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Scott Gillespie

Gillespie’s Guide to Travel+Procurement. Over The Hedge: Alternative Buying Strategies. Scott Gillespie. Reverse Auctions Consortia Buying Spot Buying Hedging. Potential Methods. Reducing Unit Costs. Average Sector Price Average Room Rate Average Daily Car Hire Rate.

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Scott Gillespie

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  1. Gillespie’s Guide to Travel+Procurement Over The Hedge: Alternative Buying Strategies Scott Gillespie

  2. Reverse AuctionsConsortia BuyingSpot BuyingHedging Potential Methods Reducing Unit Costs Average Sector Price Average Room Rate Average Daily Car Hire Rate

  3. Gillespie’s Forecast: Reverse Auctions Air Hotel Rental Car Airlines: Too complicated and impractical in current form. Needs dynamic price-and-volume allocations tied to scenario savings Hotels: Proven to work, but takes lots of prep time Rental Cars: Fairly easy setup, but will suppliers play? Source: Gillespie’s Guide to Travel+Procurement

  4. Gillespie’s Forecast: Consortia Buying Air Hotel Rental Car Airlines: Volumes don’t drive discounts (much). Hard to find partners with aligned city pairs. Harder to convince airlines that combining spend increases ability to control travelers. Even harder to govern. Hotels: Works when buyers are aligned on competing properties, have good volumes and good control over travelers Rental Cars: Highly suitable category for consortia Source: Gillespie’s Guide to Travel+Procurement

  5. Gillespie’s Forecast: Spot Buying Air Hotel Rental Car • Airlines and Hotels: • Pros: Constant free market competition; reduces tender/contract workload • Cons: Increases price uncertainty; requires culture of cost-conscious travelers Rental Cars: Poor strategy. Outweighed by buyer’s benefits of single/dual-source suppliers (sourcing leverage, data, liability issues) Source: Gillespie’s Guide to Travel+Procurement

  6. Hedging Airfares - Oversimplified If benchmark price goes up, travel buyer is paid €100 x 1,000 tickets Hedged Volume = 1,000 tickets €400 Bench- mark Ticket Price €300 If benchmark price goes down, travel buyer pays €100 x 1,000 tickets €200 Today’s Budget Hedge Price and Date (e.g., 6 months out) Source: Gillespie’s Guide to Travel+Procurement

  7. Gillespie’s Forecast: Hedging Air Hotel Rental Car • Airlines, Hotels and Rental Cars: • No traction yet in the US Domestic market • Other markets unlikely to have sufficient trading volumes • Very hard to overcome the problem of engaging the travel budget owners • Similar to issues around rebates and claw-backs; i.e., who is going to pay to hedge the airfares, and when, and how much? How to distribute the gains or losses? • Market could emerge for airfare hedges; not for hotel or car Source: Gillespie’s Guide to Travel+Procurement

  8. Hedging – How Does it Work? A long buyer and short seller agree on a future hedge price, date, and volume. Two possible outcomes: 1) If the spot price is higher than the hedged price, the long buyer collects the price differential times the volume. The short seller pays. 2) If the spot price is lower than the hedged price, the short seller collects the price differential times the volume. The long buyer pays. • Hedging reduces volatility and decreases risk – a bit like insurance • Hedging helps buyers avoid price increases – it does not reduce unit costs Source: Gillespie’s Guide to Travel+Procurement

  9. Gillespie’s Forecast: Reverse AuctionsConsortia BuyingSpot BuyingHedging Air Hotel Rental Car Source: Gillespie’s Guide to Travel+Procurement

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