R&D Tax Credits for Hybrid Call Centers - Airline, Hotel, and Car Rental Industries

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        A new financially strong airline industry, hotel industry, and rental car market, combined with ongoing developments in hybrid call center technology, presents a major U.S. business opportunity. This technology based opportunity provides a greatly improved customer experience which fosters customer loyalty at lower operating costs. The required technology improvements related to call centers may be eligible for federal and state R&D tax credits. This article covers the big three company names in the travel reservation industry and describes the hybrid human agent/ machine based technology opportunity.

The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for 2012 and 2013 tax years. As of this writing, both the Senate Committee on Finance and the House Committee on Ways and Means have recommended extension of the R&D tax credit.

Big Data in the Travel Reservation Industry

        The travel industry as a whole is now internet based and increasingly relies on big data. Virtually all of the travel websites as well as the leading airlines, hotel chains, and car rental companies, have analytics departments typically headed by a Director of Analytics.

        With the success of travel booking websites, automated ticket kiosks, and mobile phone ticketing the airlines industry knows that technology based solutions can provide better customer experiences. Hotel brands garner a wealth of information about customers' personal interests including eating habits and in room entertainment preferences. With today's GPS systems, car rental companies know the customers vehicle preferences and driving patterns.

        The technology solutions firm Sabre works within the travel reservation industry providing services for data intelligence, mobile, distribution, and Software as a Service applications. Sabre's Vice President Harald Eisenaecher says Sabre estimates a traveler's digital footprint is much larger than the 1 TB (terabyte) per year average. Travelers generate data from shopping travel, mobile and social check-ins, travel companion apps such as TripCase, shopping requests for events, ground transportation, restaurants, and social activity.

        It is critical to realize that for the first time in modern American business history we have a travel industry that is strong in all three functional areas at a time when machine communication is greatly improving. Therefore, hybrid call center innovation is needed and can be funded.

The three big travel reservation components are as follows:

  1. The Newly Restructured Airline Industry
    Using the opportunity for a post-bankruptcy fresh start, the U.S. airlines industry has restructured into three major carriers as well as a group of niche industry players. The three major carriers include American Airlines, Delta Airlines, and United Airlines. Figure 1 below presents the restructured airlines industry.

    Figure 1: The New, Stronger Airline Industry

    cool chart 6

  2. The Newly Restructured Hotel Industry
    After the severe economic downturn, the hotel industry as also restructured with new, financially stronger owners purchasing many existing properties. These new purchasers are making major overdue renovation investments and are seeking to drive traffic to their updated and improved properties. Cutting edge call center reservation systems are the responsibility of the corporate hotel brands who should be analyzing the hybrid agent machine systems. Figure 2 below illustrates the largest hotel chains.

    Figure 2: Largest Hotel Brands

    cool chart 5

  3. The Restructured Car Rental Business
    In the rental car market Hertz was historically considered the industry leader, Avis was continually repurchased, and there were a series of smaller firms. In the new market, Avis seems to have found a permanent home and acquired the car-sharing service Zipcar in 2013, the Hertz/Dollar Thrifty merger resulted in a strengthened industry player, and Enterprise has thrived in the niche markets. The rental car market has used large co-location facilities at the leading airports to achieve cost savings while providing customer convenience. Figure 3 below illustrates today's car rental industry.

    Figure 3: Largest U.S. Rental Car Companies
    cool chart 4

Call Center Technologies

        The current travel market can benefit from further innovation, especially with the integration of big data, which is expected to exceed an annual average of 5 TB per person by 2020. Call center services can particularly benefit from innovation as hybrid human/machine technologies are further developed and implemented.

        Given today's technologies and the numerous ways to interact for support and service, one would expect phone communication to decrease in favorability. There are e-mail, web self-service, automated phone systems, and web chat contact methods yet the majority, 79%, of consumers still prefer phone contact.

Call centers can utilize the following technologies to innovate and improve efficiencies:

Speech Recognition

        Artificial intelligence has come a long way in recent years, particularly in the speech recognition front. Technology has greatly improved in recognizing natural speech and is well on its way to becoming even better.

        In a travel industry call center environment, speech recognition software is the key to accurate call routing. The enhanced performance of recognition software such as Siri and IBM's Watson has lead to larger expectations for call center speech technology quality. The traditional Dual Tone Multi Frequency (DTMF) response system in which customers 'press 1 for sales, 2 for billing' is no longer going to cut it for call centers.

        Current smartphone speech recognition differs greatly from the automated speech recognition (ASR) in call centers. Figure 4 below illustrates the differences between the two systems.

cool chart 3

Source: http://blog.spoken.com/speech-recognition/

        IBM, Google Voice, Nuance, and Microsoft, among many others are making advancements in the speech recognition and natural language processing field. Waveform Communications, an Indiana startup, is developing a digital code that corresponds to vowel perception and production. SRI International has developed speech recognition tools that use speaker adaptation, microphone adaptation, end of speech detection, distributed speech recognition, and noise robustness and can be used for English as a Second Language (ESL) applications.

        Nuance Communications offers natural language systems for a wide range of industries. Nuance offers speech enabled self-service options and voice biometrics verification services.

        Spoken offers interactive voice response (IVR) services that combine automated speech recognition with background human intervention for increased accuracy. Spoken integrates human agents or 'Silent Guides' that run in the background of ASRs to correct customer speech that would normally fail to be recognized. Using this hybrid approach, Silent Guides can handle 8-10 calls simultaneously, only intervening when the ASR fails to recognize a speech utterance.

Hybrid Model

        Although speech recognition technology is on its way to further innovation, companies want to retain the customer option of a human agent, particularly for certain population groups including senior citizens and ESL speakers that prefer human conversation over an automated system. Using a hybrid human/machine approach, call centers can incorporate IVR technology and human agents to provide more efficient customer services.

        A hybrid call center method can also address some of the most common customer complaints such as having to repeat voice responses with automated systems and having to repeat the exact same fact patterns and inquiries to different representatives when transferred. Hybrid call center systems using today's innovation can provide running account information and background for each caller.

        Another common complaint when using call center ASR is customer identification. In order to verify that customers are who they say they are, ASRs typically conduct a series of authenticating questions which can be time consuming. Using a combination of caller ID and IVR systems, a customer's phone number can be matched in the company's database and the IVR system can follow up with one to two more identifying questions, significantly reducing the customer verification time.

Anger Detection

        In addition while using a hybrid system, speech recognition software can detect frustration and anger while using an automated system and is able to route the caller to a human agent. Distinguishing anger with speech recognition technology involves acoustic, linguistic, call quality, and caller frustration history analyses. Software can estimate the emotional state of callers for each analysis category and determine if the caller is angry or non-angry. Anger and frustration are mostly detected in the acoustics of a caller by examining auditory levels, increased word isolation, pitch, and intensity. Software then analyzes a caller's emotional state by looking at the linguistics and word usage because words similar to frustration are commonly used to express anger. Figure 5 below illustrates the higher energy frequency of a caller's acoustics after being misunderstood by a speech recognition system.

Figure 5: Caller Acoustic Frequencies

cool graphcool graph 2

Source: "Advances in Speech Recognition: Mobile Environments, Call Centers and Clinics", Amy Neustein, Page 201.

Utilizing Big Data

        Travel reservation call centers can greatly benefit from the use of big data collection. By looking at big data, travel reservation companies can enhance caller experience by pinpointing their top 100 questions, analyzing the topics and complexity of caller concerns, and adjusting their training accordingly. By knowing the most common customer inquiries, companies can train agents to focus specifically on those concerns.


        The airline, hotel, and rental car industries rely on customer service and call center technology. As big data sources increase and innovative speech recognition is continuously developed, the newly restructured travel reservation industry call centers may be eligible for federal and state R&D tax credits. R&D tax incentives can also further help the restructuring of this industry.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andrea Albanese is a Manager with R&D Tax Savers.

Jacob Goldman is the VP of Operations at R&D Tax Savers.

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