11 June 2009 - Revenue fell 8.5 percent and underlying operating profit dropped by £4.1 million for HRG in the second half of its fiscal year, which ended 31 March, the company announced last month. HRG said it incurred £6.9 million in restructuring costs but did not disclose the number of job cuts it made as a result of weak volumes. Average monthly headcount as of 31 March fell to 6,236 from 6,350 a year earlier, according to a financial report. Executives told investors HRG sees opportunity in that it offers businesses cost-saving services that are of greater interest in a down market. Chief executive David Radcliffe spoke with
The Transnational after the announcement.
You emphasized during your earnings presentation that while people are still traveling, if they downgrade to coach from premium, it doesn't have the impact on HRG that some investors might imagine. But it's not that there's no impact, right?
It's not that there's no impact because some of our contracts might be linked to volumes, which would be linked to the cost of travel, but in most of our cases it is less impactful. We believe our numbers actually do highlight a number of differences between us and the rest of the TMC community. We are not a model that is driven by volume supplier profit. Sure, our supplier income is important to us, but it's not the driver. Therefore, as most of our income is driven by client fees, it is the work we do for that client that determines our level of profitability. When that work drops, we take out the costs associated with it.
The Institute of Travel & Meetings UK & Ireland and Guild of Travel Management Companies are examining TMC revenue models in a new report. For HRG, what percentage of revenue comes from suppliers as opposed to clients?
We don't break it down into a percentage, but we're very clearly stating that, by far, the majority of our income is driven by clients. Supplier income is still important, but that's for the work we do on their behalf, not necessarily linked to client volumes.
BCD Travel owner John van Vlissingen recently commented on bonus commissions for premium class in Europe. Are you seeing examples where airlines are coming back to the intermediaries with incentives and programs they may have retired in the past, in order to stimulate business?
Yes, there is some of this going on, but let's not blow it out of proportion. Airlines are trying to stimulate particular routes, etc. That has gone on for a long time. When that happens, we generally go back to the client if we believe it's appropriate to do so, and share with the client what we're doing. It's not always appropriate because that client may have a deal with that airline or another one, which adds to or conflicts with it. When I read that from John, I didn't think of huge magnitude. I'm not seeing a return by airlines to mass numbers for trying to support them. If we did, then a lot of it would get returned to the client or indirectly through the cost with the client as well. I'm not seeing a lot of it.
You said the top three global TMCs account for less than 20 percent of the global market. What would ever change that?
If you look at the quantum of what constitutes that number in terms of number of clients, that means an awful lot of clients have yet to consolidate their expenditure and have yet to take advantage of companies like ours. So I view that as a major opportunity. The real driver will be emerging markets. For instance, take China. China is relatively new at this game, but Chinese companies are starting to consolidate their subsidiaries around the globe; the same [thing is happening] in Latin America. So we see the growth in that opportunity because the clients are creating it. They want to get their expenditure under control across the globe.
Some of our readers have been asking for the big news, suggesting something has to give. Does that sentiment ring true for you?
I've got every empathy with what you're saying. This kind of environment drives the brain to go, "What's next? We can't put up with this much longer." But as far as we're concerned at HRG, it is what it is and we had to reshape to meet it. So what's the big news? Personally, the immediate thing that comes to mind now in my head is, "What is going to happen with the supplier fraternity?" With demand falling the way it did and no sign of pick up, these guys will be rushing everywhere to make sure they preserve cash, and I wonder who will fall by the wayside and how big that news will be.
