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| GLOBE TROTTER: Travelocity CEO Michelle Peluso has seen more interesting sights than the company’s New York offices pictured here. |
This is so Internet.
I have a problem that I need to report. But I don’t know whom, exactly, I should talk to, much less where that person or persons may be. He/she/they could be in Southlake, Texas. Maybe Manhattan. Possibly Sydney.
See, I have been trying to arrange an interview with Michelle Peluso—the 35-year-old CEO of Travelocity who is credited for the company’s remarkable turnaround. In 2002 and 2003, Travelocity, a division of Southlake-based Sabre Holdings, lost more than $60 million. In 2004, her first year as CEO, it posted a $13 million profit. Since then, Travelocity has gained a full five percentage points of market share on industry leader Expedia. And in 2006, after launching a major rebranding campaign, it made $109 million on $1.1 billion in revenues.
All of that would be interesting to talk to Peluso about, if only I could get on her calendar. I started pursuing her in October through normal PR channels, and by December, I have finally decided to try and go directly to the source—or at least to the source’s assistant—to set something up. But here’s the problem: I don’t know where Michelle Peluso is. She splits time between Travelocity’s offices in New York and the corporate headquarters in Southlake, maintaining homes in both places. And that’s when she’s not traveling the globe, hopping from the company’s offices in San Francisco, London, Singapore, Sydney, and points beyond. So where do I even begin tracking her down? Does anyone answer the phone at Travelocity? Is there even a phone? After all, many dot-coms don’t publish phone numbers, or at least don’t make them easy to find. Have a problem? You send an e-mail. Then you wait. And wait. But when I log onto Travelocity.com, in two clicks, I find a phone number for customer service. Real, live, customer service from a dot-com? That does not compute.
| ›› THE TAKEAWAY |
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1. Memorable trips are about the experiences, not the agendas. 2. Customer service matters, even on the Internet. 3. Mrs. Jenkins makes a compelling case. |
But this unusual approach is all part of what has made Peluso one of those “people to watch” types in business. Under her guidance, Travelocity capped 18 months of work when it adopted, in mid-2005, an unprecedented service guarantee, which the company touts on TV commercials through its “roaming gnome” mascot. The guarantee promises Travelocity will try to fix most problems customers may encounter on a trip, from a delayed flight to a hotel-booking snafu—even if that means, you know, actually talking to a customer.
That concept is so very not Internet. But in a rapidly expanding industry—one estimate suggests online travel booking, now an $85 billion business, will top $128 billion by 2011—where competition is growing from search sites like Sidestep and Kayak.com and even from longtime Travelocity clients like airlines and hotels and cruise lines, Peluso believes this is the only way for Travelocity to do business.
“It’s critical to all of us in the online community to decide how we are going to become customer intimate, and how we can deepen our relationship with customers,” Peluso says when we finally meet in Travelocity’s New York offices on a frigid January day. “With the Travelocity Service Guarantee, we can take accountability to make sure you have a great travel experience, and if we do that, then we’re much more meaningful to a customer than if we were just some whiz bang technology.”
| SITE PLAN The online travel-booking marketplace continues to be a crowded one, despite buyouts and consolidation. Here, a look at three of the prominent players. |
 * Sample month for page views is April 2006, as reported by comScore Media Metrix. |
Passing New York subway trains shake the building at 139 Centre Street, all the way up to the seventh floor, where Travelocity’s New York offices are located. The building, a turn-of-the-last-century, cast-iron structure is quite striking, if you dare to look up at it amid the bustle of the sidewalks in Chinatown. But inside it’s not so striking, especially in Travelocity’s space. To call the company’s common areas “nondescript” would be a compliment. I see no dot-com boomtime amenities on Travelocity’s seventh floor. No bean bag chairs. No ping pong tables. Just a dull hallway flanked by several Spartan conference rooms, each of which is decorated only with New York State license plates bearing the names of the Big Apple’s various boroughs. The space, which Travelocity will be moving out of later this year as the building converts, possibly, to condos, is cold, quiet, and even a little dirty.
Amid this backdrop, Michelle Peluso stands out. Then again, she’d stand out among most backdrops. She’s WNBA-tall, thin, and immaculately dressed—wearing black from head to toe. And she exudes the energy of a woman who is, well, just a little younger. Peluso is only 35—surprisingly young to be running a company that did $1 billion in revenue in 2006. (Travelocity actually booked $10.1 billion worth of total travel, but most of that money went to its suppliers—hotels, airlines, etc.)
Then again, Peluso has been surprising people for a while now. Take the time, at 15, when she shocked her parents by announcing that she’d signed up for a three-week trip to the Soviet Union (this was 1988, back when it still was the Soviet Union). The trip was during the school year, and it cost $3,000.
What’s Up with the Gnome? |
Her father, who ran his own environmental engineering firm, and her mother, who was a teacher in Middletown, N.Y.—a mostly rural community about 90 minutes from Manhattan—eventually agreed to pony up. The trip turned out to be a life-changing event that instilled a sense for public service in Peluso. When Peluso returned to the U.S., she immediately started a foundation called New Generation for Peace. The group brought hundreds of international students together to talk about hunger, poverty, and the like. Today, the foundation has ceased to be, but Peluso remains active in a variety of causes, especially efforts to fight AIDS. And, she’s pushed Travelocity to develop “Travel for Good” programs that encourage volun-tourism trips.
The Soviet Union trip also likely gave Peluso a bit of wanderlust. After graduating from the University of Pennsylvania’s Wharton School of Business and winning a scholarship that earned her tuition and expenses at Oxford, Peluso interrupted her studies by working for Citibank with the World Bank in Dakar, Senegal. She then joined the Boston Consulting Group, working in New York as a financial analyst, but left that job to become a White House fellow and senior adviser to President Clinton’s secretary of labor. After one year in Washington, Peluso returned to New York to found an Internet company, Site59, with BCG’s partial backing. This, despite the fact that she had no significant work experience in e-commerce or the travel industry. “I’ve never really had a career path plan,” Peluso says. “Many people ask me, ‘What do you want to do in 10 years?’ I’ve never really had an answer to that question.”
So far, she hasn’t needed one. Maybe that’s because Peluso takes a similar approach to business, whether it’s a small, 80-person entrepreneurial firm like Site59—which Travelocity acquired in March 2002 for $43 million, an acquisiton that brought all the employees, Peluso included, into Travelocity—or a massive operation like the 5,000-employee Travelocity.
“Michelle is very much execution- and milestone-oriented,” says Sabre CEO Sam Gilliland, who was running Travelocity when Peluso first came on board. (He was promoted to head all of Sabre when Peluso was handed the reins at Travelocity in 2003.) “When Michelle joined Travelocity, that was a very, very difficult time for the business. She initially oversaw the hotel aspect of the business, which wasn’t going swimmingly well. But it doesn’t really matter what the problem set was. As she took on more responsibility, it was clear she was suited to the enlarging set of responsibilities. And she applied herself in very similar ways. ‘Let’s understand the core problem. Let’s understand what the potential solution is. Then let’s decide what to do and get on with it.’”
Gilliland also says that Peluso “has a very big brain,” which is unquestionably a compliment, even if it doesn’t entirely sound like one. Spend some time talking to her and you see what he means. She’s well-versed in the hundreds of details that go into Travelocity’s business, a complicated mix of supplier relationships and service to the end customer—you, the person in front of that computer screen hunting around for rates and fares. Better yet, she’s able to clearly communicate what changes Travelocity has made in her tenure.
She might be good at such communication simply because Peluso talks fast. Really fast. Of the company’s management techniques and customer service quality assurance, she tells me, “Oh, I could go on and on and on and on and on and on and on and on.” You can’t read it as fast as she can say it.
One of the things she’ll tell you is that the idea for the customer-service guarantee didn’t make any sense, big-brain businesswise. “All of the research we did into what consumers were looking for in an online experience told us that all they wanted was cheap pricing, cheap pricing, cheap pricing,” Peluso says. “But all of us here are passionate about travel, and we all know that it’s not just about whether you got the cheapest deal. When you’re talking about travel at the water cooler a year after your trip, you’re talking about the experience, not just about the deals. So we decided that we needed to take greater accountability for the actual experience and humanize the travel portion of the experience and humanize Travelocity in the process. There was very little quantifiable research we could point to that would justify our decision. Our decision was much more intuitively based to where we felt consumers were making compromises online and what we thought we could do differently.”
The problem was, going with their guts was a dangerous idea. Remember that Travelocity doesn’t provide most of the services its customers actually pay for. You don’t fly Travelocity Air, you fly American Airlines. You don’t stay in the TLVY Hotel, you stay in the Marriott. So, guaranteeing, as Travelocity did, that they would make a trip right when things went wrong, could have been disastrous. “Initially, we did think that, well these aren’t our issues, these are supplier issues,’” Peluso says. “But then we challenged ourselves and we thought, well, if we wanted to make it our issue, what could we have done differently? As we challenged ourselves, we found there were very few cases where we couldn’t take more responsibility than we had been taking.”
Still, doing so meant rewriting contracts with hundreds of suppliers, who would be asked to provide more information and even more customer incentives in some cases. It also meant sending every one of Travelocity’s workers to something called Customer Championship Training and rewriting each employee’s objectives to align to customer-related goals.
In the online sales world, where impersonal interaction between customer and store is the norm, doing all this, Peluso says, felt like treading on new ground. “We really hadn’t taken a lot of accountability for great service,” Peluso says. “I think we thought of our ourselves as just a booking tool. That was a big cultural shift for us.”
The shift paid off. The company’s internal “metrics,” as the business types say, have changed markedly since the guarantee was launched. “We’ve seen some real nice improvements in customer satisfaction, customer retention, and net promoters—people who are willing to talk about Travelocity in a positive light to their friends.” Plus, the bottom line has changed. Travelocity posted a profit in 2004, the year before launching the guarantee. But both profits and revenue growth have accelerated since the guarantee launched. Revenues are now growing at a speedy 30 percent annual clip as some customers have become more likely to be repeat buyers. “Also, as we’ve gained market share in the recent months, I think part of that has to do with consumers recognizing that Travelocity now stands for a great travel experience,” Peluso says.
Not everyone would agree that Travelocity is doing quite so well at keeping customers happy, namely the University of Michigan and ForeSee Results, an Internet customer satisfaction firm. In a joint study released earlier this year, that pairing found that online shoppers’ satisfaction fell for all online travel reservation firms. Expedia had the highest ranking of any of those firms, and Travelocity ranked last. ForeSee’s CEO, Larry Freed, says online travel reservation firms are having trouble because customers are increasingly unable to differentiate between them.
But that’s where some good, old-fashioned whiz bang technology might just come in handy. This year, Travelocity is launching something called “Experience Finder.” Think of that as sort of a YouTube approach to travel—a site that matches Travelocity’s fare-finding engines with a deep well of user reviews, including photos, videos, and more. At the moment, Experience Finder is in testing mode, but the early version looks slick. It also stands out in comparison to the kind of user reviews one finds on, say, Yahoo Travel. For now, at least. Tech firms do have a way of catching up with each other. Fast. Really fast.
Still, for now, the new Experience Finder gadget allows Travelocity and Sabre to leverage their recent acquisition of travel review site IgoUgo, just one of the companies Travelocity has snapped up under Peluso’s watch. Travelocity has also bought Zuji, an online travel booking firm in Asia, and lastminute.com, a leading online-booking site serving Europe.
The overseas buys make some sense, given both growing travel markets in Asia and Europe and Travelocity’s existing presence in those areas. Currently, half of the company’s 5,000 employees work overseas. And that has Peluso spending nearly as much time traveling as she does in her Dallas and Manhattan homes.
The week before our chat, she had been in Las Vegas, meeting suppliers and employees. The week after we met, she was headed to San Francisco to meet employees based there, then to Hawaii for meetings with Travelocity partners, then to Hong Kong and Singapore for site visits at the company’s offices there, and then back to Dallas for a board meeting. “That’s just a week in the life,” Peluso says, shrugging. “But, it’s really important to me to be visible to the team and to be hearing firsthand what they need.”
In fact, Peluso says she’s obsessive about that kind of communication. Every other week, wherever she is, Peluso conducts a brown-bag lunch with about 16 employees, none of whom can be people who report directly to her. She also writes a weekly e-mail to the entire staff detailing current company objectives and progress on each. And she has what she calls a “24-hour service-level agreement” with herself, giving her exactly one day to respond to any and every employee e-mail. “If I don’t know the answer, I’ll find someone who does. If I disagree with them, I’ll let them know that, too. But I’m really fairly obsessive about making sure that if it is on someone’s mind, it is on my mind and it is important.”
She also wants her employees to know what’s on customers’ minds. After all, as Sidestep and Kayak and others squeeze margins and start driving booking away from the big brands like Travelocity and Expedia, it’s that more intuitive component that could make the competitive difference. That’s why Peluso’s tech team—a group that in most online companies might never hear from a customer—now routinely listens in on customer service calls. “Before, you could just say, ‘Oh there’s just a bug in the system, so something went wrong,’” Peluso says. “That feels very anonymous. But when you hear Mrs. Jenkins on the phone talking about how she’s a single mom, she’s got two kids, this is her annual vacation, and she showed up to the hotel and it didn’t have her booking, or the booking wasn’t right—it’s a smoking room when she’s got two asthmatic kids, then it’s not anonymous anymore. It’s personal.
“And I think that does inspire a greater sense of accountability in our team to say this isn’t about a piece of code or a contract or a marketing campaign or an Excel spread sheet, this is about the magic and power of travel and what each of us can do to make those experiences better for our consumers. The more that we can make that come to life for our employees, the better we are at delivering great value for our customers.”
CEO SNAPSHOT MichelLe Peluso, CEO of Travelocity
FATHER KNOWS BEST: Born in Middletown, N.Y., in 1971, Peluso grew up in nearby Mt. Hope, N.Y., a mostly rural town about 90 minutes from Manhattan. Her grandparents ran a Long Island motel. Her mother was a teacher, and her father was an entrepreneur who founded a successful environmental engineering firm. “My dad would come home and talk about his various employees,” Peluso says. “He was very passionate about them. In many regards I model myself after him.”
WHAT’S A PPE DEGREE? Peluso earned her undergraduate degree in business from the University of Pennsylvania’s renowned Wharton School in 1993. The university awarded her with the Thouron Scholarship, which provided funds to send her to an English university, in her case, Oxford. There, she attained a “PPE” degree, after studying philosophy, politics, and economics. “I did mostly philosophy and politics. And when you’re studying Nietzsche and Schopenhauer, that felt very far afield from business.”
CAB DRIVERS ARE SO JE NE SAIS QUOI: Peluso took time off from Oxford to do financial analysis for a World Bank program in Dakar, Senegal. She hasn’t been back to Senegal since. Not that she needs to. “In New York City, maybe every 20th cab driver is a Senegalese,” Peluso says. “I can usually tell from their accent and if they’re speaking French. So I talk to them and get my Dakar fix that way.”
HARD LABOR: In 1997, Peluso joined the Boston Consulting Group, a 3,000-person financial services firm. Just a year later, she took a leave to serve as a White House fellow and a senior adviser to President Clinton’s secretary of labor, Alexis Herman. “At the
beginning of the program, we were asked who the people were we’d most like to meet in the world,” Peluso says. “Then, the President invited all those people to the White House. So two to three times a week we’d be having lunch with people like the Dalai Lama. It was amazing.”
DOT-COM DAYS: In 1999, BCG helped Peluso found Site59, a Web company specializing in booking last-minute travel. Its headquarters were within sight of the World Trade Center during the September 11, 2001 attacks. After struggling with financial losses post-9/11, Site59 managed to turn a profit in 2002, and was soon after acquired by Travelocity for $43 million. Peluso was brought into Travelocity as part of the acquisition, working as a senior VP then COO before being named CEO in late 2003.
TURN, TURN, TURN: In both 2002 and 2003, Travelocity lost money—a full $55 million in 2003. But, in 2004, Peluso’s first full year at the helm, it posted a $13 million profit.
