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The CFO - Moving from back-office to frontline strategy

Changing the Way the Travel Industry Does Business

Airlines have put a crunch on travel agencies by placing a cap on the commissions that they will pay travel agencies, not once but twice in the last four years. This has, in effect, reduced the industry's revenues considerably. Travel agencies knew the day would come; airlines having been reducing expenses for some time - moving from entrees to peanuts and hiring fewer employees at reduced salaries. But it doesn't help the travel agencies feel any better. And not everyone will survive. There is one thing for certain though -- those that do will have to use technology to their advantage.

One of the largest travel agencies in the United States, First Travelcorp out of Raleigh, N.C., began searching for someone to come in and operate some of its back office activities during the mid-'90s. Founded in 1991, First Travelcorp is a full service travel agency with annual sales of $200 million. It is one of the nation's fastest growing travel agencies and offers corporate and leisure services. The majority of the services provided, (about 80 percent,) are travel management solutions for corporations.

Besides booking airline tickets, rental cars and accommodations for its clients, First Travelcorp provides a 24-hour help desk, insurance, and perhaps most importantly, according to Ken Taylor, CFO of First Travelcorp, travel management reports regarding a company's travel purchases. These reports add value to its customers by providing the travel patterns of a corporation's employees. Companies can use these reports to monitor its travel policies to see who is complying. And it can use them during negotiations with their vendors to get better deals.

Finding an Outsourcer

First Travelcorp is in a business of high volume transactions. The agency processes more than 375,000 transactions each year for its clients, all of which are repetitive, Taylor says. "We felt that if someone with enough expertise and enough financial backing was to come in they could get these processes down to a routine and perform the processes at a high level of efficiency and accuracy."

There were, of course, plenty of outsourcers that worked in the back-office operations that First Travelcorp was looking for. But the agency didn't want to put its customers at any risk by outsourcing to someone that wasn't familiar with the intricacies of the travel agency industry.

At the time that First Travelcorp began its search, Unisys was already working closely with the airline industry. Historically Unisys has provided the flight guidance and air traffic controller systems that airlines use, along with the air cargo systems and the mainframes and operating system software that manage the reservation systems. Several years ago, Unisys decided to assist the neglected travel agency industry by creating a new division called Travel Alliance Services (TAS) that catered specifically to agencies. The services included travel accounting services called Unitracs, travel expense services called Unitrex, reservation management services called Unires and travel reporting services called Uniview.

After they observed the successes of other travel agencies that used the services, First Travelcorp came on board, Taylor says. "Based on Unisys' reputation we knew that they could make it work. First Travelcorp had the resources and the experience in outsourcing to make it work," Taylor says. "We just needed to see it work for someone in our industry. Once it was working for the others we dived right in there."

A five-year contract was signed in Feb. 1998. During the following months, First Travelcorp converted to Unitracs. The Unitracs' services are a comprehensive, fully integrated solution for back office processing and reporting. It provides consolidated and centralized data collection, integrated accounting and financial reporting, export capabilities to other applications, and flexible, customized reporting capability. First Travelcorp also uses Uniview and other applications.

"With the help of Unisys' IT expertise, First Travel has developed a world class system particularly in the customer reporting area," Taylor says. "And because they now maintain our systems we are able to free up management time to spend on customers as opposed to managing personnel and the system.

"And at some point in time, as we grow, the switch will be a financially beneficial arrangement as well, Taylor says. "We basically entered at a break even point and at this particular point we aren't looking to save big dollars, but certainly we feel that as we grow with Unisys that those dollar savings will begin to develop."

Integrating Systems

The most challenging aspect of the switch to Unisys' services was unique to the company, Taylor says. First Travelcorp was on the Worldspan Reservation System, which is a system provided by an airline, that First Travelcorp's agents use to book airline tickets. The Worldspan system had to have the technology to communicate with the accounting system in order for the operation to work. So Unisys created the interface between the two. "This situation was fairly unique to us and I'm sure everyone has their own unique challenges," he says. "Travel agents are a mom and pop industry and even the large companies have a mixture of patchwork technology in the back office that everyone does differently."

Taylor says that from what he knows of other agencies that have gone through an accounting systems conversion, First Travelcorp has had a very good conversion and a good first year on the system.

"We are satisfied with our relationship with Unisys and feel that they have been responsive to the things that we have needed and suggested," he says. "They have done everything they can do to be a good partner with us. And certainly outsourcing back office functions has allowed us to do new things. It helps us serve our customers, which I think anyone would agree is the most important thing that can be said about outsourcing. And I think in that regard it has been a real success for us."

Lessons From the Outsourcing Primer:

• Travel agencies have been hit hard by commission caps that airlines have placed on them.
• Agencies are using technology to offset some of their losses.
• First Travelcorp, a high volume travel agency, chose Unisys to help with the mundane accounting functions of the back office.
• With the help of Unisys, First Travelcorp has developed a world class system.
• First Travelcorp is now able to free up management time to spend on customers instead of systems maintenance.

Publish Date: June 1999

Copyright © 1999 - Everest Partners, L.P.

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