The travel business is hard. It sells a high-priced, discretionary item at a time when every region of the global economy is growing slowly – if at all. The travel industry is facing its own particular challenges – consolidation, intense competition, eroding margins and high customer expectations. Of course there are bright spots, particularly in the way technology is making people so much more aware of the delights and truly unique experiences travel has to offer. Travel may be a discretionary expense, but it also provides the customer with – literally – a way to leave their worries behind and step into an entirely different world.
Despite those bright spots, businesses from tour operators to the travel agency down the street are finding it increasing difficult to maintain the same levels of profitability they enjoyed in the past. Even tightfisted budgeting won’t always make up for shrinking margins across distribution channels.
Ratcheting down a budget can often be the wrong move in difficult times for two reasons. One is tied to the immoveable logic of numbers: if profits are falling due to erosion in either revenues or margins, expense reductions can never be large enough to offset that shift. Imagine a travel agency suffering margin shrinkage of 2% on revenues of $25M – that’s $500,000, a number too impossibly large to ever be found in the expense side of the business. The second reason is that budget exercises often fail to adequately distinguish between expenses strongly related to revenues and those which are not closely related at all.
How to Find Needless Expenses
One of the most effective budgeting approaches in the travel industry – or any industry for that matter – is to focus on shifting costs rather than reducing costs. This doesn’t mean opportunities to cut travel company costs are ignored, but it does mean the majority of management effort is directed toward finding ways to move expenses from dead-end operating scenarios and into the support of activities closer to the customer and sales opportunities.
Those costs are what are referred to as “needless expenses”. Companies that prosper in difficult times (of which there are many across the travel industry) don’t just cut back on those expenses – they eliminate them; and then put the savings into actions to grow sales, margins - or preferably both. What often makes these prospering companies exceptional is their ability to consistently weed out needless expenses far more effectively and consistently than competitors. One characteristic is particularly important for other business to copy: they learned where to look. Let’s look at the operations of a travel agency for some examples.
Manual Activities are where needless expenses are almost always to be found, but few companies aggressively seek out those manual opportunities. Why? Because when managers try to visualize manual activities, they typically think in terms of museum-like business processes frozen in a pre-automation business state from the prior century.
Companies who consistently prosper don’t think of manual activities that way at all. Instead, their view of needless expenses is along the lines of continual work-arounds done by employees each week, month and quarter to get past bottlenecks caused – not by an absence of automation – but by data and workflow gaps between incompatible business systems. A commonplace example of this can be seen in month-end reporting. In most companies two or three people spend days after the close of books running excel spreadsheets populated from data sprinkled across any number of software applications. Compensating for non-integrated systems with excel is so widespread people rarely challenge or even question the practice – it’s as though these manual tasks have become an invisible part of the office routine.
In the travel industry, the three most likely areas to find meaningful levels of constant manual activity is reporting (as seen in our example); calculating outstanding commissions from service suppliers, then reconciling supplier payments against those commissions; and manually updating wholesaler pricing and term information into cost accounting modules. Keep in mind there is a factor which makes ignoring needless expenses a risky strategy: manual actions aren’t scalable, if the business grows and increases volumes, inefficiencies will only become bigger as well.
What Replaces Needless Expenses?
Both the threat and opportunity of these needless, manually-based, expenses has led to the emergence of enterprise resource planning (ERP) systems, developed specifically for the needs of the travel agency, tour operator and Travel Management Company. These software systems provide those businesses with an integrated suite of applications: for example, accounting, CRM and suppliers management, fiscal documents management - that eliminate manual activities from those travel processes.
This means travel business are now able to easily shift costs from needless, wasteful manual tasks into higher value work with the customer – exactly what is needed for differentiation in today’s travel market. Not only does a travel ERP system replace needless expenses with cost-effective, high-performance process automation, its common data model means rapid and accurate management reporting – without a journey through Excel.
Another attractive feature of travel ERP systems is their affordability. In contrast with their costly, unwieldy, monolithic predecessors from the 90’s, recent technology innovations have produced less expensive, more flexible systems that are much easier to implement and use – such as TINA, the travel ERP system from dcsplus.
These new systems have integrated modules customized specifically for the travel industry, including: CRM; supplier management, document management, reporting, integration with accounting software. As a result, travel businesses now have affordable, highly effective operational solutions to the challenge of eliminating needless costs.