Shrinking business travel volumes, which fell even more precipitously following Sept. 11, are driving most travel management companies to contact buyers this month to raise prices or reconfigure their service arrangements.
While some agencies claim they are holding the line on prices, several large and small travel management companies already have sent letters to clients requesting meetings to discuss changes in payment for services rendered. Even those travel management companies that are attempting to stick to their pricing models, however, find they must revisit their service arrangements as they attempt to balance their budgets with layoffs and salary cuts.
Generally, buyers have been understanding of the travel management companies' plight, even though many of them have plenty of troubles of their own.
Bob Langsfeld, a partner at the Incline Village, Calif.-based consulting firm Corporate Solutions Group, said the recent attacks triggered renegotiation clauses in agency contracts, making pricing changes prevalent. "Even a 10 percent drop in travel volume is a significant change," Langsfeld said. By the end of 2001, however, business travel will be off at least 20 percent from last year, according to reports from all quarters.
A Sept. 14 letter to clients from Hal Rosenbluth, chairman and CEO of Philadelphia-based Rosenbluth International, read, in part, "Most of you have already taken steps to eliminate or, most certainly, minimize travel for the foreseeable future. These moves stand to extend the current cost/revenue disparity for our company for some time to come. As a result, our company is faced with the need to temporarily invoke new financial terms to all of our client agreements."
Most travel managers who received such communications were sympathetic. Nancy Godfrey, manager of global travel for San Francisco-based Chevron Texaco, was open to discussion when she was approached by her agency, Rosenbluth. "We've had some conversations about pricing," she said. "We didn't want staffing levels cut, so we figured out how to work it out. We will help with the costs." Rather than negotiating a whole new contract, Godfrey and Rosenbluth came to a temporary financial understanding for three months. "The world has to settle down," she said. "I think that will be in January."
Ron DiLeo, Rosenbluth International senior vice president, said transaction activity at his company is running between 50 percent and 70 percent of what was expected pre-crisis. Conversely, call volume is up. "People are nervous, curious or just plain uncertain," DiLeo said. "They're calling and postponing trips and checking on flights. Uncertainty always breeds call activity." DiLeo said increased call activity has raised operating costs at his agency, creating the need for new pricing systems. "Some clients are paying per call," he said, "and some are paying minimum fees to cover their basic services."
An Oct. 1 letter from Robin Schleien, Minneapolis-based Carlson Wagonlit Travel president of North America, stated to clients, "In the next 10 days, a senior member of our management team will contact you to schedule a meeting. Our goals are to explain the specific actions we are taking to reduce costs and improve efficiency and quality. We will share our vision and review service options for our mutual business success."
CWT has seen a 20 percent to 25 percent drop in air travel from last year, creating an "increase in costs without a corresponding increase in revenues," Schleien said. CWT is meeting with its customers to discuss the specifics of its relationships in the future, but Schleien said there would be no changes to its pricing model. "This is not the way this company wishes to benefit," he said.
Beverly Alegra, Clinton, N.J.-based manager of travel and fleet services at Foster Wheeler Corp, said, "We're negotiating things with our agency, Carlson Wagonlit. We're on transaction fees, and they're seeing if we can pay a little more." Foster Wheeler is "leaning toward doing an increase for them," since it has a long-standing relationship with its CWT affiliate, the Leaders Group, and is happy with their service.
Among those who do not expect to see changes in prices, but likely will see changes in service, is Anne Colfer, vice president of corporate travel at San Francisco-based Union Bank of California, a client of Navigant International. "They've made some changes in our services, but not in our prices," she said. "We've had some onsite staffing reductions."
Thom Nulty, president of Chicago-based agency Navigant, said transaction-based pricing formulas have served his company's clients well over the years. "However," he added, "we didn't forecast the Sept. 11 tragedy," which he said has forced Navigant to reexamine its pricing policies. Nulty said his clients are willing to talk about pricing changes because the recent change in travel volume obviously changes the landscape of travel agency services. "We're going to them with reasonable requests in reasonable logic," he said.
John Snyder, COO of Atlanta-based World Travel BTI, also said travel volume is down more than 20 percent from last year. World Travel BTI is not making changes to pricing platforms because "that would be viewed as taking advantage of the situation," but Snyder said the agency is having conversations with clients about their short- and long-term plans for travel. "We're trying to right-size our client support," he said, "and adjust our service offerings accordingly."