Basic TMC Fee Finds A Floor

The hype of the $5 fee has galvanized executive interest in travel management transaction prices, but add-ons mean a truer target lies between $10 and $20. Even still, benchmarking agency fees and costs remains muddied by less visible factors, including whether the agency collects commissions and global distribution system incentives and the costs of full-service phone bookings, en route assistance and exchanges and refunds.

Following 2002 initiatives by the likes of American Express and TRX to formalize single-digit fees within a pricing menu, Carlson Wagonlit Travel last month helped illustrate the fee structure's complexity when it announced a new program known as ISelect. Featuring CWT's first-ever $5 fee for touchless transactions, the new structure gets messy as it enables customization.

The basic $5 includes "core" services CWT described as "the online booking tool, an implementation package, Web reporting, safety and security, a Web portal, profile management, policy manager, customer support, pre-trip authorization, ticket fulfillment, communications package, account representative, and analytics and point-of-sale travel management preference reports."

Offline domestic and international bookings cost $15. CWT charges $10 for each call to service an existing reservation, capped at $20. As with virtually all of its major competitors, CWT's program charges additional fees when buyers choose such components as upgrades, VIP services, account management and consulting packages.

"The average should be way less than $20," said CWT North America president Robin Schleien, based on a typical ratio of 1.3 calls per transaction. "We expect absolutely to be directly in competition with the online travel agencies, from every perspective. They were the first with such a fee structure, but you have to speak to the market optic."

When Orbitz For Business generated headlines last year by landing the McDonald's account, Carlson Wagonlit Travel worldwide CEO Hervé Gourio said the lower fees advertised by Orbitz were "subsidized by other revenue sources." OFB late last month said its average first-quarter fee for corporate clients' airline transactions was $10.36. Like its competing online-originating agencies, Orbitz's retention of supplier revenue and GDS incentives helps keep fees down.

"A commission sometimes indicates percent, but at Orbitz we get a transaction fee from the suppliers on the airline side," said corporate travel general manager David Cerino. "It doesn't matter what the costs of the ticket are. We have multi-year charter associate agreements that guarantee us the lowest inventory." Fee levels paid to Orbitz under those agreements will decline by 27 percent on June 1, according to Orbitz's 2003 Securities and Exchange Commission registration statement. "Orbitz as a company is focused on making sure we can pull the correct costs out of the equation every year," Cerino said.

In CWT's new program, buyers pay a $3 premium on the fee in order to collect commissions and overrides. GDS incentives are not passed through, Schleien said.

Travelocity Business suggested that the collection of commissions is negotiable, while Expedia Corporate Travel noted buyers should simply compare options in a closed-book model. "No one really talks about the net cost," claimed ECT president Matt Hulett. "They all focus on the $5 fee."

Some buyers echoed that sentiment. "Today, I wouldn't even worry about the influence of commissions on the lower fee," said travel procurement manager Nancy Garner of Extreme Networks, a T-Biz client. Garner's provider last month announced its own negotiated discounts of 5 percent to 30 percent on business travel inventory from Frontier Airlines and some foreign carriers.

Travelocity Business president Ellen Keszler said the fares are commissionable and T-Biz may or may not collect overrides, but the deals are not performance based. She said smaller clients tend not to have their own negotiated rates.

Even as she minimized the impact of commissions, Extreme Networks' Garner believes buyers need to do their homework on fees. "They really need to check into the $5, especially what you do for voids, unused ticket tracking or refunds and exchanges," she said. "If you're not aware of that, you'd better become aware. My company does a lot of refunds and exchanges, so we negotiated the fee. All agencies charge the simple transaction fee, but then there are all those add-ons. It's a lot to go over."

Such other hidden costs as the travelers' time and a high rate of exchanges and refunds at Booz Allen Hamilton is one reason corporate travel manager Doug Weeks has been reluctant to explore any kind of online self-booking.

"We don't want our guys making $1,000 an hour trying to book their own travel," Weeks said. "Plus, we're continually making changes. We have a refund rate of 35 percent. So when we talk about online booking tools, it's not important for us to save $2 per transaction. What's important is, 'Can you book that transaction online quicker than more traditionally by picking up the phone?' Until an online booking tool can do exchanges and refunds, it's just as easy for our folks to call."

"It's the change fees and unused tickets that will rack up a lot of costs," said Marketstar corporate travel controller Jeff Jones, whose company uses both Orbitz For Business and a local partner, Hess Travel. "You have to make sure the employee base understands the ramifications of making last-minute changes, and you need to communicate that. An agent may help you stay away from those costs." Jones said that for full service, Hess is cheaper than OFB.

In comparing agency models, travel buyers continue to face the challenges of defining a transaction. "Every year, we reevaluate our model and benchmark that against the industry averages," said American Management Systems corporate travel manager Karen Van Buskirk, who runs an ARC-accredited Corporate Travel Department. "It's a hard number to come to right now because we all pick up the paper and see $5 being offered by the new Internet agencies, with $30 for international, and then it's up to $50 for traditional agencies. We meet the $5 online booking as our transaction cost, but for our high-touch service, it then goes up into the $20 range."

The newest midsize to large clients at Orbitz For Business and Expedia Corporate Travel see fee savings as a major benefit. "The most obvious benefit is the lowering of the fees," said travel manager Ellen White of publisher Knight Ridder, an Orbitz For Business account as of May 1. "I've read all the industry stuff on 'visual guilt' bringing down your average ticket price, but I have a conservative approach on my expectation of that." Rail service provider CSX switched from a traditional agency to Expedia Corporate Travel on April 1. The company had no complaints about service from its prior agency, but "it really boils down to economics," said corporate services director Daniel Burns. "Transaction cost is really important to us."

Of course, transaction cost is agency revenue, so as that falls so too must the agency's costs. "As of the end of February, just over 27 percent of our U.S. bookings were online, with an 84 percent touchless rate," said American Express North America corporate travel executive vice president and general manager Pam Arway. "That means a huge transformation for our business in terms of removing costs. It's not just the physical plant that has to change, it's in every single one of our processes because we need to compete on costs. We are there today on the cost side."

American Express more than two years ago announced free transactions in its basic RezPort booking service for small companies that don't have a formal travel policy or their own negotiated rates. In general, stripped-down transactions with Amex's RezPort suite range up to $10.

Navigant International officials said it is in testing and on target for a June launch of its all-in-one service, backed by the Powertrip booking tool it bought last year.