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					Strategic Sourcing and Procurement -
     based Travel Management:
           The New Model

      This session is presented through the generosity of:
 Strategic Sourcing and
    Procurement-based
Travel Management: The
             New Model

                   Presented by
              Scott Gillespie
                    Principal
             Travel Analytics
Scott Gillespie’s Background
• A.T. Kearney’s expert in strategic sourcing of travel
  suppliers from 1994-1999
• Founded Travel Analytics in January 1999
   – Developed TANGO™ for airline sourcing projects
   – Analyzed in excess of $3 Billion of annual air spend
   – Named by BTN as one of the travel industry’s most
     influential executives
• MBA, University of Chicago
Today’s Agenda
• Strategic Sourcing and Travel
  – What is strategic sourcing?
  – Readiness test for travel managers
  – Ten Commandments for successful travel sourcing
• The procurement model for managing travel
  – Travel is not a commodity - right?
  – Solving the Travel Management dilemma
  – Old problems, new solutions – what’s working?
• Q&A
• Appendix: 10 C’s, Work Plans, Business Cases
Strategic Sourcing
               and
            Travel
Strategic Sourcing is a cornerstone for
travel cost reduction

              Demand Management
                 (fewer trips)

        Groups/meeting     Transient
         management       transaction
                          management

     Strategic Sourcing     Travel policy
How does Strategic Sourcing work?


      Buyer
                                       Buyer


           •   Consolidate the spend
 Suppliers •   Control the spend
           •   Tighten supply relationships
           •   Find ways to cut costs
Strategic Sourcing seems too good to be true
    100%        ~
                ~ 60%          Purchased goods and services can be
                               more than half of a firm’s total revenue

                                     Reduced spending falls
                                     right to the bottom line…


                              25%

                                                                 …without layoffs
                                            10%
                                                                       8%
                                                        5%

Total Revenue   Purchased    Salaries,     Taxes,       Profit        Profit
                Goods and   Wages and    Depreciation   Before        After
                 Services    Benefits    and Interest
Strategic Sourcing is sold at the CEO Level
• High Value and Big 5 firms have strong credentials
    – Boardroom name recognition
    – Global resources
    – Multiple category experts
•   Fees can run into the millions of dollars
•   Consultants promise big savings to justify the fees
•   Consultants promise fast results
•   Consultants often have little travel experience
•   Travel managers have little say in the decision
Characteristics of Strategic Sourcing
• Effective method for reducing supply costs
  –   Awards larger volumes in return for better pricing
  –   Maximizes competitive tension
  –   Undermines relationship-based price premiums
  –   Can trigger new ways of doing business
• Rigorous and objective procurement process
  – Well-defined supplier criteria
  – Requires some quantification of quality
  – Balances loyalty and switching costs
Characteristics of Strategic Sourcing
• Political powder keg
  – Sponsored by senior management
  – Often driven by external consultants
  – Threatens many parts of the organization
     • Procurement
     • Engineering, Manufacturing, Service delivery
     • Sales and other frequent travelers
         A major investment of time and money –
                   and therefore a risk
Industry dynamics invite new approach to
travel management
 Airline Commission Caps                    Strategic Sourcing
• Rationale                           • Rationale
   – Match commission fee to             – Reduction in purchase costs
      agency cost, not ticket price         goes straight to bottom line
• Adoption Rate                       • Adoption Rate
   – Nearly universal                    – Significant and growing
• Consequences                        • Consequences
   – Smaller commission pool             – Travel suppliers are targeted

       Dwindling Revenues                Pressure to Reduce Costs
                            More Sophisticated
                           Management of Travel
                                  Costs
Applying Strategic Sourcing to Travel
 Strategic Sourcing Technique          Application To Travel
  1. Consolidate expense data          Consolidate agency/card data

  2. Determine specifications          Set travel policy
  3. Enable concentrated purchases     Enforce travel policy

  4. Motivate the suppliers            Show incremental gain/loss

  5. Obtain best prices                Calculate total costs and negotiate
                                       aggressively
  6. Enforce new supplier agreements   Enforce travel policy

  7. Track and measure savings         Use data warehouse tools
The Role of External Consultants
• Quickly show significant savings opportunities
  –   Consolidate and analyze data
  –   Help tighten travel policies
  –   Apply rigorous RFP processes
  –   Neutralize biases toward/against suppliers
  –   Build senior management support for change

            Big fees are justified with big savings
Setting Goals for Travel Sourcing Projects
• Set stretch goals, e.g. 5-20% savings
• Base savings only on sourced spend
• Define ―savings‖
  – Which year’s prices?
  – Which year’s volume?
• Make savings conditional upon new travel
  policies
• Allow 4-5 months per category
Likely Consequences of a Sourcing Project
•   New policies, processes and technologies
•   Suppliers are shaken up
•   Significant savings
•   Travelers accept the changes
•   Increased senior management attention
•   Travel manager’s career is boosted…
•   … or busted
Readiness Test
     for Travel
    Managers
                                                                1 = Strongly disagree


Strategic Sourcing readiness test
                                                                2 = Disagree
                                                                3 = Neutral/don’t know
                                                                4 = Agree
                                                                5 = Strongly agree
  Use the scale to answer each question below
       A. Cost reduction is a high priority for our senior
           management team
       B. Our senior management team is interested in
           strategic sourcing
       C. Our firm has a centralized management style
       D. Our travel management team is well respected by
           at least one member of our senior management
           team
       E. Our major city pairs have adequate airline
           competition
       F. We can move room nights between properties in
           most of our key hotel markets
       G. Our firm is not overly concerned about turnover
           (i.e., retention) among our frequent travelers
                                             Add total points                 = Score
Is your firm ready for strategic sourcing?
Score:
• 29-35   High probability of success
• 23-28   Moderate probability of success
• 19-22   Low probability, but still possible
• 15-18   Likely to fail
• 7-14    Do not start

           Not all firms are ready, but
           you may not have a choice
10 Commandments for successful sourcing
    I.   Create a righteous travel policy
   II.   Punish the sinners
 III.    Pray for good guidance from senior management
  IV.    Reach out to the non-believers
   V.    Covet thy data
  VI.    Look deeply into the value of quality
 VII.    Know thy own heart prior to seeing bids
VIII.    Speak the truth to all bidders
  IX.    Judge thy bidders fairly
   X.    Honor thy commitments
I. Create a righteous travel policy
              The price paid by a corporate traveler


      Is determined by the supplier’s willingness to negotiate


         Which is based on the company’s ability to move
                 market share between suppliers

          Which depends on the company’s travel policy
                     and its enforcement

      Companies with weak travel policies will
            never get the best prices
VII. Know thy own heart prior to seeing bids
• Be honest within the sourcing team about supplier
  preferences and prejudices
• Define cost, quality and savings
   – Be objective and rigorous
                                        Decide how to decide
   – Do this early in the project
                                       before the bids come in
   – Avoid extensive detail
• Create ―if/then‖ decision rules
   – ―If Supplier B comes within 10% of our incumbent’s
     quality, and offers a cost savings of at least $100,000,
     then switch to Supplier B.‖
Travel Sourcing 101 Summary
•   Strategic sourcing is here to stay
•   A strong travel policy is required
•   Not all firms are ready
•   Select suppliers fairly
•   Honor your commitments
The Procurement Model
    for Managing Travel
Travel is not a commodity — right?
         Common Points                   We Could Be Talking About…
―It’s a significant expense category.‖
                                              …Travel
―The spend is very hard to control.‖
―It touches most employees.‖                  … or Health Benefits

―You can’t just switch suppliers like         … or Advertising
 you can with office supplies.‖               … or Enterprise Software
―It really affects sales and/or               … or I.T. Consulting
 productivity— but you can’t
 quantify it.‖

          Travel isn’t as different as we might think
Is Strategic Sourcing the final answer?
•   No! Strategic sourcing has several weaknesses
•   Heavy focus on cost savings
•   Projects are ―done‖ but not ―done-done‖
•   Travel managers are left holding the commitment bag
•   Senior management remembers the projected savings…
•   …but forgets the travel policies needed for success
•   Suppliers are left to sink or swim
•   Strategic sourcing principles are not integrated with
    travel operations
Managing major expense categories
                                  Control
                          •   Quality standards
                          •   Purchase orders
                          •   Budgeting
                          •   Analysis
                          •   Payment
        Sourcing
•   Supplier evaluation                            Operations
•   Price negotiation                         • Order fulfillment
•   Contracting                               • Problem resolution
•   Cost reduction                            • Data collection and
•   Supplier                                    reporting
    development

                          Travel fits this model
Recent changes are driving a new travel
management model
• Loss of commission and override revenue makes
  travel another cost center
• Travel industry has become more complex
• Growth in travel-specific B2B technologies
• Strategic sourcing works in the travel category
           Senior management’s conclusion:

              Travel can be managed
               like other categories
The procurement-based travel management
model
                              Travel Manager


        Sourcing Team                          Operations Team
  • Buy the specified quality of travel   • Manage travel agency
  • Set guidelines for purchasing         • Implement new programs
  • Evaluate supplier quality and cost    • Implement new technology
  • Manage selection process              • Manage supplier performance
  • Negotiate contracts                   • Manage travel policy compliance
  • Quantify potential savings            • Resolve traveler problems




                 Each team has very different goals
Operations and procurement models
                Operations Model      Procurement Model
Strategy        • Win by executing    • Win by controlling
                  well                  the spend
Leverage        • Travel policy       • Travel policy
                  compliance            compliance
                • Reservations        • Spend and data
                  operations            consolidation
Major focus     • Traveler behavior   • Contract performance

Major concern   • Are the travelers   • Can we move the
                  happy?                business?
 The travel management dilemma
                     ―Where are the savings?‖

                            Control
  ―Promise big
volumes to get big                              Operations
    savings.‖
                                           ―Don’t promise what
   Sourcing                                  we can’t deliver.‖
                      ―Where’s the volume?‖
                                or
                       ―Where’s the threat?‖

                           Suppliers
Solution: The D/P Dashboard
• D/P = Delivered to Promised % (e.g., market share,
  room nights, segments, rental days, etc.)

        Airlines   D/P Score
            AA         77% Too Little
            CO        115%     Too Much
            DL        105%     About Right


                     Ideal D/P score is 100%
D/P Dashboards are informative
• The best D/P score is 100%
  – Delivered exactly what was promised
• D/P scores above 100% mean money left on the table
• D/P scores below 100% are red flags
  –   Overly aggressive sourcing promises?
  –   Traveler resistance?
  –   Travel policy compliance issues?
  –   Supplier quality issues?
  –   Supplier contracts in jeopardy?
D/P Dashboards are powerful
• Sourcing teams make more realistic commitments
  – Seek more input from Operations
     • Supplier reputation and capabilities
     • Traveler perceptions
     • Travel policy implications
  – More likely to challenge supplier’s volume targets
  – Eliminates over-commitments to suppliers
• Operations performance can be clearly measured
  – A key responsibility is to meet contracted goals
  – Some factors will be outside the team’s control
Old problems – how do you:
•   Minimize transaction costs?
•   Control purchases at point of sale?
•   Maximize suppliers’ price competition?
•   Maximize buyers’ purchasing volumes?
•   Enforce travel policy compliance?
•   Make faster decisions about supplier bids?
•   Agree to realistic supplier goals?

         Predominantly procurement problems
                                                      Good   Moderate   Poor


                                                       Near-Term Benefits
     Solution                    Problem              Air    Hotel     Car
                       • Minimize transaction costs
Self-booking
                       • Control at P.O.S.
Direct connections     • Minimize transaction costs

Online RFPs and        • Maximize price competition
auctions               • Faster selections

                       • Maximize price competition
Airline Sourcing                                              N/A       N/A
                       • Faster selection
software
                       • Realistic contracts

Consortias             • Price/volume leverage

                       • Data consolidation
Agency consolidation
                       • Influence at P.O.S.

Expense reporting      • Data consolidation
systems                • Purchasing compliance
Implications for travel managers
• More stakeholders: travel councils, sourcing
  committees
• Additional procurement resources
• More rigorous supplier evaluation and selection
• More business cases
  – Supplier recommendations
  – Year-over-year savings
  – Travel policy costs and benefits
• Tighter travel policies
• More technology – E-RFPs, auctions, sourcing
  software
Implications for travel suppliers
•   Greater account volatility
•   Stronger travel policies
•   More pressure on price
•   Must reduce internal costs
•   Need to show clear differentiated value
•   Continued industry consolidation
•   Requires more sophisticated selling
Procurement-based travel management:
Summary
• Senior management thinks travel can be managed
  like other expense categories
• Many key trends in travel are procurement-related
• Strategic sourcing is not the final answer
• The procurement model emphasizes:
  – Aggregation and point-of-sale control to keep prices low
  – Rigorous and objective supplier evaluations
  – Aligning sourcing and operations with supplier goals
              Appendix:
             Work Plans
      10 Commandments
Building Business Cases
For a copy of this presentation:
           Please visit the Free Tools
           section on our website at
          www.travelanalytics.com
         Or send an e-mail to
         scott.gillespie@travelanalytics.com
 Strategic Sourcing and
    Procurement-based
Travel Management: The
             New Model

                   Presented by
              Scott Gillespie
                    Principal
             Travel Analytics
Ten Commandments
      for Successful
            Sourcing
10 Commandments for successful sourcing
•   I. Create a righteous travel policy
•   II. Punish the sinners
•   III. Pray for good guidance from senior management
•   IV. Reach out to the non-believers
•   V. Covet thy data
•   VI. Look deeply into the value of quality
•   VII. Know thy own heart prior to seeing bids
•   VIII. Speak the truth to all bidders
•   IX. Judge thy bidders fairly
•   X. Honor thy commitments
I. Create a righteous travel policy
                 The price paid by a corporate traveler


         Is determined by the supplier’s willingness to negotiate


        Which is based on the company’s ability to move market
                       share between suppliers

             Which depends on the company’s travel policy
                        and its enforcement

           Companies with weak travel policies
              will never get the best prices
I. Create a righteous travel policy
• Find an executive sponsor
• Build the business case
                                     Traveler
                                 Productivity And
            Cost Savings            Retention




• Write the strongest policy acceptable to senior
  management
• Define appropriate sanctions
II. Punish the sinners
• Be firm but fair
   – Some exceptions will always be warranted
   – Too many exceptions cripple the program
• Create an intimidating exception approval path
• Apply appropriate sanctions
• Use ―public hangings‖ selectively

           Strong travel policies need teeth
III. Pray for good guidance from senior
management
•   Is the priority cost savings or traveler satisfaction?
•   Are all suppliers to be treated equally?
•   Who gets to make the decisions? Who can veto?
•   Is there an achievable goal?
•   Is there a realistic time frame?
•   Are there no other major distractions?
IV. Reach out to the non-believers
• Establish a cross-functional Travel Council
• Use a cross-functional sourcing team
  – Travel      – Human Resources
  – Procurement – Sales
  – Finance     – Operations
• Build support for change with HUBBS

                Under-
     Hearing              Believing   Bettering   Supporting
               standing
V. Covet thy data
• Information is power
  –   Accurate
  –   Timely
  –   Consistent
  –   Meaningful
• Know what data is worth coveting
  – Historical travel purchase patterns
  – Travel policy compliance rates
  – Supplier performance
VI. Look deeply into the value of quality
• Place a value on key elements
  –   Nonstop flights              – In-room internet
  –   On-time arrivals               connections
  –   Business class service       – Room service
  –   Airport lounges              – Fitness centers
  –   Counselor retention          – Upgrades
  –   Waivers and favors           – Account management
  –   Electronic folios            – Fast check in, check out
                  Don’t ask if you won’t score
                          the answers
VII. Know thy own heart prior to seeing bids
• Be honest about supplier preferences and
  prejudices
• Define cost, quality and savings
   – Be objective and rigorous
                                        Decide how to decide
   – Do this early in the project
                                       before the bids come in
   – Avoid extensive detail
• Create ―if/then‖ decision rules
   – ―If Supplier B comes within 10% of our incumbent’s
     quality, and offers a cost savings of at least $100,000,
     then switch to Supplier B.‖
VII. Speak the truth to all bidders
• Provide more, not less, information
   – Total spend and bidder’s share of spend
   – Travel patterns and likely significant changes
   – Travel policy and likely enforcement
• Insist on ethical procurement practices
   – Treat all bidders equally
   – Hold each bidder’s information in confidence
• Use a single point of communication
   – Distribute questions and your answers to all bidders
   – Strive to eliminate back door and over-the-top conversations
IX. Judge thy bidders fairly
• Apply well-defined criteria
• Bids should be graded by each sourcing team
  member
• Brief senior management regularly
  – After the decision criteria has been set
  – After the bids have been evaluated
  – Before the final selections have been made
                  Don’t surprise senior
                     management!
X. Honor thy commitments
• Set realistic goals
   – Market share, Segments, Room nights, Rental days, etc.
   – Allow for unexpected business conditions
• Make every effort to meet your goals
   – Educate the travelers
   – Enforce the travel policy
   – Uphold your implementation duties

              Understand a supplier’s need to
             renegotiate if the goals are not met
Work Plans and Key
  Success Factors
Travel Policy Development
                                          Month
               Task               1   2   3   4   5   6   Resources
                                                          Travel Manager           15 – 40 days
    1. Get senior management                              Analyst                  25 – 50 days
       sponsorship
    2. Gather data                                        Key Success Factors
    3. Benchmark existing                                 • Senior management support
       policy                                             • Travel Council endorsement
                                                          • Solid business cases
    4. Build the business cases
                                                          • Traveler communication and education
       for each major plank
    5. Seek Travel Council                                New Tools/Methods
       endorsement                                        • Valuation of traveler productivity and
    6. Modify language and                                  retention
       sanctions as needed                                • Benchmarking
    7. Educate and                                        • Involvement of Travel Councils
       communicate
Airline Sourcing
                                            Month
               Task                 1   2   3   4   5   6   Resources
                                                            Travel Manager           30-45 days
    1. Gather city pair and point                           Procurement              30-45 days
       of sale data, contracts                              Analyst                  45-75 days
    2. Prepare and publish RFPs
    3. Analyze existing                                     Key Success Factors
       contracts                                            • Strong travel policy
                                                            • Global/Regional strategy
    4. Select and test likely
                                                            • Credible incremental gain/loss
       supplier scenarios
                                                              projections by airline
    5. Receive and evaluate                                 • Rigorous contract and bid analysis
       RFPs                                                 • Realistic market share goals
    6. Conduct negotiations
    7. Implement new contracts                              New Tools/Methods
                                                            • “What if” simulation models
                                                            • Electronic RFPs
                                                            • Policy-driven self-booking tools
Travel Agency Sourcing
                                          Month
               Task               1   2   3   4   5   6   Resources
                                                          Travel Manager            50 – 100 days
    1. Gather travel data                                 Procurement               30 – 60 days
                                                          Financial Analyst         20 – 40 days
    2. Create cost model for
       analyzing pricing                                  Key Success Factors
                                                          • Clear service configuration (e.g., res
    3. Define RFP criteria and
                                                            center, implant, outplant, etc.
       weightings
                                                          • Minimal number of service
    4. Obtain Travel Council                                configurations
       endorsements                                       • Focus on service differentiators
    5. Prepare and publish RFP                            • Pricing clarity
    6. Evaluate pricing and                               • Airline/Agency/GDS alignment
       service capabilities
                                                          New Tools/Methods
    7. Finalize configuration
                                                          • Net fee to cover overhead and profit –
       and implementation plans
                                                            regardless of number of transactions or
    8. Notify counselors and                                air sales
       travelers                                          • CTD (U.S. only)
Hotel Sourcing
                                           Month
               Task                1   2   3   4   5   6   Resources
                                                           Travel Manager            15-25 days
    1. Gather room night data                              Rate negotiator(s)        10 days/100 hotels
       - Agency                                            Analyst                   25-75 days
       - Card                                              RFP administration        30-75 days
       - Expense reports
    2. Build hotel market                                  Key Success Factors
       profiles                                            • Strong travel policy
    3. Translate travel policy                             • Good data
       into potential hotel                                • Logical market definitions
       suppliers by market                                 • Property-level negotiations
                                                           • Room rate targets prior to negotiations
    4. Prepare and publish RFPs
    5. Determine amenity                                   New Tools/Methods
       values, target room rates                           • Electronic RFPs
    6. Negotiate room rates                                • Online auctions
    7. Publish hotel directory                             • Policy-driven self-booking tools
Rental Car Sourcing
                                          Month
                Task              1   2   3   4   5   6   Resources
                                                          Travel Manager            15-25 days
    1. Gather rental car data                             Analyst                   20-50 days
    2. Prepare cost model for                             Procurement               15-25 days
       analyzing bids
                                                          Key Success Factors
    3. Determine selection
                                                          • Robust cost model
       criteria and method
                                                          • Rigorous bid analysis
    4. Prepare and publish RFPs                           • Clear decision rules
    5. Analyze bids                                       • Agency point of sale

    6. Conduct negotiations                               New Tools/Methods
    7. Implement new contracts                            • Electronic RFPs
                                                          • Online auctions
                                                          • Cost versus quality decision models
 Building Travel
Business Cases
Know how your policy compares to peers
                                                                                    Number Of Peer
                                                                                      Companies
                                                               Our Language
Policy Plank        Our Current Policy Language                   Rating      Loose     Mod.    Tight

Class of air   “Must use coach for all flights of five hours      Loose         2         3          3
service         or less. Business class permitted for all
                     flights longer than five hours.”

Airline        “The cost of upgrades will be reimbursed           Loose         1         1          6
upgrades       for any domestic flight so long as the cost
                        does not exceed $150.”

Use of           “Travelers are encouraged to consider            Loose         4         3          1
alternate          using alternative airports whenever
airport                possible to reduce airfares.”


                       Senior management wants objective
                                reference points
Focus on the important policy planks
                   Category                   Key Planks
          Misc.
    7%     Parking      Limos           • Entertainment policy
           Mileage      Cell phones
    8%     Taxis        Entertainment
    10%
          Meals                         • Spending guidelines
                                        • Alcohol policy
    20%
          Rental cars                   • Use of preferred rental company

          Hotels                        • Use of preferred hotels
                                        • Upgrade policy

    55%
          Air travel                    • Use of preferred airlines
                                        • Use of preferred agency
                                        • Lowest logical fare parameters
                                        • Class of service restrictions
                                        • Use of advance purchase/restricted fares
Make it easy for senior management to
support the new policy
• Use benchmarks and savings estimates to build
  support at each level of the political pyramid
• Use a cross-functional Travel Council to review,
  modify and endorse new policy language — get
  everybody behind it
• Establish the negative consequences of non-
  compliance for senior management endorsement
• Ensure that policy violations can be tracked and
  reported
Show how strong policy benefits your
company and its preferred suppliers
                                      Loose Travel Policy   Tight Travel Policy
  Number of airlines under contract            7                    3
     Air spend under contract             $15 million           $18 million
     Discount range                         5-12%                10-20%
     Estimated annual savings             $1.2 million         $2.3 million
          Benefit to the company                               $1.1 million


  Spend on United Airlines                $6.4 million         $8.7 million
      Corporate discount                     12%                   18%
           Benefit to the supplier                             $2.3 million
Potential savings can’t be captured without
strong compliance to policy
Six sure ways to limit policy effectiveness
• Make the travel policy an obscure document
• Don’t offer any rationale for policy elements
• Apply different standards of enforcement throughout the
  organization
• Make it difficult to track and report policy exceptions
• Let routine offenders off the hook
• Let senior managers routinely flaunt policy exceptions
Key elements of a good travel business case

Current Language                                      Potential Annual
“Travelers are encouraged to use the designated       Savings
corporate travel agency.”                             $300-500K

Proposed Language                                     Benchmark Findings
“Travelers are required to use the designated         6 of 8 peer companies
corporate travel agency for all business-related      use language similar to
travel.”                                              our proposed language

Implementation Issues         Compliance              Negative
Must add three full-time      Measurement             Consequences
travel agents to handle       Perform sample audits   1st: Verbal reprimand
additional reservations       of expense reports      2nd: Written reprimand
                                                      3rd: Non-reimbursement
Example: Savings from consolidating
preferred carriers
                                         Airline Consolidation Opportunity
                             Before Consolidation                            After Consolidation
                     Last Year’s                              Expected
                    Spend Net of            Average          Spend Net                  Carrier Gain
                     Discounts            Systemwide        of Discounts   New            Or Loss
     Carrier            (000)              Discount             (000)    Discount          (000)

    AA               $     4,500             10%            $    1,500         0%       $   (3,000)
    CO               $     1,600              3%            $    2,300        10%       $       700
    DL               $     2,500              5%            $    3,400        10%       $       900
    NW               $       900              0%            $      450         0%       $     (450)
    UA               $     6,500             12%            $    8,200        18%       $     1,700
    US               $       400             10%            $      250         0%       $     (150)
    TW               $       350             20%            $      100         0%       $     (250)
    AC               $       500              0%            $      150         0%       $     (350)
    TOTAL            $    17,250                            $   16,350                  $     (900)


       Consolidation is expected to save this firm nearly $1 million per year
Note: Discounts are for illustrative purposes only
Example: Savings from new cabin and fare
policy
Change The Fare Mix
                Old Spend   Old Fare   New Fare   New Spend
   Fare Class     (000)       Mix        Mix        (000)
   First           $200         2%        0%           $0
   Business          900        8%        2%          200
   Coach           6,200       57%       50%        4,500
   Economy         3,500       33%       48%        4,300

   TOTAL         $10,800      100%                 $9,000

                                        Savings = $1,080

				
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