29 April 2010 | Amon Cohen

How the procurement team at a private jet company ensures every journey counts

Travel buyers in Europe’s major business centres have started to grapple with how to measure a return on their companies’ investment in travel. Yet in the unlikely location of the coastal resort of Paço d’Arcos in Portugal, one purchaser is already operating a highly effective ROI analysis for his own team, ensuring that every buying trip they make will deliver a saving to the corporation.

The individual in question is Toni Goth, senior manager travel and vendor operations for NetJets Europe, a private jet fractional ownership company. The location may be small, but the spend is not, because, in addition to having 200 regular business travellers, NetJets Europe employs 1,100 full-time pilots and 100 cabin crew who need to be flown on regular scheduled airlines to wherever their wealthy private customers need them and then flown home again when their tour of duty ends. The company buys 50,000 scheduled air tickets and 100,000 hotel room nights annually, adding up to what Goth says is a “high double-digit million euro spend”.

Goth has two supplier relations specialists on his team. When they, or Goth himself travel to visit hotels, they invariably end up negotiating better discounts than when working remotely through RFP tools and spreadsheets.

However, for Goth, an untested expectation of making a saving is not enough. The trips he and his buyers propose to make must prove their worth objectively before departure. “None of my team can travel unless they consult me formally,” he says. “We set a benchmark for what they need to achieve.”

The team make most of their hotel buying trips after the accommodation RFP process has started and initial bids have been received from individual properties. Goth then asks his buyers to provide a list of hotels they wish to visit, and their reasons. In particular, they need to identify hotels whose bids are not as low as the target rates the team has set. By factoring in the amount by which they anticipate a visit will lower the rate, plus other anticipated savings, such as negotiated food discounts for air crew, they determine whether a trip is likely to be worthwhile.

The number of room nights at the hotel will also play its part. “If a hotel in Newcastle is charging £130 per night but we only do 100 room nights a year there and we only think we can get the rate down to £120, we won’t go,” says Goth.

Once the trip is completed, the team check they got their forecasting right. “We fill out a form listing the cost of the trip and what benefits we got from it,” he says. The evaluation has never shown a trip was unprofitable, but although most hotel visits are likely to produce a good ROI, the process is also useful to Goth because it helps him to prioritise. “We fly to 1,000 destinations every year and have preferred hotels in 400 of them, so we have to balance cost, opportunity and time,” he says. “At the end of the bidding process, we try to visit as many destinations as possible, but with only three of us [who deal with supplier contracting], there is a resource problem.”

Goth is also the first to admit that not all the benefits achieved through personal visits are financial ones. This is particularly the case for NetJets Europe, which needs to communicate the special needs of its crew to its hotel suppliers. Perhaps the most important of their requirements is undisturbed rest. Crew who have their sleep disturbed before flying are legally obliged to stand down from their duties and be replaced by new pilots, so hotels have to understand the importance of providing quiet areas and avoiding mistakes such as sending in staff at the wrong hour to replenish the mini-bar.

Hotels at international airports are usually accustomed to such requirements, but NetJets Europe’s pilots fly to, and stay near, airfields which see far fewer professional crew. In the London area, for example, NetJets Europe aircraft regularly touch down at locations such as Northolt, Biggin Hill and Farnborough, as well as small airports farther afield.

Shuttling pilots between all these destinations is another aspect for Goth to manage. NetJets Europe books an average 50 ground movements around the London area alone every day. The travel team has to put in place transfer arrangements from every hotel. Again, making the visit in person can make all the difference.

“We book 25 room nights in Paris every night of the year, so one of the hotels gives us ground transfers at its own cost,” says Goth. “If one of my colleagues hadn’t gone there, the hotel would never have understood the complexity of what we do and that service would never have happened.”

Pilot seat

How Netjets’ manages travel spend

Toni Goth manages a travel team of 22, consisting of 12 company employees and 10 staff from the travel management company Geostar, which is the Portuguese member of the global TMC network Radius.

NetJets Europe did consider establishing its own in-house travel agency, but apart from the considerable regulatory and operational implications of ticket licensing and using a reservations system “it made sense to do it with a TMC,” says Goth. “It allows us to outsource part of our workforce and brings us outside knowledge.” But the company rejected the idea of outsourcing fully to a TMC. “It would not work because of the complexity and specifics of our operation,” Goth says.  “We think it is strategically important to have our own contracts in place.”

The company stages a supplier conference every year to communicate those complexities to vendors. Apart from the issues of pilot welfare (see main article), 90 per cent of the reservations NetJets Europe takes from its private jet customers are for within 24 hours of departure, so in turn, NetJets Europe’s suppliers have to be highly flexible.

In addition to running the travel team, Goth is also responsible for chartering private jets from other owners when NetJets Europe’s own fleet of 160 aircraft cannot meet demand.

Flight plan

Fractional ownership

Portugal has many charms but it is not renowned as a leading centre for cutting-edge travel management or big corporate travel budgets – NetJets Europe is the country’s largest customer for many multinational travel suppliers, especially the big airlines. Outsiders may also wonder why NetJets Europe has chosen to base itself in the southwestern corner of Europe where very few of its customers are based.

The answer is simple. NetJets Europe is based on an unusual business model called fractional ownership, where companies and individuals purchase a share in a private jet, the theory being that this gives the flexbility of full ownership without the steep costs of leaving an expensive asset on the ground for most of the year. At the time NetJets Europe was established in 1996, Portugal was one of only two countries where fractional ownership could legally be organised, the other being the Netherlands.