This is TechNotes for the year 2000. You are receiving this message because you have previously subscribed to the TechNotes newsletter. If you have not already done so, please take time to become familiar with the Technical Reality www site, which is also constantly updated with new material, viewpoints, and reference material—including an archive of TechNotes messages and information.

This issue discusses the annual (1999) "Travel IS Compensation Survey." You may be interested in completing the current (2000) survey. As a consideration for completing the survey, you will receive an abstract of the findings when this is released, plus any interim updates that are published prior to that time. The 2000 survey will attempt to compile much greater detail as to job classifications and regional variations and will be distributed to a larger audience.

My current contribution to Travel Weekly is found in the April 20, 2000 issue, which is titled, "The Human Touch Vs. Computer Gadgets."  It’s specifically a discussion of fallacies surrounding the attempts (ongoing as long as I can remember) to build a better low fare search tool. You can also read a version of this same article by clicking here.

I’ve also created a list of predictions, analysis, and assessments that were "Heard Here First" prior to passing into the "conventional wisdom" of the travel industry. You’ll find the collection of 16 subjects anticipated the actual trends and events frequently by years (occasionally a decade). Complete references and background may be found in my Publications Library.

I am participating in Travel Weekly’s Conference, "Technology 2000," which is being held in Chicago next week, May 3-5. My session, "Reinventing the Deal" will take place Thursday, May 4. The theme of the presentation is for everyone, not simply agents, to understand how travel distribution has fundamentally changed over the last few years and what needs to be done to adapt and prosper in light of those changes. If you’re in Chicago please look me up and introduce yourself.

If you are an AvantGo user for your PDA device (Palm or CE platform), TechNotes is available as an automatic download AvantGo channel. This is especially handy as reference or reading material while traveling, but since TechNotes is updated irregularly, you should probably continue receiving the e-mail version so as not to miss time-sensitive material if you forget to check your AvantGo channels. For details please  click here.

Thanks again for your interest and support. Please feel free to e-mail comments or suggestions to me at:

Wishing you good business,

David Wardell

COMPENSATION SURVEY

Here are the summarized results of the annual "Travel IS Compensation Survey," which represent material gathered in 1999. The current (2000) compensation survey may be accessed by clicking here. The data were obtained from abstracts developed after a survey representing all parts of the travel industry. Figures represent median annual compensation in U.S. dollars. The percentage represents the increase from the same job classifications in the 1998 survey.

        LIMITATIONS OF THIS RESEARCH

The number of respondents is limited and varies significantly by job classification. No attempt is made to predict the statistical validity of the information beyond the diversity of this basic sample. The figures in all cases, therefore, should be used as general indicators and must be adapted to local market conditions and individual circumstances. Moreover, some divergence from the 1998 Survey may be expected as the 1999 survey collected responses from individuals, whereas the 1998 survey focused upon companies. No accurate data for employees at the most senior management levels (CIO, EVP, SVP) are available.

        ANALYSIS

As in prior years, overall travel IS compensation in most regions seriously lags the larger technology industry in almost all areas. This is not simply a reflection of the economic disruption surrounding the industry in recent years but has been true for a long time.

Compensation increases in travel IS appear to reflect the serious shortage of skilled professionals in all classifications, resulting in increases that exceed the overall cost of living. There is no indication, however, that travel companies are placing a greater premium on IS talent than in the past. Some classifications, notably customer support and project management lag even the labor market-driven percentage of increase substantially.

Internet-focused travel technology start-ups anecdotally are more generous to their employees, but this is difficult to substantiate based upon the survey data. While this may be a reflection of limitations in the survey process, Internet companies also tend to introduce stock options, bonus programs, and other incentives into their compensation programs. It remains to be seen if a majority of employees ever realize the potential of this "soft" compensation (a fairly serious strategic issue to be resolved over the medium term). The 2000 survey attempts to capture more detailed information in this arena.

CONCLUSION

Travel technology is not immune from the talent flight affecting all levels of the travel industry--from senior management to front-line agents. Finding not just adequate but exceptional people with the dedication and experience needed to solve the deep problems most travel companies face (be they strategy issues, development problems, or simply the delivery of appropriate service to the customer) is the single most serious problem facing the travel industry today--one that will leave its mark for years to come based upon recruitment and personnel decisions that are being made now.

Technology, with so much promise of new tools and services, is unlikely to realize even a fraction of its potential in travel distribution unless IS managers change their compensation programs, as well as their management priorities, to be more in step with the mainstream of American business.

Neither offshore software development (a dubious exercise on a good day), "agent-in-a-box" schemes, new gadgets, or so-called "simplified" proprietary agent workstations will compensate for widespread talent erosion, driven by the simple truth that the people capable of solving the industry’s problems, in technology and across the board, can simply find better jobs elsewhere.

PASSING STRANGE -- COMMENTS ON THE NEWS

On April 17 financial services company Bear Stearns released a report, coinciding with its new coverage of online travel issues that sparked a profound reaction among trade groups, commentators, and travel writers. According to Travel Weekly (April 20, 2000):

"In the report, released April 17 at an e-commerce convention in San Francisco, Bear Stearns predicted competition pressures would force many on-line agencies to consolidate, while in a press release promoting the report, it estimated that about one-quarter of agents would be put out of work by the Internet."

One would think people had better things to worry about.

The financial analysts at Bear Stearns have no keener insights into the dynamics of travel distribution than any of the countless other soothsayers who regularly foretoken this variety of doom, and others attributed to the report. They’ve been doing so for years. In reality they have no idea how online travel distribution will affect the industry as a whole and especially the fortunes of traditional retailers -- let alone electronic ones.

The strategic and operational fortunes of online travel agents are seriously open to question. The Bear Stearns report does correctly observe that there will be a significant shakeout among these companies (this statement was outright heresy 4 or 5 years ago, by the way), but it does not cast much light upon understanding what qualities the survivors might have. Perhaps a more useful report would be embodied in the work financial analysts are usually supposed to do.

For example, the finances of many companies people would like to believe represent the future of travel distribution are often challenging to understand, to say the least. There are numerous examples, but this will illustrate:

On January 27 Priceline released financial results for 1999, which show a net loss of $52.5 million or $0.39 per share. Additionally, the company reported a $998,831,785 expense item described as "Warrant Costs," of which $910,400,000 is covered by a footnote stating, "…related to the issuance of warrants to certain of Priceline’s airline partners …"

The net loss applicable to common shareholders is $1,063,433,507 for 1999, leaving remaining stockholder’s equity of $402,635,630.

The interesting question is what $1 billion in shareholder equity bought and what has to happen for a travel distribution company (which is the part of the business where most of the money was spent) to generate either earnings or value sufficient to recover that money?

If the financial analysts had really sharpened their pencils they might help us to understand these difficult questions. They also might notice that the return on equity, as well as the return on sales, for well-run traditional travel distribution companies vastly exceeds almost every online agency.

What they are right about, however, are some of the related dynamics surrounding electronic distribution. Remember, it wasn’t that long ago that people were claiming The Internet to be the "great equalizer" of travel distribution, because it affords retailers of all descriptions the ability to compete with the largest companies.

Over the years people have claimed the same thing about the telephone, the CRS, ETDNs, and other gadgets. None has ever materialized and those claims have been replaced by a flock of new ones.

At the moment, competing as a major electronic retailer requires the ability to lose substantial amounts of money while waiting for earnings to turn positive. There are only a handful of companies that can compete in such an atmosphere. Traditional retailers cannot and should not try.

They should instead look for intelligent ways to use electronic distribution as extensions of their existing businesses and relentlessly focus upon delivering services their customers want to buy. Online travel sellers should abandon their efforts not to be called agents (for such they are) and recognize that sustainable infrastructure, customer service delivery, real products, and real customers (whose needs they understand and move to address) are essential partners with the powerful distribution and marketing technology they seek to advance.

If distributors, regardless of their platform of choice, simply understood this and nothing more they would have a powerful competitive advantage over others with nothing to say or sell who occupy both the online and traditional sectors.