Amex Intros Fee Charge-Back

<B>Amex Intros Fee Charge-Back</B>

By Megan Hjermstad

American Express earlier this month announced a new product that enables travel managers to automatically bill travel agency transaction fees back to internal departments and individual corporate cardholders.

The service complements American Express' efforts to unbundle services and offer clear and straightforward fee-based pricing for any type of service and transaction that travel managers pass directly back to travelers.

Jud Linville, president of corporate services of Canada and the U.S., said the product stresses to travelers the cost of agency service. "It is a way to influence traveler behavior," he said.

The new Amex product, called Fee Allocator, already is being used by 41 agency customers. It is available to clients using any corporate credit card--not necessarily American Express--who want to charge transaction costs back to individual cost centers. The product enables travel managers to determine how much to bill back to individuals and sets internal prices for different types of transactions, including those that are executed online.

"We used to absorb costs in our travel department, but times have changed," said Mark Johnson, travel manager for Cessna Aircraft Co. of Wichita, Kan., who began using the service July 1. "We want an individual to see what it costs every time he makes a booking. It makes much more of a point to the traveler." Johnson is not charging back the whole amount of a transaction but initially just what he thinks individual cost centers can absorb.

The service is built into the ticketing fee for American Express One customers, but for large customers there is a $1 charge per fee allocation. Some said that fee may be a deterrent for big corporations trying to save money.

"If a company has 25,000 transactions, the last thing they need is another charge added to each one," said Ed O'Connor, president of Thousand Oaks, Calif.-based consultancy Corporate Travel Directions. "Is there a benefit? Is it really needed?"

One scenario in which O'Connor sees benefit from the product, however, is in increasing adoption rates of online booking. Most corporations have forged deals with their agencies that include lower fees for online booking, which travelers would see when the fees are charged back.

"Where the Internet comes into play, transaction fees are modified downward in most cases," said Harold Seligman, chief executive of Management Alternatives. "When the reservation is handled by the traveler and the reservation agent is taken out of the process, it certainly is reflected in the pricing to the client."

Many travel departments since they began operating as cost centers have been charging fees back to internal departments, but they have had to rely on third-party solutions or internal accounting systems to disburse fees.

Nancy Godfrey, global travel manager at Chevron in San Francisco, has been charging fees back to individual travelers since the company went to net fares a few years ago. Godfrey receives a monthly statement from her agency and uses the company's accounting system to charge costs back to the traveler on a monthly basis.

Earl Foster, director of global travel management at Joseph E. Seagram & Sons Inc. in New York, for two and a half years has been charging costs back to travelers' cards using a combination of internal accounting systems and third-party software. "We jumped on that very quickly, as soon as we went on fees and net nets," said Foster. "Now the bill goes straight to the card."

While some corporate travelers dislike having additional charges on their cards, Foster has not seen any resistance. "That's the way we want to see it; that's the way the traveler wants to see it," said Foster. "That way travelers are in control of their destinies. They have complete visibility and they know the costs associated."

The announcement of American Express' charge-back comes on the heels of its introduction in April of standardized pricing for unbundled services to its customers, virtually all of whom now are on a management or transaction fee.

"Part of the American Express point of view is to demythologize the economics of this business," said Mike Woodward, vice president and general manager of the central region for American Express Corporate Services. "We have a very clear business model. We have a good handle on our costs and we are beginning to unbundle certain kinds of service. There is a very standard pro forma that includes both actual and allocated expenses."

American Express has separated direct operating expenses necessary to fulfill travel requests from value-added services--such as 24-hour service, international rate desk and tracking of unused e-tickets--which it has unbundled and delineated the costs of each. That degree of disclosure will be sought by many corporations, as they look to find out what, exactly, is included in the fees they are paying. It's a question that more and more corporations will be asking.

According to a recent survey by Runzheimer International, 48 percent of corporations pay a transaction fee, 28 percent pay a management fee and 24 percent still share commissions with the agency.

Large corporations, especially, have migrated to fees. Illinois-based consulting firm R.D. Brown Co. found that 78 percent of corporations are on some type of fee basis, but that 90 percent of larger corporations probably have some variation of a management or transaction fee arrangement.

"I think it is becoming clearer that most companies have gone to net or net-net fares, or even if they are keeping revenues, they are getting most of the revenues returned to them and paying a cost-plus, a transaction fee or a management fee," said Danny Hood, CEO of WorldTravel Partners. Hood said cost-plus--direct costs of an outsourced travel department, such as salary and benefits plus a transaction fee--is the most common of the hybrid options being tried by corporations.

Tom Nulty, president and COO of Navigant, said the trend toward unbundling and service fees has resulted in more open and honest customer relationships. "We've boiled our reason for existence down to very clear and reasonable functions so our customers understand what we're doing," he said. "The relationship is much clearer than it has ever been.