Carlson Wagonlit Travel on July 21 began communicating to clients it would charge $2 per airline ticket in an effort to offset the costs generated by global distribution systems' so-called opt-in programs, set to begin Sept. 1. This is the first stated plan by a travel management company to pass along the most recent turn in the economic and content battle between GDSs and airlines, in which the agencies agree to get full content for an 80-cent reduction in per-segment incentives paid by GDSs or incur a $3.50 per-segment fee from several carriers.
Meanwhile, Amadeus last week filed a request for arbitration in its dispute with American Airlines and Northwest Airlines and an injunction preventing the carriers from charging a $3.50 per-segment fee for bookings made through nonpreferred channels—which would include Amadeus.
"We did the math on what it would cost across our client portfolio and figured out that $2 was the number, and that's certainly not a number that enriches CWT," CWT executive vice president Mike Koetting told BTN. "It's a pass-through calculation—a broad average across our client portfolio of the number of segments we had per air transaction. The $2 per air transaction is the amount that we believe, for simplicity's sake, is what the cost pass-through amounts to." The calculation is the midpoint between the cost of two segments at $1.60 and three segments at $2.40.
At press time, CWT was the only travel management company to initiate such a charge, but Koetting expects other travel management companies to follow suit. "I believe every other agency is subject to similar GDS economics," he said, "and that others soon will arrive at the same conclusion."
Like the 1995 cap on agency commissions, CWT and all of its competitors now must in effect negotiate with every customer and get them to bear the cost, but CWT is the only travel management company to put a flat number on transaction costs.
American Express senior vice president of global supplier relations Andrew Winterton said, "We will continue to evaluate these developments closely and advocate for solutions that ensure efficiency, content access and overall economics are not compromised for our clients." BCD echoed that sentiment, issuing the following statement to customers early last week: "Please be assured that BCD Travel is in current discussions with the major air carriers and GDS providers to ensure that we are providing our clients the best possible access to content and financial options. Once we conclude these discussions, we will consult with each customer regarding our recommended direction and the potential economic impact to your travel program." HRG, meanwhile, declined comment when contacted by Business Travel News.
While others wait to find out what their TMC will charge, clientele of travel management company Navigant International can expect to incur the $2 fee. CWT just last week finalized its merger with the Denver-based company, raising the possibility of Navigant clients paying to CWT the additional fee, and the subsequent impact on CWT's goal of 100 percent retention of Navigant's clients. CWT COO of North America Jack O'Neill noted the fortuitous timing of events, enabling him to talk to them as clients, adding that he recognized the issue isn't a trivial one for either CWT or Navigant customers. "No one is looking to have costs increase, and we're in a business where for us to be successful, we need to be an advocate for our customers," O'Neill said, "but we are all collectively witnessing a staggering, stuttering series of negotiations that mean a lot of money to an airline industry that is very obviously struggling. Everybody should understand that during a window when they can renegotiate, airlines are going to zone in on cost."
Meanwhile, other travel management companies are reaching out to each of their clients. "With respect to Casto, we haven't raised our fees in three years and we see this as just another cost to doing business, but we will still have to share some of this cost with customers," said Marc Casto, president and COO of Santa Clara, Calif.-based Casto Travel, adding that any cost pass-through would not match the CWT fee. Client reaction has varied, Casto said, and the TMC is working with its customers individually to come to mutual solutions.
Patrick Linnihan, president of Wood Dale, Ill.-based Gant Travel Management, said that he would need to look at unbundling some services. "Before we may have included services like after hours, but now we may have to look at ways of recouping distribution supplements," he said. Linnihan is particularly distressed by the lack of resistance to the issue by the travel management community as a whole. "I think you'll see a whole new way of how airlines will treat TMCs," he said. "Let's look at their playbook: This is just a logical extension of commission cutting."
Industry experts applauded CWT for taking the lead and—perhaps more importantly—for their fairness in assessing the fee. "The transparency will be better for all involved," said Trip Davis, president and CEO of travel technology company TRX. "It's quite painful and confusing at the moment, but at the end of the day, it's better for a corporation to understand what they are paying for. The other companies will have to clearly articulate their fee-for-service model as well."
Even with CWT's forthright approach, some clients were left wondering whether the $2 fee is negotiable. "Many of our clients are asking if it is the same for every company, no matter what," according to Carol Ann Salcito, president of Norwalk, Conn.-based Management Alternatives. "When you're looking through the eyes of a corporation who may not fit into the averages, that's when the questions are coming about. Can anything be adjusted for those individuals?"
When the question was posed to O'Neill, he replied, "Customization becomes productive if there's a significant volume difference. If I have the ability to, I will, but we don't know that yet. We're not looking to make money here; we're simply in a position where we're passing it through. We want to see how a couple of big pieces play out first, but I can't start September 1 absorbing opt-in fees from all over the place."
One potential solution to bypassing the fee, suggested Tom Wilkinson, president of TRW Travel Consulting in Pennington, N.J., is for clients to push agencies to turn on their long-touted direct-connect technology capabilities. "Rather than yelling at the airlines who are going to do what they need to do to save money," Wilkinson said, "or yelling at the agencies who, frankly, don't have a lot of choice, what customers should really be doing is pushing their agencies for this technology so that they're not held captive to this game between the airlines and GDS companies."
For CWT clients, the only transactions exempt from the fee are those made through the travel management company's Symphonie direct channel—which would incur no fee at all—or those booked on American Airlines through the Sabre GDS, which would incur the $3.50 segment fee imposed by the carrier. CWT franchises will make their own assessment of potential fees.
In fact, CWT's Koetting said interest in the company's direct channel technology, Symphonie, has increased since the fee was announced, adding that many clients are understanding of the company's decision. "They're certainly not happy about it—neither are we, for that matter," he said. "There's a great deal of democracy in the way that we're passing the cost through. We incur the cost on every one of our segments, and therefore we have no choice but to pass it through on every one of our segments."
One CWT client, however, speaking on the condition of anonymity, expressed frustration at the TMC's decision to pass the fee onto buyers. "It's all a shell game," said the buyer, who received news of the fee through a memo and phone call from CWT. "We may have to move to another GDS, drop our booking tool. We have a great relationship with Sabre that is really in jeopardy right now. We're not happy about it and we're still trying to figure out our options."
The situation began in June when Sabre Travel Network introduced an optional fee-based program, to start Sept.1, giving global distribution subscribers access to full airfare content and immunity from airline service charges
(BTN, June 19). Other GDSs soon followed, ultimately shifting the cost structure of distribution away from the airlines and to travel agencies and their customers.
American Airlines then led other carriers, including Continental, Northwest and United, in establishing $3.50 segment fees on reservations booked through nonpreferred channels. Critics said the airline fees goad agencies and buyers to use airline-favored distribution channels
(BTN, July 31), while Amadeus said the fees imposed by American and Northwest violate their contract by treating its subscribers "less favorably than other GDS customers." Therefore, the GDS is seeking an injunction.
In a letter to U.S.-based agency customers sent last week, Amadeus North America president and CEO Kay Urban said the surcharges by American and Northwest "discriminate against Amadeus travel agencies in the U.S." and "violate the contractual relationships in place between Amadeus and these carriers."
"We have already filed a request for arbitration of this issue. Further, in the interest of our agency customers as well as our business, Amadeus is also seeking injunctive relief to prevent American and Northwest from imposing such punitive surcharges on our travel agency customers in the U.S.," Urban noted.
Charlie Sultan, American Airlines' managing director of sales planning and analysis, said the carrier's legal department received notification of the injunction. "Their position is without merit and has no foundation to it," he said.
While buyers don't welcome the prospect of a new fee—be it $3.50 imposed by carriers or $2 imposed by agencies—at greater risk is the possibility of further content fragmentation, according to a Business Travel Coalition white paper released last week. The paper—which BTC said was reviewed by 180 industry professionals including buyers, GDSs, airlines and travel management companies—urges travel managers to "communicate directly with airline CEOs that 'full content' is not negotiable—and it has to be 'full,' not a definition with holes in it that undermine corporate travel programs."
The BTC white paper said, "some of the largest corporations have already been exempted by the airlines" and that corporate travel managers should "communicate with airline suppliers that you do not intend to pay $3.50 per segment, or any content access fee amount." The report continued, "Untold hundreds of thousands of dollars in new expenses will be incurred each year by corporations should content fragmentation be a central component of the emerging distribution system model."
"American Airlines is not waiving the fees for anybody," Sultan said. "For corporate travel departments and agencies who are willing and have the flexibility to move to more competitive channels, we are waiving a portion of the fees to them."
The white paper contends GDSs are more aligned with corporate interests than are airlines. "Corporate customers need to determine who is most closely aligned with their business interests: airlines seeking content fragmentation for higher yields or GDSs endeavoring to secure full content and travelers' data to protect their business models," the paper notes.
The Travel Management Alliance, a collective of travel management companies with combined annual sales of $2.5 billion, urged the GDSs and airlines to come to terms on outstanding contracts as "corporate travel organizations simply cannot absorb at $3.50 hit," executive director Christopher Dane said. "TMA members use a variety of GDSs, and we fully support the concept of full content and protection from airline services fees as critical to our business success. If carriers can't reach agreement with the prevailing GDSs, it will be easier to change air carriers than the GDS."
A group of nine travel managers this month sent a letter to the National Business Travel Association that said, "While the airlines, the GDSs and even the agencies have largely ignored corporate travel managers in their recent skirmishes, most of us realize that when the dust settles, a significant portion of any distribution cost reallocation will hit our pockets. At this point many of us fear that when all is said and done, any increases in fees will be passed along to us as a fait accompli."