NBTA Int'l Convention & Exposition Reporter's Notebook: Fuel Cost, Air Fees Trigger L.A. Aftershocks

The uncertainty of fuel and growing ancillary airline initiatives loomed heavily over attendees at the National Business Travel Association Annual Convention and Exposition in Los Angeles late last month.

When former chairman of the Federal Reserve Board Alan Greenspan spoke Wednesday morning, crude oil hovered in the mid-$120 range. Greenspan said relief from July's record highs that approached $150 likely would be short-lived. "The dampening effect of higher oil prices is beginning to ease, and this is being reflected in the marketplace, but the long-term problems are there and you can take reasonably short comfort," he told attendees.

Greenspan said the "energy-driven" airline business is in the midst of its own "long-term changes," citing "new technologies on turbo engines." But for now, Greenspan said of the airlines, "There is no getting around that you're going to need liquid fuel for the indefinite future to get things up in the air and moving. The price of jet fuel will stay significantly elevated from what it was five or 10 years ago." Though he said it would take time, "We're going to get very significant fuel efficiencies in jet aircraft. Over the longer run, things are extraordinarily positive."

Before fuel-sipping aircraft become the norm, the fees and surcharges with which airlines are offsetting fuel prices drew complaints from buyer attendees claiming there is no transparency in how they are assessed and levied. Some also rumbled that fuel surcharges in many cases are assessed on top of the base fare—which removes the fee from corporate discounts.

Attempting to shed some light on the dark art of fuel surcharge assessment, Continental Airlines managing director of multinational sales Kelly Hart during an educational session said airlines use different methodologies to determining surcharges, and the leader in a given market usually sets the amount, which is matched by others. "The problem with fuel surcharges is that they are so fluid," he said. "These things change almost weekly."

Of course, fuel isn't the only expense airlines are decoupling from their fares, as fees to check luggage have become widespread. When Delta CEO Richard Anderson during a general session told attendees, "We do not charge the $15 [first-bag fee] at Delta," he failed to mention that within hours the carrier would announce its second-bag fee would double to $50, beginning Aug. 5.

Still, Anderson justified such charges, as the cost to carry grows with the cost of fuel. "If you haven't lately," he told attendees, "go to a UPS or FedEx store, take a five-pound shoebox and have them ship it overnight to another state. It will probably cost more than the ticket price. It is a fair deal to give you a briefcase or a purse, a full-size roller board and a bag not weighing more than 50 pounds."

Sitting next to Anderson during the session was Montie Brewer, CEO of Air Canada, which has been at the forefront of unbundling services and their costs from the base airfare, who added, "People who incur costs should pay for it and the people who don't incur costs should benefit from it. The frequent flyer who comes through with a briefcase, checks in the through the kiosk, gets onto the plane, gets off and we don't have to do anything for them, should benefit because they're a very low-cost customer for us. If someone comes on with two or three heavy bags and a complicated itinerary, why is the guy who is not generating any expense funding the checkin baggage for someone else?"

Though some companies have successfully set up soft-dollar funds, "I have not seen anyone successfully negotiating out the baggage fee," said Mitch Cwanger, American Express Advisory Services senior practice leader for air, during a session on airline requests for proposals, though he is advising clients to ask for a first-bag fee waiver.

In addition to his predictions about oil prices and the airline industry, Greenspan also expressed confidence that business travel levels would remain strong regardless of any sputters in the economy.

Greenspan said the globalization trend would continue and was the most positive indicator of industry strength over the long term. That does not mean the travel buyer role will be getting any easier, however.

"It's going to get more costly, and it's going to get more difficult—there will be a lot more friction between purveyors of transportation and those who want to take it—but business is inexorably going to rise."

Improvements in remote conferencing technologies will have an impact on business travel growth, but Greenspan said it would be slight.

"It's got an impossible barrier to overcome," Greenspan said. "You can't have the type of interactive conversation in a videoconference that goes on in particular organization. All the historical evidence indicates that people want to be with people. There is no substitute."

Several suppliers on a global distribution strategies panel said distribution fees are increasing. The lone dissenter, Sabre Travel Network senior vice president of North America Chris Kroeger, said costs are dropping, especially airlines' GDS distribution fees in the past six years. "The assertion that booking fees are spiraling upward is just wrong," he said in response to a quote by IATA director general and CEO Giovanni Bisignani, read by the session moderator, that said airline distribution costs are rising rapidly.

Continental senior vice president of marketing programs and distribution Mark Bergsrud said distribution costs have remained stable over the past few years. "However, what is putting pressure on our distribution costs is the change in our points of sale," he said. "As our business grows internationally, our average costs go up because we don't have the same low prices in offshore markets that we typically do here in the United States."

Farelogix president and CEO Jim Davidson said that there needs to be a fundamental change in distribution economics for costs to decrease and called for a value-based pricing model with $2 base transaction fee.

A few buyers recently have used Six Sigma methods to refine corporate meetings management processes, as detailed across two panels. Xerox in 2007 successfully ventured to offset 20 percent of its meetings travel through the use of videoconferencing by re-implementing a pre-trip approval process and training planners to question stakeholders about meeting alternatives or shorter events, said manager of global travel, meetings and conference solutions Tracey Wilt. "You have to set realistic goals and understand them," Wilt said. "Are you trying to cut travel or include more people? There will be different cost structures for different goals."

Six Sigma birthplace Motorola, following the unsuccessful rollout of a meetings technology tool, deployed the management process to raise the level of use of a centralized meetings department, said global hotel commodity manager Darrell Marciniak, defining a defect as a stakeholder's failure to do so before securing a meeting contract. Motorola increased compliance with the process to nearly 82 percent, with a contract defect rate just over 8 percent. "The beauty of Six Sigma is that it's all based on numbers, and numbers don't lie," he said.

PricewaterhouseCoopers hiked its remote conferencing use through a non-Six Sigma strategy, said national relationship resource director Karen Milliman, that included configuring its GetThere online booking tool to alert travelers booking single-day trips to the availability of videoconferencing facilities.

Milliman's department reports to PwC's finance department. "If you're reporting to the people that manage the wallet, it makes it a lot easier to drive some of those policies home," she said.

Pam McTeer, senior strategic sourcing manager of MillerCoors, added, "Being in the procurement department really was key in getting a lot of senior management support." The company's meetings and events were put under its procurement policy. "It took a lot of the emotional piece away, because of the fact that if you wanted to get a meeting paid for, that was the only way you were going to do it," she said.

Universal Music Group senior director of travel services Pamela Witherspoon has removed hotels from her program that have not loaded rates in the global distribution system after a third audit, she said during a panel, adding that three audits are necessary to ensure rates are loaded properly. "When we do the first audit, we're about in the 80 percent range, which is pretty good," she said. "After that, it starts declining and declining."

She also said loaded rates disappear at times during the year, so constant auditing is necessary.

Another problem arises when individual hotels circumvent established negotiated rates made through global account managers by negotiating on a local level, said Chevron global category manager for hotel and global travel Diana Edens. Cutting global account managers out of the loop is a barrier to proper rate loading, she said.

"If the rate's not loaded in the GDS, it can't be booked through our agency," Edens said. "That's a security risk, because we don't know where our people are staying."

"Our travelers told us was renting a car was the worst part of traveling," said Mary Hayes, strategic buyer and travel manager for Volvo. "We wanted to make it easy for travelers to know what to do, because if they did, they would support the program and bring us savings." Hayes set up a steering committee with the chief financial officer and a reference group of those in business units able to influence travelers. "We wanted them to see the numbers. That was an eye-opener for them," she said.

International Paper, meanwhile, set a mileage threshold for rental car versus personal car trips, said senior financial analyst Tammy Fowler.

Hilton Hotels director of global travel management Craig Banikowski received the NBTA President's Award for outstanding contributions by a direct member in the past year.