ACTE Forum Spotlights U.S.-E.U. Data Debate

Dublin - The United States and the European Commission are making progress toward a permanent deal by year-end on U.S. access to European passenger data, claimed a U.S. State Department official in a session on data privacy at the Association of Corporate Travel Executives global conference here this month.

"Despite what you see in the press, there is definitely a convergence of views," said John Fennerty, head of the political economic section of the U.S. Embassy in Dublin. "We want to get this sorted by the end of the year. It may spill over into next year, but not for very long."

Officials are trying to break the impasse over U.S. Customs and Border Protection accessing all passenger name records of European citizens flying to, through and from the United States. U.S. Customs began taking feeds from airlines in February, after receiving temporary clearance from the European Commission in spite of this procedure breaking several European laws on data privacy. Clearance is likely to run out by year-end. Both sides hurriedly are seeking a compromise that will satisfy both the United States in its wish to track terrorists and European standards of confidentiality.

Pressure is growing within Europe for the European Commission to stand firm in safeguarding privacy. The European Parliament on Oct. 9 passed a resolution telling the E.C. that it must halt the transfer of PNRs by airlines unless the United States agrees to a range of concessions regarding its handling of the data. "It's frankly predictable," Fennerty said of the resolution. "I wouldn't get too excited."

One key point of contention is how long U.S. Customs will store PNRs. Fennerty said the Commission and the United States have narrowed their original negotiating positions of three days and 50 years, respectively, to three years and seven years. The United States also has agreed not to access what Europeans call "sensitive" data, such as dietary preferences and medical information. "It's largely irrelevant for screening purposes," Fennerty said.

However, differences remain on the grounds for which the data can be used to apprehend suspects. Europe wants it to be used only on suspicion of direct acts of terrorism. The United States wants other "serious crimes" to be included, claiming the perpetrators often have links to terrorism. Fennerty said the United States also needs to convince Europe of the impartiality of the office of data privacy it has set up to give passengers right of redress. Although the office will be within the U.S. Department of Homeland Security, it will report to Congress.

Fennerty told the seminar that the United States hoped to avoid a dilemma for airlines. In the event of a compromise not being reached, carriers face sanctions from the United States if they do not hand over PNRs and sanctions from Europe if they do. "If we don't reach an agreement by December, airlines may enter into a difficult period," he said. "However, bilateral aviation agreement negotiations have just commenced between the E.U. and the United States. Given that context, I find it inconceivable that we or the European Commission will allow this to run into a train wreck."

U.S.-based travel buyers attending the same seminar learned they may well be breaching E.U. data privacy regulations by collecting management information from Europe. In many cases, the problem arises when gathering information through travel agencies or for the data consolidators used by many airlines for negotiations with corporate clients. By collating data in this fashion, travel managers increasingly are assuming the role of what is defined in E.U. law as a data controller. This brings with it a raft of responsibilities toward "data subjects," the people whose data it is. Handing data to consolidators that includes travelers' names is one obvious example. "The travel manager is now a data controller on behalf of data subjects," said Peter Sijbers, international category manager for Philips Electronics in the Netherlands. "Corporates in the data controller role always need to prove their business interest supercedes the subject's interest."

The panel gave several examples of how the travel manager's job is complicated by each E.U. country interpreting the European data directive in slightly different ways. In Luxembourg, for instance, data subjects must be informed what the implications are if they exercise their right to forbid transfer of their data.

Speaking to BTN after the seminar, one European travel buyer for a U.S. company gave a vivid example of the problems that the legislation can cause for a travel program. "We were transferring data to Prism, which is in Safe Harbor [the voluntary certification process under which U.S. companies can comply with European data protection principles], but my company was not in Safe Harbor," she said. "When I asked our legal department to check, they realized they had to stop all data transfers while they looked into it further, which held up our route deals." The legal department eventually concluded that data transfer to Prism could resume as long as the names of individual passengers were masked, she said. "Prism is happy with the arrangement. It told us it only needs marketshare and transaction numbers. My advice is to find out what your data is being used for. A simple check showed we didn't need the names."

ACTE has launched a campaign to persuade the International Air Transport Association to scrap restrictive practices that impede companies from consolidating travel programs across Europe. "They are limiting the ability to capitalize on the efficiencies at hand and have become a hindrance to doing business," said ACTE chairman Cheryl Hutchinson, also managing director of strategic development for GetThere. "The result is increased operating costs that are ultimately passed on to the end user in the form of increased fees or prices."

Central to ACTE's complaint is that IATA and its member airlines operate their ticketing and payment structures on a country-by-country basis instead of in a single European market. This has not escaped the attention of the European Commission, which is reported to be investigating whether IATA's freedom to operate as a cartel contravenes European directives that forbid barriers to free trade within the European Union.

Hutchinson called for IATA to replace national billing and settlement plans with a pan-European BSP; standardize IATA accreditation requirements across Europe; remove cross-border booking and ticketing restrictions; and modify the tariff structure to enable standardized faring regardless of booking or ticketing location. ACTE has resolved to pursue its lobbying by forming a working group of travel buyers and agents to present a blueprint for change to IATA. Speaking at the same session, BTI UK managing director Mike Platt said: "We are governed by rules made in Chicago in 1945 by the last global cartel."

A session addressing what ACTE called "flexible travel management" took on one of the toughest industry questions of the day: Should buyers pursue the spot market or contracts, or both? An underlying theme in this discussion is the extent to which travel products are a commodity, and opinions varied.

According to Aer Lingus European sales head Enda Corneille, the Irish carrier has accepted its commoditization, at least on the 85 percent of its routes that are short haul, and is attempting to become a low-cost carrier after already becoming a low-fare one. "We're now seeing larger corporations consider their deals as a ceiling," he said. "We reduced the number of corporate contracts by 40 percent versus a year ago, but have maintained relationships with clients who offer big volume." Smaller customers and those with fragmented travel patterns, however, tend to have no deal, as 42 percent of the airline's business now is delivered by the Internet, versus 2 percent two years ago. While the carrier's Web site processes bookings for less than e2, global distribution system reservations are tabbed at e16 to e17 on average. Aer Lingus has cut e130 million off its e180 million cost of distribution in 2001, but that's "still way too high," Corneille said.

Paul Wait, Virgin Atlantic Airways general manager of sales, said his carrier sees itself differently: "We add value and don't see ourselves as a commodity, and our business on the Web is small. It only comes to us when we drop the price."

Similar issues are brewing for hotels, but Marriott International vice president of alliance accounts Steven Richard predicted that commodity treatment will come back to bite buyers. "Demand for lodging will begin outstripping supply in 2004, and then the pricing equation will change," said Richard, whose $2 billion group manages relationships with Marriott's 33 large corporate accounts and five largest travel management companies. "Some owners will be looking for 25 percent to 40 percent increases overnight for those with whom they don't have relationships or those who treated them as a commodity. So, the question is, have you been building relationships?" Denying that hotel rooms are a commodity, Richard said, "Our best rate in a year may be the full corporate rate."

Pilkington Group global supply manager E.J. Hewitt described the recent signing of her company's first contract with "a small hotel in a small community where we are a big player" that guarantees Pilkington travelers "the lowest cost of the house." Audited by traveler hearsay, the agreement provides the buyer with a credit for instances where that lowest rate is not offered. "My next meeting contract will guarantee the lowest rate of any meeting," she added.

It was a concept to which Richard did not take kindly. Noting the company would "absolutely not" offer such a deal, he said, "on a macro scale, any hotel that would put that into place is blowing their brains out." Drawing no conclusions, the discussion produced this summary from BTI UK managing director Mike Platt: "The best price of the day could equally be the worst strategy for the year. I'm not against the spot market as a tool as long as you have control—and the market is irretrievably commoditized—but you also need long-term relationships because the market fluctuates."

"Corporate cards are on their way out," claimed AirPlus director of sales and customer care Patrick Diemer, acknowledging his self-interest during a seminar on whether the cards are the best way to settle with suppliers. "On pricing, these providers will find themselves in the same position as the travel management companies." That position is one in which some suppliers, particularly airlines, feel buyers should pay for distribution services they elect to use. For the most part, vendors pay the card companies and they, like agencies and GDS providers, offer part of the payment to customers.

Those payments, called rebates in the card business, "have been elevated," said MasterCard senior vice president of corporate payment solutions Steve Abrams, "but there is no question that you cannot have rising payments to corporations as well as increased services. We see a conundrum and are not sure how that will play out. I see it changing within two to three years."

On the other hand, "we bring value to the suppliers and have a reasonable expectation to get paid," argued James Crotty, American Express senior vice president and head of commercial card Europe. "If we continue to see the current margin pressure, we'll see massive consolidation in the industry and fewer willing to engage in the market."

British Airways head of field sales Ian Heywood, an attacker of card costs (BTN, June 24, 2002), accused payment vendors of being "in denial. We're talking about benefits to the end user, but not about the end user paying. We cannot live with a situation where fees keep rising and kickbacks and services keep growing. I believe the model will change quite quickly, and the demands from corporations will change as well."

Among those demands are such services as the provision of hotel e-folio data and simplified contracts in which local cards can be issued in local currencies. Yet, these are things for which airlines do not want to pay. Noting that low-cost carriers are implementing surcharges for credit card usage, AirPlus' Diemer added that "traditional network carriers are offering rates depending on how you pay. I think that in two years, we'll have an 'open book' policy because, right now, while the travel manager knows there are differences in what vendors pay, it's not transparent."

"I'd wonder what the corporations would want if they were the ones paying for it," BA's Heywood added.

Deloitte & Touche chief procurement officer Mike McMahon said some larger buyers are taking matters into their own hands and "actively working with hotels to get direct feeds." Diemer claimed such direct connections are happening "on a case-by-case basis, but there is not an overall trend." A Canadian buyer said an air charter supplier is giving the company usage data and a rebate to keep its purchases off the card. While moderator and Cargill travel buyer Lisa Trenda suggested that the model is changing whether or not buyers like it—and that they need to be involved in the debate—a German buyer in the audience was cheered when he said vendors "need to accept every method of payment."

On hotel e-folio, MasterCard's Abrams said, "There's still a long way to go. We now have four hotel contracts and will announce a fifth soon. No one disputes the corporate demand is there."

Amex's Crotty said, "We're piloting folio data with some for event management, but not so much cards. There is great interest from the corporates, but we need to avoid over promising."

Meanwhile, Abrams said, a key demand is "having the card issued and serviced by the local bank and in local currency. We can consolidate data around the world, but to have one price, one set of features and benefits and one service-level agreement program is the objective. We're not there today, but I think we can deliver that next year."

One travel buyer at the conference is thought to be the first to achieve 100 percent adoption of an online booking tool. What is more, this milestone was not reached in North America or even in Europe. Thomson Corp. employees in Australia in July booked every single air trip via Corporate Travel Online, the American Express over-brand of GetThere. Seventy percent of the "hundreds" of trips were overseas, said Sue Thaler, head of strategic sourcing in the Asia/Pacific region for Thomson, and the majority also included a hotel reservation. Standards slipped in August, to a mere 99 percent. Thomson also has introduced CTO in Singapore, where adoption stands at 86 percent. The high adoption rate has cut Thomson's agency transaction fees by 50 percent and enabled Thaler to renegotiate deals, she said.