10 December 2009 - U.K.-based Hogg Robinson Group in the six months ending in September generated roughly the same underlying earnings as it had a year earlier despite 15 percent lower currency-adjusted revenues, although its net result fell due to one-time restructuring charges related to job cuts. HRG chief executive David Radcliffe said the results show "our model is pretty resilient." In an interview with
The Transnational, Radcliffe noted that 80 percent of HRG's revenue is driven by managed client fees (with the remainder mainly supplier income) and said "when the client doesn't travel, we are able to flex our cost base in order to match the new income" level. Radcliffe in some cases declined to offer precise numbers for competitive reasons, but what follows are his comments on client revenues and recent client behavior in terms of procurement and program structure.
Have you seen any large globally consolidated accounts decide to go the other way and de-consolidate?
Yes, we have. We have seen some clients that have a global footprint move toward regional decisions, but we are also seeing within those decisions attempts by those clients to make sure that their data is consolidated. One of the things I would personally be not too surprised to see is some of the online travel agencies getting a grip in North America, particularly for clients who have a large slug of domestic business. We are not seeing any of that happen over here, and I think the nature of the business over here, being more international, tends to be more complex. I would be surprised to see them get too much of a toehold purely because they haven't made the investments in the infrastructure to be able to manage the client that way. But, yeah, we are seeing it; I wouldn't say it is a trend to move back toward regional. What we are seeing is clients saying to themselves, "Look, we are prepared to make any move we can to try and gain more through supplier relationships, and if that means dealing regionally then we will do it." But I wouldn't say it was a big number of them doing it.
I have not seen any change to the pace of re-tendering, and I do have to say it concerns me because the pressure it puts on a TMC and its people is pretty immense. You can argue that that is what we are paid for, but you can also argue that there are some tenders going on where if we don't bid, it's probably because we just don't believe the client is serious. At the end of the day, that's business, but there is a great deal of activity going on there and it is hugely costly. We run a bid-aversion program with the clients, and most of our clients are very reasonable when they understand the cost involved, and they understand the consequences of the cost of change, as well. If you've got a good enough relationship with the client, you should be able to sit down with a client and work through it. Most clients are very intelligent, and they know for themselves the cost of change and that unless there is a very real benefit, both financially and strategically to change, then why do it?
Some say frequent requests for bids is procurement-driven. According to
National Business Travel Association surveys, in each year since 2006 a higher percentage of those polled said they were reporting to finance (as opposed to procurement, human resources, administration and other areas). What are the implications of that?
A lot of the time, procurement reports to finance. As a generality, procurement coming into our industry has been a move for the better. I can hear my competitors screaming at me right now, but the fact is it has brought a professional level into our industry and it has forced our industry to move up a notch or two, and that can't be a bad thing. When you deal with a procurement process, provided you understand the rules of engagement, it is normally far more professional and the resulting contract is also far more professional--not always but mostly.
A recent American Society of Travel Agents study said that 70 percent of 34 U.S. corporate agencies had fewer clients in the first half of 2009 than they did in the first half of 2008. HRG is quite different from the profile of the typical ASTA corporate agency member, but what are you seeing in terms of client counts?
The last time I looked we had anywhere from 1,000 to 3,000 clients as managed clients, but let's quickly understand that it is the 80-20 rule--probably about 200 of our clients drive about 80 percent of the managed revenues, and I think it is probably true of all of our major competitors. Within their client bases, [the ASTA members] probably include a lot of small and medium enterprise-type clients because the North American market lends itself to SME type of business with a lot of our competitors. We do have SME business but we are not so much driven by that. So if they are saying they are seeing client numbers drop, if it includes SMEs I can understand that. But if they are saying their managed clients are dropping, I am not seeing any evidence of that.
Why did HRG launch its new SME service, which targets U.K. clients?
We want to be in anything to do with corporate travel, but we recognized that the legacy type of branch structure that you have intra-country isn't actually going to do the job to the best benefit to the client. The best way you can do that is to have the SME service centered on a single point where you can drive down cost. In North America, the dominant parts of our business are managed travel and loyalty business. We are very big on loyalty reclaim on cards, etc. We do have an element of SME business there, and we do welcome SME business, but it is not our driver.
