Cos. Decentralizing Mgmt. Costs

Many travel buyers in recent months have implemented new systems that assign transaction fees to individual travelers at the point of sale to decentralize the cost of travel management and encourage cost-saving behavior, such as the use of self-booking tools. Hoping to cash in, all the megas, some smaller travel management companies and a smattering of third-party tech companies offer products that help automate this process, but many corporations believe in-house solutions are less expensive.

"There's certainly a lot of movement of companies changing over to a fee allocation model or some sort of decentralized cost arrangement," said Ed O'Connor, president of Corporate Travel Directions, a Thousand Oaks, Calif.-based consultancy specializing in agency fees. "These systems can help promote positive traveler behavior and help with accounting."

Early adopters began moving to fee allocation models in the late '90s after the airlines began chipping away at base commissions and net deals came into vogue, exposing the cost of travel management to corporate budgets. Many companies created their own internal cost allocation systems for travel management, but travel management companies soon introduced the first products that charged travelers credit card transaction fees that then were passed back to the corporation, minus the agency costs.

Adoption of cost allocation tools remained low, however, until this year, when prolonged, intense budgetary pressure and the final elimination of base commissions spurred droves of companies to switch to decentralized travel budget models. Agencies that offer these tools have reported a steep rise in the number of companies using them, and third-party firms and GDSs have hit the market with fresh offerings, expecting to sign new customers.

BP Amoco uses a decentralized budgeting system for accounting and to encourage low-cost bookings, said Warrenville, Ill.-based global travel manager John Guarneri. For all air bookings, employees receive charges on their corporate Diners Club cards from BP's agency, Carlson Wagonlit Travel, which the agency then passes back to BP, less CWT's travel management fees. Under the internal billing scheme, BP charges employees $20 for each online booking, $75 for each domestic agent-assisted booking and $100 for each international agent-assisted booking.

"We want to encourage travelers' use of the online booking system," Guarneri said. "When we implemented differential pricing in August, our online booking adoption went from 27 percent up to 55 percent almost immediately. The impact the fees had on traveler behavior was phenomenal."

The transaction fee system has improved BP's travel management budgeting and payment as well, Guarneri said. "In the past, we had to set a budget in June or July for the next years' travel management costs based on historical data, but if a new business unit came on or if a unit folded up, we had to make changes," he explained. "It was a waste of time to have central accounting debit the individual business units for payments due CWT. I had to go back and forth, and it didn't get anywhere fast."

Guarneri's goal is to zero out the cost of travel management at BP. "CWT takes their fee out of those transaction fees and then passes the rest to us," he said. "If it all works out at the end of the year, what CWT passes back to us will end up at zero."

As a softer alternative to mandates, many companies use fees to push travelers to make cost-effective decisions, such as booking online. Jim Lee, director of global travel for Morristown, N.J.-based Honeywell, has been using American Express' Fee Allocator for more than two years to push cost-saving behavior and fairly distribute the cost of travel management. "The loss of carrier revenue, which exposed the true price of travel management, along with the push for people to book online, led us to implement Fee Allocator," Lee said. "We charge employees $30 for telephonic bookings, and there is no fee for online bookings."

The $30 fee is meant to get travelers' attention. "The important thing," Lee said, "is to make the charge very visible, so it shows up as a separate item on the expense report," he said. "It reminds the traveler that their use of the call center costs us money."

Currently, Honeywell is running close to 85 percent adoption of self-bookings, which Lee credits partially to Fee Allocator and partially to an internal educational campaign to drive online booking.

American Express' Fee Allocator has seen a 33 percent increase in usage this year, said Nancy Carlin, vice president and general manager, adding that more than 400 companies use the product. "The trend toward decentralized travel budgeting is ramping up," she said. "We can tell from the continued growth of Fee Allocator. In the fourth quarter, a lot of companies are setting their budgets, and this is the time that many of them will implement Fee Allocator."

American Express charges around $1 per transaction for Fee Allocator, which seems to be the standard price other agencies and third-party companies charge for similar services. Carlin admitted that companies can design their own Fee Allocator-type systems, but, she said, "our service should be cheaper than if the client were to build a fee allocation system on their own."

Other travel management companies reported that usage of their fee allocation products also is on the rise. "Right now, about 24 percent of our corporate volume is using our point of sale fee service," said Carlson Wagonlit Travel manager of customer settlement Tom Ott. "We were at about 14 percent at year-end 2001."

In addition to all the megas' offerings, such smaller travel management companies as New York-based Stevens Travel management and third-party technology firms—including Austin-based Airlink Systems—have created fee allocation tools this year. Also, global distribution company Sabre this December will beta test its Revenue Advantage tool.

Despite the variety of tools in the marketplace, many travel buyers prefer to handle fee allocation in house. Mark Johnson, corporate travel manager at Wichita, Kan.-based Cessna in January made the switch from American Express' Fee Allocator to an in-house solution. "We were using Fee Allocator, but we are not any longer, because we have switched our corporate card from the American Express card to the Visa card," Johnson said. When a Cessna traveler makes a booking, the travel department generates a receipt for the ticket with the traveler's name and the cost of the transaction, which then is sent to Cessna's finance department. At the end of each month, the finance department adds up those fees and charges them back to individual business units.

"There is a slight advantage to doing it internally," Johnson said. "It is a little cleaner system, because the charge does not leave the company, and we save ourselves the processing fee, which was running about a buck a transaction."

Similarly, Leigh Kramer, director of travel services at San Diego-based Titan Corp., internally allocates the cost of travel transactions to the various business units based on their percentage of use of the travel department. "Every quarter, we change the bills sent to each department according to their air spending," Kramer said. "We're a zero cost department, so if their travel goes up, they owe us more, and if they do less, they owe us less."

Some companies may be wiser to handle the allocation of travel fees in house, according to consultant O'Connor. "The Fee Allocator model is being pushed by a couple of travel management companies," he said. "Since the agencies process the fees on the corporate card, they can get their money at the time of the booking and life is sweet," but in-house systems may be cheaper for the companies themselves.