Innovation takes Flight for 'Skroo' Turner

GRAHAM TURNER - usually better known, and happy to be addressed by, his nickname, 'Skroo' - heads up a world-leading travel organisation, Flight Centre Ltd and its 36 brands, with more than A$13billion turnover last year (2011). Even though his career path, and his inclination, is to take the lead on things he believes passionately about, he treads careful steps worn by experience, intuition and paying attention to those he affectionately calls "Flight Centre people".

 

"YOU LIVE AND LEARN."

That seems quite an admission from Graham ‘Skroo' Turner, who controls possibly the world's most successful travel retail organisation and brand, Flight Centre. But it turns out, Skroo Turner sees his role as enjoying a constant education in how to do things better and make better decisions.

He lives, learns - and has no problem correcting bad decisions.

In this case, he was talking specifically about the re-emergence of the once-ditched business travel brand, The Corporate Traveller, which has re-emerged as one of the stars of the 36-brand organisation and a driver of profitability in the bedrock corporate travel segment for Flight Centre.

"There's no doubt we made a mistake by consolidating the brands," Mr Turner said. "It's interesting. It's not so much the outside public, it's inside.

"You consolidate the brands and everyone starts wanting to provide the same sort of product. There are clearly different markets within it. It's logical to consolidate the brands, but if you do need to provide different products and different services to different customers then having a brand is a good way to do it - and mainly for (our) internal sake. Externally, people aren't too worried, necessarily, what the business is called.

"Internally, if you want to deliver a different sort of niche product, having a brand is often the way to do it and it is getting that distinction between what is a brand and business, and what is actually a branded product."

Brands, branding refreshment, customer expectations and client attraction are always discussion points when Skroo Turner is around.

The judicious application of common sense, defiance of conventional wisdom and astute marketing are some of the constants Mr Turner has imbibed in the organisation. He remains intrigued by and focused on marketing.

"Obviously you have some of these big brand owners like Gillette or Kraft and they have all their other products branded," he said. "Kraft itself is a brand name, but then they have their other branded products, Vegemite, within the product brand and they are not branded businesses in their own right.

"It's the same thing we have discovered ourselves. You don't want a different brand for every {expletive, another peculiarly endearing habit)  product, but with different groups of customers certainly, and for internal sake having the different brands, we've found it quite important for focus.

"We knew cruise, for example, was a growth market and had been for a long time and it's really taking off. Until we had our own brand that we really focussed on, we couldn't grow cruise as a product very successfully even within Flight Centres.

"Now we've opened Cruiseabout shops, we've got better buying power and we've now got 30 or 40 Cruiseabout shops. They are exclusively cruising, but we've got Flight Centres doing cruising as well ... you get the rub off on a product basis, as well as having a brand that you are really focussing on."

 

TRAVELLING BUSINESS

Mr Turner is a voracious reader - and he reads a lot about marketing. "There's a really good book out at the moment, I think it's called Branded Customer Service (by Janelle Barlow and Paul Stewart)."

He says he learns a lot from such marketing books and articles, but you get the feeling much of it tends to reaffirm what he knows, instinctively or experientially.

"Essentially, it's not only the logo and the brand and the USP but it's also important that when you are servicing specific sorts of customers you have specific product effectively for that sort of customer," he said, thoughtfully.

"So you take that back, to make sure your people are aware of that. It's interesting for example in corporate travel, your typical sales person will try to gravitate up the line so that their key market might be in the $50,000 a year accounts, but they just creep up and up because bigger accounts are more noteworthy and more exciting and this sort of thing."

He said that kind of perceived upward mobility by business development managers (BDMs) can work against the brand, instead of sticking to the knitting and meeting real needs. From the BDM's perspective, it may be a climb for more income.

"Possibly, but it is not necessarily the case," Mr Turner said. "As (BDMs) they get more experience they want to go for the bigger stuff and it's not necessarily the best way to go. They might be pitching a model that is not suitable for the bigger ones."

(Corporate Traveller) is basically our SME offering. It depends on you as a customer. Do you want to be treated as an SME or do you want to be treated as a big company? Because it's not so much the volume they do.

"An SME customer to us is a high touch, a little higher margin, than what we call TMS, Travel Management Services, which is our FCm Travel Solutions, a model which is generally done on some sort of service fee or transaction fees rather than commission or margin. It's a somewhat different pricing model and it's a different ‘touch' model as well.

Mr Turner said generally the customer starts recognising the ‘fit'. Staff will move along different corporate travel brands to suit themselves.

"A lot of it will depend on the level of reporting they want too. How much one-on-one high touch service they want, the reporting they want and how much account management they want. In other words, making sure they know exactly what everything is costing them and how much in total.

"For an SME, if you are spending $50,000 a year on travel, that's basically what you need to know - who is spending what and what they are travelling on. It's not complex.

"If you are spending $10million, the CFO is probably involved and, he wants to know, is it increasing or decreasing and who is travelling first, business, or economy class. Whether you are getting the best fares of the day or not, and those sorts of things. So you need much more detail of contract and so on in that sort of situation."

Flight Centre's business travel brands, Corporate Traveller, FCm Travel Solutions, Flight Centre Business, Stage & Screen Travel & Freight Services (for the entertainment industry) are all high service operations that assist and educate client businesses on how to maximise value and savings from travel budgets.

"It's one of the easiest pitches you can do - especially to someone who is managing their own travel, just by showing them how much money they are wasting," Mr Turner said.

He gave as an example a chat he and former Virgin Australia CEO Brett Godfrey had over lunch with BOQ chief, David Liddy. While Mr Liddy's personal travel was organised through a Flight Centre brand, most people in the organisation were booking their own travel over the web. The two travel experts were astonished that this was the situation at BOQ, and put a very convincing financial case to Mr Liddy in a compelling way. It simply had not occurred to the organisation how much money could be saved - not to mention the added value and duty of care issues addressed by Flight Centre consultants.

Mr Turner said these were very easy cases to make as they were provable and deliverable savings to be made for businesses of all sizes - "often we find businesses do not have a procurement person and even if they have a procurement officer, they may not actually be very good (in a specialised area such as travel)."

 

GOING GLOBAL

Success in the corporate travel area also drove the company's expansion into Asia.Flgiht Centre brands now operate in 10 countries.

"That's' where we started off, really. We bought a business in China seven to eight years ago, and Hong Kong before that (AOT) - and they were essentially corporate businesses. The one in China was a joint venture with the Beijing City Council (China Comfort Travel). Singapore, we opened ourselves, but we also bought out another guy there, but it's still only a really small operation at this stage. We set up our own in Dubai and in India we bought Friends Globe Travels.

"Second  biggest growth area is the States at the moment and third biggest is the UK, then Canada and all of those are growing reasonably well. Our US is still developing - our corporate is growing strongly but our leisure is struggling a bit for profitability - it's just about break even. Corporate's quite profitable."

In the US, Flight Centre bought Liberty Travel and GoGo Vacations.

"I think we settled in February 2008 - so the timing wasn't great," Mr Turner said of the onset of the GFC.

"We've taken our costs out and we made a small profit last year and we've been building our corporate up. We're getting there. There's a lot of potential there and, you know, we might make $5-10million there this year. But we should be making $40million and the UK will probably make $20-30million this year, so it's quite a big business. But places like Dubai,we have only been going there a few years and we should make a few million dollars this year.

"And everything is profitable, even if only just in the States. That's where it's at."

 

LIVE AND LEARN

Mr Turner is never complacent, despite being one of the few travel retail companies in the world that is doing well.

He likes to point out that Flight Centre earns about two percent on its turnover and on that basis, he quipped, "the car business" and banking "look pretty good to me ..."

The margin for error, he said, is small.

"We had an executive team meeting this morning. We've been through a GFC and I think we learned a few lessons. It's a matter of keeping liquid, keeping your cash reserves up. Head down and bum up sort of thing.

"Who knows. It might come to nothing and just be continuing up and down as per the last few years, but you just never know, either. I think it's wise to be cautious, fiscally, in business at the moment."

He said business leaders still needed to adjust to the post-GFC environment.

"It was interesting because during the GFC we didn't have a lot (of borrowings) either. We were carrying nearly a billion dollars in cash, but we still had borrowings. There is an element of customer funds in it.

"We still had some borrowings of a couple of hundred million. It was because you weren't really prepared for it - and the banks were panicking. I think our experience was the same as a lot of businesses. You got put under a lot of pressure by the banks even though fiscally you were very strong. It is one of those things that I think every business has got to be aware of.

"I think for that period its was never truer than, I think, the only people they wanted to lend to were people who didn't need it."

He said liquidity was a strong element of the Flight Centre business ethos.

"We have a treasury department and we have quite a bit of settlement in different  currencies and in different directions," Mr Turner said. "We don't speculate on currency, but we do have to buy currencies and sometimes there is a better time to buy it or sell it than others"

Flight Centre has made significant money in the past out of property sales, such as its former Brisbane headquarters, but is not a property-based organisation, such as McDonald's.

"We've never really had much real estate and we still don't. But we had quite a bit of success a five or six  years ago with our head office in Brisbane, which we bought for $11million  and sold it three years later for $35million or something.

"So we did do a few other properties like that and then of course the GFC comes and that put us under a bit of pressure as we would have preferred to have that cash. So we still have a few properties which are basically growing in value, but it's a classic case of leave property investing to the property investors and now we have fairly strict guidelines on what we can hold our cash in."

One space Flight Centre is definitely courting, however, is cyberspace.

 

ONLINE INTERPLAY

Flight Centre's online strategy is a clever mix of online and offline ‘touchpoints' with clients. Mr Turner said Flight Centre's future was an online-offline interplay born of experience in many markets.

 

"Obviously over the past 12 years (online) has taken a significant chunk of the market, particularly in the States," he said. Flight Centre stakes its claim in both the internet and bricks and mortar.

"The deal are there, but they are basically the same as a bricks and mortar shop. We will tend to have a better deal (overall). A lot of the airlines don't like online travel agents. They would prefer people book online, but by using their site, so that's their main focus.

"We are working more and more to have an online, offline interplay. So you book online and you are allocated a travel consultant who can do any of your other stuff, or someone you can ring if anything goes wrong."

There was aabundant proof of the value of this strategy when Qantas grounded its fleet late last year.

"Like, Qantas gets grounded and we did 5000 re-bookings on that Sunday. A significant number of them weren't our customers either. I think people get to see that there is an advantage in having a relationship with a person rather than just an online relationship.

"The online offline relationship is important to us now and it is going to become more important as time goes on. A fair bit will be able to be transacted online, if that's the way you want to do it - or if you prefer, in person as well.

"Most people will transact online as well as with the shops. They prefer to do the longer haul more expensive and more complex transactions with a person, generally. The simple easy stuff they will do online, either with us or directly with the supplier."

Flight Centre was accused of having a slow start in website delivery, allowing travel.com.au and Webjet to get the jump on them. But as it has payed out, Flight Centre has positioned its brands solidly through astute buy-outs of websites matched with its own development. The Quickbeds site, in opposition to Wotif, is a good case as one of its key advantages is the high use it gets from its own consultants.

That online capability is about to accelerate, especially in terms of customer service.

"We are just in the throes of putting in what is known as Universal Desktop, which is a desktop for our consultants which has a lot more capability than the old green screen and that has the capability of recognising customers when they come in aroudnt he world. There is still work going on with the online offline interplay. So if they have transacted with us, over the next 12 months when they come online they will be recognised, but even if they have not transacted with us, they will be allocated a bricks and mortar consultant as well. Then it is up to them whether they want to use the consultant and it's up to the consultant to decide if they've got something they can offer that customer that they might not have done..

"Our Quickbeds is going very well at the moment. It's still a fair way away from Wotif, but it's going well. And that's a b2c as well as a b2b, so consultants use it extensively as well.

"But Quickbeds has got to stand on its own two feet," Mr Turner said. "The thing about those sort of sites is that we can feed it from a range of different hotel banks. Some of them are our own. We direct negotiate some 25,000 hotels now, through what we call FCGP - Flight Centre Global Product.  That's been an important part of our US strategy and purchase.

"We've got all of the US, Caribbean. Mexico and Hawaii direct contracted. We've also got Australia, New Zealand, Asia South Africa and as time goes on all our contracting and hotels will be linked. So, with Quickbeds you will be able to get the best rate from three or four different sources.

"The main thing is it's not just having a better range, it's having a better margin, because you are direct contracting more stuff. There's two elements, what price you are offering the customer and what margin there is. So it's a combination of those two things.

"There's no point having a good margin if the price is not competitive. But our direct contracted rates, which is an FCGP (Flight Centre Global Product division, its contracting group), they would then have their 20-25 percent margin. But sometimes the (rate) may not be as low as the last-minute type. That's the best way to get us the lowest price and the biggest margin. That will be in by early 2012."

So while the online space is highly competitive, it is the bricks and mortar and strong travel product management that again gives Flight Centre a long-term advantage. But Mr Turner is not yet content with online.

"I don't think we are doing it (online) ideally ourselves. Certainly by mid or late 2012, we should have a lot of this integrated or co-ordinated. Then it's a matter of just improving it."

Flight Cente sees online as yet another way to engage with potential customers for its other brands and branded products.

"There's no disadvantage for us either. Except, it's not easy technology. Despite how everyone talks about technologies and how easy things are to do, the fact is that there are not many technologies out there that are perfect at the moment."

 

BETTER MOUSETRAPS

For a fellow who often claims not to understand or trust new technologies, he spends a lot of time thinking of ways to make technology work better for the Flight Centre businesses.

"There are two aspects we're focusing on now," Mr Turner said.

"Building a better mousetrap. Whatever we are doing now, doing it better, quicker, faster and harder if you like. There is still a lot of potential to improve, to build a better mousetrap with our current businesses and systems.

"Then," he said, " its the future strategy. What business in 3, 5, 7 years is going to give us $10m-$20million worth of profit. It may not exist now or it may be minimal. So that's really the two major broad ways we are focussing.

"Interestingly, a significant number of those opportunities are in our business. It's just, how do we get them to be a significant part of the business?"

"There are two ways we will get that growth. One is using our existing travel businesses and perhaps expanding them vertically more.

"The retail travel brand might have a high street trading and it might have an online transactional site that go together, then you have the wholesaler - like Infinity - and you have FCGP, which is the contracting arm which might even pre-buy product or even charter aircraft or whatever. But then you might have the ground operator.

"So as our customers go to Phuket, Fiji or whatever, you get more margin out of either contracting or doing tours or things that people do and pay money for when they are on the ground. That's one area of expanding that vertical impact."

Flight Centre's exploratory step into that area is Touring UK, a ground tour operator.

"In travel, tour operating might be one. Or bikes- or recruitment - areas we've got small businesses in now (99 Bikes and EmploymentOne). It's really whether we feel we can deliver those lumps of extra profit and whether we get an RoI on the money we have to spend to get there. Even in travel, these are niche businesses, and in corporate we have got the major brands. There might be an opportunity by offering a wider range of product.

"Then we have things like CiEvents, which is an events organiser. And they have various areas like the creative side of it, the artwork side of things, so you have your niche brands like Cruiseabout and MyAdventureStore.

"So there is a whole network of different opportunities and it's really about being a bit smart about how you identify the ones that are really going to be able to grow and get big lumps of extra margin or profit into it," Mr Turner said.

"It is going to be a lot about the people who are running those niche brands or, but more at a senior level - my team-it will be about vertical integration and the acquisitions that will make a big difference. So it just depends."

While Mr Turner and the leadership team are always on the lookout for internal businesses to develop, the track record with acquisitions has been generally positive.

Mr Turner said acquisitions were always based on their development value and market share, not a financial arbitrage play.

"In the past that may have been some of the rationale for some of our decisions, but now it's got to be strategic. It has to fit in with what we are trying to do long term. They tend to be smaller, more niche things now that we'll look at.

"We've had reasonable acquisitions over the past 15 years and most of them have been positive," Mr Turner said.

"Generally they take a lot longer to integrate and get them to where you want them to be than you think at the time. But it does allow you to get to the stage where you can then grow organically. Which we are generally more successful at and you can get to RoI more rapidly than  in acquisitions.

"In the 11 countries we are in now, they (acquisitions) are all profitable. Some of them we have bought corporates, some of them we have set up our own corporates and some of them we have bought retail and in some set up our own retail.  It's a combination of getting to the stage where you can grow organically.

"You've got the skills set and you've got the basic system, business model. For example, we are just opening Flight Centre shops in Singapore and we just used to be corporate there - same in India, same in Dubai, same in Hong Kong.

"You need one or the other established before you can really start up the other. So we have a lot of opportunity to start up the retail now right throughout Asia. In India we've gone from no shops to about 15 shops there."

If there is a consistent currency that's needed for success in new markets, Skroo Turner qualifies it as "perseverance".

There's a lot of things where you say, how long is this going to take us? Liberty GoGo (US) in the first year we lost about $30million and  the next year we lost about $10million and in the third year we had a small profit.

To get an RoI on it will be at least another 4-5 years. But that's part of the fun of doing business and if all you did was just stay in Australia and just focus on growing organically in certain areas and cautiously, you could end up getting great RoIs and so on, but it wouldn't end up being much fun.

"Not much of a challenge. Although sometimes you do wonder ...

"That's the thing, That's what business is about. Take some risks but not too many. It's not just about being absolutely a slave to the RoI - but not forgetting that either."

As Skroo Turner likes to say, you live and learn.

 

www.flightcentre.com

ends