In an attempt to revolutionize the world of business travel, the travel division of American Express is preparing to launch the first minimum price guarantee. Under this initiative, if a customer finds a cheaper travel arrangement than that offered by Amex, the company will return his or her money, although the fine print notes that this will happen only when conditions are comparable. To promote the program, the company has launched an offensive on the Internet with the goal of making online reservations represent half of its business within a few years. Charles Petruccelli, president of American Express’s Global Travel Service, explains his company’s new strategy to Universia-Knowledge at Wharton.
“Globalization is the major change that has affected the world of business travel,” notes Petruccelli, who has been with American Express since 1976. After spending several years in various senior international posts, he was named president of corporate services in 1996. In that post, he was responsible for business cards and business travel in Canada, Europe, Latin America, the Caribbean, Japan, Asia-Pacific and Australia. Two years later, he assumed global responsibility for expanding those businesses overseas. Then he was named coordinator of global airline strategy, which supports various business units in the company. Finally, in 2001, he was named president of corporate travel and foreign exchange, giving him responsibility for all travel services at American Express, which has always focused on business travel.
“In the course of all these years, I have seen radical changes in the sector. When I began, more than 25 years ago, train tickets were written out by hand. Now, that would be unthinkable. The sector has changed at a dizzying pace. In two years, there will be no remaining traces of the business I knew when I started out,” says Petruccelli, smiling broadly. He is convinced that his company is going to be one of the main players in this new revolution. Because of innovative technologies and globalization, the future will look nothing like the past. “The new technologies have had a direct impact on the industry because they allow access anywhere around the globe.”
The World Online
At American Express Business Travel, new technology is extremely important, and the company is betting aggressively on its online services. It has constructed a new platform that guarantees online support to all of its suppliers. “In a global world, we must offer global solutions,” explains Petruccelli. “Last year, 40% of all transactions made by our corporate travel customers were made via the Internet.”
Over the past 12 months, American Express Business Travel has enjoyed a spectacular 310% increase in online travel reservations made by its European customers. During the first six months of 2004, it piled up a 213 % increase in these services in the United Kingdom and the Nordic countries; a 144% increase in France; and a 143% increase in the rest of Europe.
“Business needs are quite similar from sector to sector and in every country. Multinational companies, whether American or German, have the same needs as a small and midsize company. So we decided that we had to provide the same solutions to everyone; we must offer global solutions,” Petruccelli emphasizes.
The result of its commitment to new technology is its guaranteed minimum fare, which the company launched on September 22 in Paris (France). This guarantee assures all customers of the lowest price. If they find a lower price, they get their money back. There is one exception: The comparison must be made with the same conditions. For example, a flight reservation made one day in advance cannot be compared with another reservation made two weeks in advance. Nor can a direct flight be compared with another that has stops along the way.
American Express is the first company in the sector to provide this offer. “It won’t take long for our competitors to imitate us,” warns Petruccelli. “Business trips are only a means to an end; the goal is to make money,” he adds. Whatever solution his company offers, it will be well received in the marketplace, he says.
His company’s investment in new technology is the key to this guarantee. It allows American Express to have immediate access to all its suppliers, and gives Amex greater negotiating power. “In addition, the transaction cost is lower than with online reservations, allowing us to cut costs by 20%, depending on the service. That means lower prices for customers,” explains Petruccelli. He adds, “Online services are more transparent.” Petruccelli’s comments are supported by a research study by Accenture, which showed Amex’s new technologies have allowed its customers to cut their spending by 21%.
Cost Reductions
These cost reductions are not focused on the traditional war horse of agencies – commissions – but on the rest of the business. “The new symbol of the company (a circle with a small pie in the upper part; similar to a clock set at five minutes after twelve) symbolizes our new philosophy,” says Petruccelli. “The pie represents the 3% of all costs that commissions make up. Meanwhile, the rest of the circle is the other 97%, where we are going to move.”
Petruccelli, however, doesn’t believe that online services will displace the company’s traditional business. “Online services are just one part of the solutions that can be offered to customers, but not the only kind. In my opinion, both options will coexist. In the future, they will probably maintain a 50-50 parity, depending on the segment of customers we are in.”
American Express Travel, which manages the largest network of travel agencies in the world, racked up sales of $16 billion during the last fiscal year. Petruccelli won’t predict how much the new strategy will add. However, he says, “It will be very significant because demand is expanding very fast. In the United States, for example, growth in these services has doubled every year during the past three fiscal years. In the United Kingdom, Australia, and even Mexico, the same thing is happening.”
Petruccelli has even greater expectations in China. “Generally speaking, Asia-Pacific, Taiwan, China and Indonesia are growing a lot. In the rest of the region, the business world is recovering, but more slowly. China is the country where business is growing fastest. More business than in Germany!”
Multinationals’ growing interest in China has converted that country “into an exceptional destination for creating companies and serving not only the local market but customers throughout the world,” explains Petruccelli. Over the past two years, he has been constantly traveling to China to manage the new doors that are opening for American Express there. “Two years ago, we opened our first call center in China. Now, the volume of business trips in Asia is doubling every month.”
Nevertheless, Petruccelli takes a cautious approach. He believes the business world is still beginning to recover from the crisis that followed the collapse of the dot-coms. Companies are still reluctant about moving ahead full speed. “Companies are saving more than they did three years ago because they are not as strong. Airlines are also weaker. Competitiveness, in contrast, is a stronger factor… All those things influence our business.”
As a result, Petruccelli is not certain that companies, which have tightened their business travel belt for the past three years, will be spending as freely as in the past. “Companies decide to invest more or less in business travel, depending on how interested they are in the destination they’re going to. I don’t think the economy will reach those kinds of heights again.”
