Carriers are changing the economics and measurement of some of their travel agency compensation deals, partly driven by a substantial migration of airline bookings to nontraditional channels. Airline and travel agency sources confirmed a modest revival of revenue-based programs as airline industry recovery remains elusive and marketshare becomes more difficult to measure. Now, certain carriers using data aggregation tools furnished by the Prism Group for the corporate market are considering similar deployment for the agency community.
"A couple of the major airlines have put in place this year parallel override programs, in addition to existing overrides, as a test for revenue programs with the knowledge that lots of stuff is not going through ARC or global distribution systems," said Jerry Behrens, vice president of business solutions at Tzell Travel Specialists in New York. Though Behrens said revenue programs can be flawed, he favored the tests. "Carriers today all want to see more dollars. Revenue as a measurement in today's environment is not a bad idea."
Delta Air Lines, for one, is evaluating revenue programs. "Measuring share as a performance goal is becoming less reliable as more direct-report relationships are implemented," said Dan Cupertino, managing director of agency, leisure and segmented sales.
American Airlines has "dusted off old ideas in certain cases" to overcome challenges in measuring agency performance, according to vice president of global accounts Frank Morogiello. "There are ways around it," he said, referring to channel fragmentation. "You can measure revenue straight up or measure segments. From our perspective, we won't pay if we don't think we know what we are getting."
Morogiello did not dismiss the value of marketshare-based agency performance programs because "you still are measuring peers off the same base" and leakage into non-ARC channels, in general, does not vary widely from one agency client to another.
Northwest Airlines has not yet decided to resurrect revenue-based programs for agencies, but vice president of sales and customer service Fay Beauchine acknowledged changing dynamics. "We still are trying to determine that there might be fragmented data," she said. "We have to work with the agencies to ensure we are getting a true picture."
On an industrywide basis, leakage away from traditional agency booking channels undeniably is increasing. Considering aggregate volumes reported by 25 of the top 30 agencies listed in BTN's 2004 Business Travel Survey
(BTN, May 24), non-ARC sales in 2003 grew to nearly $1 billion, up from $617 million in 2002. As a percentage of total U.S. air sales, non-ARC sales grew from 6.7 percent in 2002 to 10.7 percent last year.
Many of the agencies responding to the BTN survey indicated non-ARC bookings are going to consolidators and Southwest Airlines and other carriers not participating in ARC. Some also cited bulk purchase programs, direct airline bookings through carrier Web sites and other direct connections.
Meanwhile, travel agency sources confirmed they have been approached by airlines interested in applying Prism's data aggregation system to track their performance. Delta and Northwest said they have not yet applied Prism to agency deals. Continental was not available for comment, and United, which was identified by several sources as one carrier pursuing such a strategy, refused to comment.
"We have a pilot program going now with one airline and Prism," said the CEO of one midsize agency, "but we find some of the data they want totally offensive and irrelevant. Plus, are we going to ask for permission from every client in our portfolio?"
"We have no problem with it," countered Tzell's Behrens, who said his agency also is providing to one airline aggregate data for Prism processing. "The data is not client specific."
David LeCompte, president of Short's Travel Management in Overland Park, Kansas, favors the use of Prism in the travel agency realm. "The way airlines now measure performance is antiquated, irritating and late," he said. "Prism numbers would be real, they would come from us and they would be more easily measurable."
Prism president Michael Whitesage acknowledged that airline use of his tools for the agency community "is something people have considered," but said actual usage thus far has been minimal. He did, however, state the importance of data consolidation. "No one has the complete universe of data anymore," he said. "As channels fragment, we consider it our role to get high-quality data feeds."
The idea from the airline perspective, of course, is to more accurately track agency business, an especially critical exercise given the shift to pay-for-performance models in the post-base commission era. To help fill the need, ARC this month introduced the Origin and Destination Sales Summary for airlines. It details the number of transactions, total revenues and average fares for the given airline versus the total in each O&D market, broken out by class of service for each ARC-accredited agency and ARC-accredited Corporate Travel Department. Because it uses only settled data, the information provided to airlines accounts for canceled, voided and refunded transactions.
By analyzing reports constructed from 39 months of ticketing data stored in ARC's Compass database, airlines can pinpoint agency performance—and new opportunities—down to the city pair level. ARC said it tested the product with several large carriers and already has secured clients.
In a general sense, airlines are compensating agencies that deliver more lucrative business and move share their way. Carriers particularly are inclined to reward agencies that can deliver disproportionately high numbers of premium class and peak-hour bookings, and marketshare shifts in key markets.
"We haven't had any back-end overrides reduced," said Tzell's Behrens. "A couple, in fact, have been made richer for added performance."
Shift In Override TideOther airline and travel management sources, however, have indicated a general de-emphasis on travel agency override programs, or, at least, an airline strategy to maintain incentive programs with fewer travel management companies. Some even point to the apparent return of the dealership model.
"We still see tremendous value in being in cahoots with the people at the point of sale who handle a majority of the action," said AA's Morogiello, noting that consolidation among agencies has meant a smaller number of compensation programs but no less overall coverage. "Of course, if you are a regional agency, you need to pick. You cannot dance with more than one or two carriers."
"Seven or eight years ago, if you could fog up a mirror you'd get an override," said Short's LeCompte. "In the past few years, the airlines have become a lot more selective."
"Overrides are changing to reflect the current environment," added Northwest's Beauchine. "Possibly in years past, airlines looked the other way if an agency did not meet its end of the performance hurdle. Today, the agreements in place are strictly adhered to." She also pointed to the need for airlines to try to reduce the cost of distributing through agencies without devaluing those relationships.
To accomplish that, agency sources said, some airlines have shown a degree of flexibility and creativity in crafting compensation programs—including revenue goals—but there appears to be no clear trend. "There are so many different arrangements within the same airline and from one airline to another," said Mike Mary, president and CEO of Portland, Ore.-based consulting firm Changing Planes. "One thing that is happening is that the term 'override' is being diminished." That development, Mary said, may negatively impact smaller corporations that rely on their agency for airfare discounts and a piece of the override. "The commissionless arena was supposed to foster a more open-book relationship between the travel management company and the customer, and that has not happened," he said. "There are lots of behind-the-scenes arrangements that change so frequently. The travel agency may be getting an override, but if it is called something else, they don't have to share it."