity.
There’s only so much more the air and hotel supplier margins can bear, and the opportunity to save on private car services is enormous, once modern online access and controls are implemented.
Recently the CEO of a small company with a global sales force told me that within three months, they cut their annual run rate on private cars from $24K to $6K just by having online access to local operators in every country.
Note: This is a guest article by T.J. Clark, CEO of Limos.com.