BT Touts Transaction Fee Benefits
<B>BT Touts Transaction Fee Benefits</B>
By Amon Cohen
BTI UK is advising clients to stay away from transaction fees but, ironically, one of its three clients currently using the method is delighted with the results.
"Transaction fees have been superb for us," said Paul Cleveland, travel procurement manager for British Telecom, thought to be one of the three largest spenders in the United Kingdom with a total travel and entertainment budget of around $150 million. BT has 70,000 travelers and does not mandate. As a major global telecommunications company, it also is permanently in a state of reengineering and it is for this specific reason that Cleveland has found transaction fees to be preferable to the more typical British style of management fees.
"Our business is changing so much that it is difficult for us to put a stake in the ground and say these are the circumstances on which we will negotiate a management fee," Cleveland said. "I was having to renegotiate every month because if you look at what my needs are today and what they were three years ago, they have changed completely. BTI and I were completely embroiled in discussions about what was included in the deal and what was not."
BT now has eight different categories of transaction fees, such as for domestic air, each with a fixed price. Much like British Airways' proposed booking payments to agents, these are a flat rather than a percentage rate, so the price of the ticket is immaterial. "It has got rid of the old myth that the travel agent is trying to milk more money from us by selling more expensive tickets," Cleveland said. "All the commission comes back to me." However, therein lies a second irony in BT's choice of agency remuneration.
The principal perceived benefit of transaction fees is that travel managers easily can pass them on to the traveler at the point of sale. For now, BT does not do this but retains the commission centrally. At present, this is not a problem because BT earns more in commission than it pays out in agency fees, but this situation is vulnerable to change for two reasons.
The first is the volatile combination of operating a profit center, yet having no relationship between the price of the ticket and the transaction fee. "My mix of business affects my balance," Cleveland said. "If everyone is flying business class, then I get a good balance but if they are moving to low-cost carriers, then things look less good."
This exposes the topsy-turvy economics of operating a nominal profit center, because the profit center benefits when the company is spending more rather than less on travel.
Last year, there was a surplus each month but four of the first five months of 2000 were negative, largely because Cleveland has negotiated an increased number of up-front net-net deals. "I am still predicting we will have a positive figure at the end of the year, but it will be close," he said.
The second reason that the current arrangement is not sustainable is, of course, the imminent abolition of commission by BA, which will introduce a permanent deficit for the profit center. The good news ultimately is that it will force BT to move travel to a cost center--a much more rational basis for operating transaction fees.
"I am sitting down with my finance people because I think I have 12 months' grace to move from profit to cost," Cleveland said. "We will have to find a way of passing on the transaction fees."
Even though further reengineering is required, and even though fixing the transaction fees with BTI UK was a time-consuming task, Cleveland is convinced the path he took was the correct one: "It has allowed us to get on with things instead of negotiating changes to the management fee all the time," he said. "This has outweighed all the objections.