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Weekly UpdatesAIRLINES
Mr. Denny Clifford, Director Military & Government Sales, Delta Airlines & NDTA PTSC Airline Subcommittee Chair
Current Economic Environment and Industry Trends
"We have lost several years of growth, and yields are under severe pressure. Airlines are in survival mode. Cutting costs and conserving cash are the priorities," says Giovanni Bisignani, IATA's director-general. Although dismal, these comments are the reality the airlines are facing in today's challenging economic environment. According to IATA, international passenger traffic is down almost 10% in May compared to last year. IATA also estimates that industry losses in 2009 will be $9 billion. One positive sign: air cargo, which is the leading indicator for world trade, dropped 17% in May versus prior year, which was an improvement from the 21% drop in April, and a signal that the negative trends have possibly hit bottom.
Airlines are responding aggressively with actions to offset the losses in revenue, including fare promotions, removing weight from aircraft (with some removing ovens, in-flight magazines, and entertainment systems and others incorporating lightweight meal carts and lighter plateware and cups), and hedging fuel purchases at optimum timeframes. Although fuel costs had decreased substantially since an all-time high was reached last summer, the price of a barrel of oil has doubled in the last few months.
If these headwinds weren't enough, airlines worldwide faced the fallout from the H1N1 flu virus, particularly in Mexico and other countries hardest hit by this near-pandemic. One major carrier has reported that the virus resulted in a revenue loss of $250 million. The affects of the flu on airline economic results seems to have subsided.
Military/Government-Specific Issues
The GSA FY10 airline bid process is complete. GSA is now analyzing bids for release of awards expected in late July/early August. Contract starts October 1, 2009. Industry met with GSA in June to discuss the resolution of several issues including churning of bookings by agencies (churning is deliberate booking, cancellation, and rebooking of flights in order to avoid fare rule restrictions or to obtain lower fares), duplicate bookings (which have been an increasing problem as passengers use the DTS and ETS systems), and overcharge issues by GSA Audit including those related to itineraries where the Fly America Act is involved. The duplicate booking issue is at the forefront because action by travelers to book the same itinerary twice, whether deliberate or unintentional, results in charges back to the booking travel agency.
Industry concluded that it needs to find a better way to assign responsibility for the source of the duplicate booking problem, which would reduce the instances of debit memos being charged to agencies by airlines. Many in industry believe the Government's ability to hold its travelers accountable for certain transactions (such as duplicate bookings) would be a move toward resolution of these recurring issues. Further education for travelers in the booking process will also help mitigate this problem. GSA, airlines, travel agencies and other entities continue to work together in finding solutions to these challenges faced by industry. This initial industry meeting kicked off discussions of these critical issues. Subsequent meetings will be held monthly to further discuss and find solutions for these problems.
LODGING
Mr. Scott Lamb, Director, Government Sales Hilton Hotels Corporation & NDTA PTSC Lodging Subcommittee Chair
Overall, the global economic challenges continue to have a negative impact on the lodging industry. Most hotel markets are seeing a 15% to 30% decline in overall revenues. Industry prognosticators (Smith Travel Research, PK&F) are predicting a soft recovery for lodging starting in mid-2010. The results so far have been:
* Restructuring and layoffs by many hotel companies.
* New build and renovation projects delayed or canceled for lack of funding and credit.
* Lower rates and special packages.
The good news for government travelers is that many hotels are offering government rates that would not discount to per diem in the past. In addition, extras like free internet, discounted food and beverage, and free parking are being bundled with the government rate to make the hotel more competitive.
Two major concerns are challenging the industry today. First, the economic efforts of the White House and Congress have highlighted "extravagant" meetings and travel spending by some companies--even as they are asking for government bail-outs. Unfortunately, this negative publicity has had a "halo" effect on particular destinations (Las Vegas, for example) and on meetings in general--resulting in companies cancelling events for fear of bad press.
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The hotel industry is very concerned that this trend may continue, and we are calling on the administration, government, and industry to start traveling and meeting again!
The other issue that has been raised as a result of the current economy is the potential impact of per diem changes in 2010 and 2011 to the lodging industry. It's no surprise that government business has become very important to hotels in the last 6 to 12 months. This seems to be the only segment of the lodging market that is not suffering steep declines, and in many cases government travel is keeping the doors open at hotels that would otherwise be looking at failure.
Although we do not expect GSA and OMB to ignore changes in the lodging market or the potential savings the government can garner in this environment, we do want to express our concerns and hope GSA and OMB will realize the impact large rate declines will have on our industry. We are hoping that this may be a first opportunity for the lodging industry to have impact on the GSA/OMB program and be included in the rate setting process going forward.
We also feel that NDTA has a role in promoting a better relationship between the lodging industry and government.
* NDTA should encourage its membership to spend their travel dollars with NDTA member lodging companies. Each member hotel and hotel company has programs tailored for government and government contractors. NDTA is pursuing more effective ways to promote these programs to its membership. In addition, the representatives from these lodging companies are perfect contacts for government and contractors to work with for special programs, meetings, and extraordinary circumstances. We don't need to create a new hotel program within NDTA, but we do need to find better ways for the NDTA membership to support our hotels!
* Government business has gained importance for hotels and hotel companies due to the economy. NDTA has an opportunity to add more membership--if they provide education and business building opportunities at their meetings and forums. "How To Do Business with a Military Base," "How To Respond to a Government Bid," "Meet the Transportation Officers," and "How Government Travels" would be sessions that would attract more hotels and lodging companies to our conferences and help the Lodging community feel part of NDTA. Along these same lines, asking DTMO to do live demonstrations at the conferences would also be a "value add." Perhaps a "Traveler Focus Group" session could be included to help hotels understand how travel decisions are made. The lodging committee will be working to implement many of these ideas in the months ahead. We need to bring more relevant content to NDTA programs to better sell NDTA within our organizations.
CAR RENTAL
Mr. Mike Washkevich, Director, Government Sales, Avis & Budget Rent A Car & NDTA PTSC Car Rental Subcommittee Chair
Car Rental companies are facing huge challenges. The economic crisis of 2008 had a huge impact on many businesses and industries across the United States, and the car rental industry was no exception. Faced with a 25% decline in both leisure and business travel, tighter restrictions in acquiring funding for new cars from faltering banks, and having to look outside bankrupt Detroit automakers for supply left virtually all car rental companies in dire financial condition. One car rental company, Advantage, filed for chapter eleven bankruptcy.
The good news for Federal Government Travelers is that Government renters continue to receive the lowest rates--and the most comprehensive benefits--in the auto rental marketplace. Due to the competitive nature of the Federal Government Car Rental Agreement, daily rates have barely increased in the past two decades.
Perhaps even more importantly, Government renters are never charged underage driver fees ($27 per day value) or additional driver fees ($12 per day value); Government renters also receive free collision/theft coverage ($25 per day value), and free liability coverage ($15 per day value). Additionally, under the Federal Government Program, renters receive free unlimited mileage.
The success of the Federal Government Car Rental Program stems from the close relationship between the Defense Travel Management Office (DTMO), which handles the Car Rental Agreement, and the car rental companies. NDTA also plays a crucial role as the intermediary between these two entities. Numerous meetings take place throughout the year to ensure that both Government and industry's respective needs are met.
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The role that NDTA plays in the relationship between Government and the car rental industry cannot be understated. NDTA provides a forum for the meetings, offers guidance to both sides, and provides unbiased input on all important contract issues.
Currently, the most pressing agreement issue being reviewed is the $5 per Government Administrative Rate Supplement (GARS), which helps offset the cost (more than $100 per day value) of offering all of the aforementioned benefits to the Government. With mounting financial pressure (publicly traded car rental stocks fell by an average of 98% in 2008!), it is no longer feasible for most car rental companies to offer full benefits to Government travelers without an increase in the GARS fee. NDTA's role in this negotiation is invaluable.
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