Travel buyers in the United Kingdom have criticized a decision by British Airways to impose an effective fare increase by cutting booking payments to travel agents. The reductions apply to short-haul routes only, with the payment for full-fare tickets dropping from $15.50 to $7 and for discounted tickets from $8.50 to $3.
With most medium to large companies in the United Kingdom now working on an open-book arrangement with their agencies, this could reduce their income flow from BA, although many major buyers have side-stepped the issue altogether by moving on to net fares. Those corporations not on a net basis nor on an agency open-book basis can expect a fee increase from their agents. "We will almost certainly have to put up our fees," said Jim Tweedie, executive vice president of North Europe for Carlson Wagonlit Travel.
BA scrapped agency commissions in favor of flat payments in April last year with the launch of its Fresh Approach scheme. Not only has BA gone back on its pledge to resist making changes for 12 months, the move also undermines the very principles of Fresh Approach. At the time, BA declared that it had calculated the payments based on an objective assessment of the value of the work agencies perform for airlines.
"What is different now from a year ago?" asked Louise Innes, chairman of the Institute of Travel Management of the United Kingdom and Ireland and travel manager for Standard Life. "We don't want to start paying for a hidden increase."
What has changed, according to Tiffany Hall, BA general manager of sales in the U.K. and Ireland, is the relentless rise of low-cost carriers that threaten the very survival of BA. Maverick Irish low-cost airline Ryanair now has a market capitalization significantly greater than its larger British rival and along with others, such as EasyJet and Go (sold by BA last year), it has grown its business while numbers have plummeted for conventional European carriers.
Accordingly, BA is restructuring its entire short-haul operation and claimed that buyers disappointed by the booking payment cuts will find solace in a complete redesign of its fare structure for flights within Europe. Details will be announced shortly before the revamp takes effect in June but, according to Hall, the changes will benefit corporate travelers. "We absolutely recognize that value for money is important not only for leisure travel but also for business travel," she said.
Hall added that the new short-haul booking payments are based on the cost of completing a transaction online, which British Airways asserts is now the standard channel for booking flights within Europe. Low-cost carriers take approximately 90 percent of their reservations via the Internet.
However, both Innes and Tony Pilcher, HSBC senior group travel manager, pointed out that booking online remains far from the norm for companies with managed travel programs, and that U.K. travel managers remain skeptical about the benefits of corporate booking tools. "If we have to start paying extra for traditional offline bookings, we will have to look at how much it costs to use other airlines," Pilcher said.
When British Airways introduced Fresh Approach last year, it was anticipated that U.K. companies would embark on comprehensive re-engineering of their travel programs, including shifting from being profit centers to cost centers and adopting online booking tools en masse. That has not materialized, largely because no other conventional airline in the United Kingdom has ditched commissions to move to flat booking payments.
The inconsistency has left many travel managers in a halfway house, feeling unable to restructure while they are still handling two different forms of financing. Furthermore, the continuing payment of commissions by BA's rivals is providing just about enough to keep them going as profit centers.
"It has rather surprised us that other airlines have not moved to zero commissions," Tweedie said. "The situation is stopping corporations from getting down to a true understanding of what their costs are."
Roger Bennett, Bank of America senior vice president of procurement and corporate services, urged travel buyers to restructure even if they feel they're in a state of limbo. Bank of America moved its U.K. agency relationship to a transaction fee basis last year. "This latest move from BA may force the hand of corporations that have not yet reacted to last year's developments," he said. "Restructuring has to happen, but where travel remains a hidden cost within corporations, they don't need to do it today. However, not acting will hit those corporations in the end because if they don't know where the money is going, they cannot control it."
BA is hoping to make more than $140 million in distribution savings as part of a wide-ranging plan to revive its ailing fortunes. The airline has announced 5,800 job losses in addition to the 7,200 imposed in the wake of Sept. 11. It also is axing five long-haul and five short-haul routes—as yet unspecified—and moving eight services from London Gatwick to Heathrow as part of a significant downgrading of its operations at Gatwick. Low-cost carriers, especially EasyJet, are expected to fill the gap at the airport just to the south of London.