Justifying The CTD: The Pros Far Outweigh Cons

<B> Justifying The CTD: The Pros Far Outweigh Cons</B>

By Andy Menkes

<hr><i>Andy Menkes is vice president of global travel management for Republic National Bank in New York.</i><hr>

I recently attended a travel seminar where an audience member asked a consultant on a panel about the pros and cons of the establishment of an ARC-certified Corporate Travel Department. The consultant responded that he had done an analysis of the CTD option, and concluded that it had little value for most corporations. After the seminar, I asked the consultant which companies he had actually researched before reaching his conclusion. (I know that he did not contact me, and we were the first corporate travel department approved by ARC). He told me that his research was done several years ago on corporations setting up their own travel agency. After I enlightened him on the differences between a CTD and his outdated analysis, he changed his mind and agreed that the CTD concept did indeed offer value to many corporations.

I can summarize the pros and cons of the corporate travel department program quite easily. Because our company has been issuing our own tickets as a CTD since last August, I have practical experience. The benefits of the CTD affect several components of our industry, including the service providers (airlines, hotel, car rental) the travel management companies and corporations ourselves.

<B><CENTER>Supplier Benefits</CENTER></B>

For the first time, suppliers can track corporate client production with a unique identifier (ARC number) that does not rely on manual input and memorization of unique tracking codes (ticket designators, etc). The number assigned to a CTD is permanent, regardless of how many agencies are used, or how many times the agency is changed. The opportunity to establish net deals is uniquely available with a CTD, because there are no multiple payments of commissions, incentives, overrides, etc.

<CENTER><B>Travel Management Co. Benefits</B></CENTER>

When commission caps reduced the viability of rebates, travel agencies quickly became travel management companies and wanted their compensation to be provided by their client. The travel management companies were quite comfortable to "pass through" all commissions (and all/some overrides) to their clients in exchange for a management and/or transaction fee. The CTD appointment facilitates this relationship perfectly, in that the corporation receives all commissions directly (or can negotiate net deals), and pays the travel management company a fee, as is done with every other vendor that the corporation uses for a variety of services provided. The travel management company is guaranteed profitability that is not impacted by further commission cuts, the price of tickets or any change in override compensation.

Another benefit to the agency is the elimination of the cost of counting and holding on to "client's money," only to return it on a quarterly basis. The CTD environment enables multiple agencies to service various components of a corporation's travel management needs--such as 24-hour service, MIS, account management--unlike a traditional arrangement, where one travel agency provides all of these services to a single client. This also enables smaller travel agencies to bid on larger corporate business.

<B><CENTER>Benefits To The Corporation</CENTER></B>

I recently challenged a group of my peers to ask their chief financial officers to name any department in the company (other than travel) that allows a vendor to collect the corporation's money in private, deduct a variable fee from those funds and return the balance at a later date with no ability to audit the validity of the calculations. This is not to say that travel management companies are not honest. I am merely suggesting that the process has no logic, if the assumption is that the travel management company should be paid for services provided, and the commissions (and the risks thereof) belong to the corporation. Besides the obvious benefit of improved cash flow, there are the additional benefits of control and flexibility.

Our airline commissions are wired directly into our General Ledger code on a weekly basis, and hotel checks--for properties that are not part of our approved list of net hotels--are mailed directly to our travel department on a weekly basis. You will also find out that many hotels do not distinguish between a net rate and a commisionable rate for meetings, so why not get that check directly? In the past, travel agency errors that resulted in debit memos were merely paid by the agency and deducted from our "revenue sharing" check. Now we fight each debit memo as if it were our own money--because it is!

The final by-product (and therefore benefit) of the corporate travel department accreditation is that in unbundling services provided, you may find that the fee you pay (to one or more vendors) is significantly lower than the bundled fee for a variety of services that you currently receive. You will be able to bid out various services, to one or more travel management companies, on the basis of the cost/value of the service, instead of your airline volume or average ticket price, which have no correlation to the cost of service provided.

<CENTER><b>Disadvantages</b></CENTER>

Although admittedly biased, I can only identify one "con" of the CTD, and that is the loss of the ability to "buy" third-party services from your travel management company, and have that product (hardware or software) simply deducted as a line item from your revenue sharing check. Since virtually all other departments in your company are required to use purchasing protocols (or check requests), I see this as an enhancement to a procedure that makes travel managers look and act like cost center managers. Quite frankly, the other way (having the agency pay and deduct) is in fact a "con."

<B><CENTER>Summary</CENTER></B>

The corporate travel department accreditation option is not for everyone. It does not require that all, or any, of the staff in the onsite are employees of the corporate client. You can still use a travel agency for a variety of travel services, or all of them, and just use the CTD to enhance your financial processing.

I fully endorse securing net deals with your preferred vendors and using your CTD status to collect all other commissions where applicable. The ability, for the first time, to have your own unique tracking number will have further value as we migrate towards paperless processing.