BTN Research: Tracking Unbundled Fees Still Elusive

After more than two years of baggage and other a la carte fees, corporate travel buyers remain stymied by efforts to track such expenses, negotiate discounts for them, bring their purchases into approved channels or even set comprehensive policies around their usage. Ever since Feb. 4, 2008, when United Airlines announced it would begin charging passengers $25 to check a second piece of luggage, the best thing buyers have had is the promise of future solutions and their own makeshift workarounds to manage and monitor ancillary spending.

"There are a lot of different issues, but not too many solutions at this point," Katina Tryforos, manager of airline programs and customer service in Deloitte Service's strategic procurement group said at the March Strategic Travel Symposium, presented by Business Travel News and the National Business Travel Association in New York.

As the airline spend category grows riddled with ancillary fees, American Express in an Advisory Services report issued to clients last month likened air negotiations to "the discussions companies historically have had with hoteliers where the base price is only a start." Amex continued, "No longer can companies just focus on volume between citypairs. Organizations must carefully analyze the individual components—from baggage fees to change fees to additional charges to reserve a specific seat—to determine overall expenditure for air travel."

Amex said most organizations estimate ancillary fees to top off at 5 percent of overall travel spend, though without accurate measures, "that estimate is believed to be on the low end," Amex said, further noting that the figure could be as high as 15 percent.

Though Amex envisions a future where buyers can convert ancillary expenses into negotiating opportunities, those efforts elude buyers in the present. Only 18 percent of 231 corporate travel buyer respondents to a recent BTN survey said they negotiated with preferred airlines to reduce or eliminate checked-bag fees in 2009, but conversations with buyers and carriers show that successes have come largely through frequent flyer designations that shield travelers from such fees. As one corporate travel buyer participant at BTN's Corporate Travel 100 benchmarking session at the Strategic Travel Symposium said, "We asked the airline to give us as many elite status designations as we can get."

Even if buyers could find dependable data with which to negotiate or even waive ancillary fees, airlines said they have few mechanisms through which they could even apply discounts.

"I spend more time looking at fees than actually managing travel," BlackRock vice president and global travel manager Maria McSorley said during the Strategic Travel Symposium, adding, "Every time we reinvent ourselves as an industry, we cause more chaos than solve problems." Still, one travel buyer found the bright side, telling airlines, "Thank you for job security."

Amex agreed with client sentiments that "airlines have implemented fees without regard for how the new charges impact corporate reporting," though the TMC said clients should push airlines to give up as much data as they can on ancillary spending. Amex also suggested clients update expense tools "so ancillary spend can be tracked in greater detail."

In their list of best practices to tackle ancillary fees, Amex advised clients to research how much airlines charge for different services, gain as many elite status designations as possible, solicit other free amenities, set policies around which fees the company will reimburse and give other suggestions to travelers on how to best avoid fees.

Another suggestion is to separate airline expenses on corporate card reports into two categories: above and under $100. "Consider all charges above that number as actual airfares," Amex said. "This will help provide a rough understanding of the impact fees are having on the company's travel program costs until more discrete information can be passed through the GDSs or captured by expense systems."

Trip Davis, co-founder and chairman of travel technology and data firm TRX, said the message from buyers is clear: "This is a bit of a nightmare right now, because I can't track it. If I can't track it, I can't report it. If I can't report it I can't negotiate it and I can't establish policies, so we have a pretty serious problem."

There have been baby steps. For example, Deloitte's Tryforos said Continental Airlines offers some reports on ancillary spending for corporate clients, while another buyer said their corporate card picks up first-bag fees from United Airlines, while American Airlines can give some detail on inflight meals purchased through onboard card scanners. Still, she said, "The fact that these charges are not applied to the trip specifically is a problem because you can't look at the total trip expense," and that makes budgeting and policy execution difficult.

The industry has pegged its hopes to sell and track ancillary services through the corporate channel on the electronic miscellaneous document. That solution—likened to an electronic ticket that enables the selling and tracking of ancillary services—has been embraced by ARC, the International Air Transport Association, some payment systems, all the major global distributions systems and a number of airlines as the thread that will tie ancillary purchases back to the itinerary.

One vocal advocate, ARC vice president of sales, marketing and customer care Michael Premo, said to expect the first phase of a comprehensive EMD solution by the end of September. However, it will take longer for a solution to trickle down into global distribution systems, travel management companies and the corporate travel industry.

"The full solution, the utopian solution is still some time off," Amadeus director of airline distribution strategy Robert Buckman said. "However, I think we're going to have a well-established technology proposition in the marketplace this year into the first half of next year, meaning the transparency of the pricing data and the feed of data into the mid- and back-office, which goes hand in hand with the development and implementation of EMD."

Even airlines understand buyers' desire for a solution and acknowledge the inevitability that they eventually will be able to broadly negotiate for such services.

"Whether it's Wi-Fi on the airplane or a meal or anything—you ought to be able to track that like you would any other business expense," said Delta Air Lines senior vice president of distribution Jim Cron, noting the carrier has continued to discuss a solution with card providers to track ancillary expenses.

"I think the credit card companies also know there's a need to be able to provide that information, so I would expect by the end of 2010 for there to have been significant progress made on that front," Cron said. "Once it goes to being sold at the time of ticketing, then it's fairly simple. Any charge that gets attached to the ticket will be relatively simple to display."

As for negotiating for ancillary discounts as part of corporate agreements, that "would be just a natural evolution," Cron said. "It would be disingenuous for the airlines to sit back and say, I want to put that revenue to the side and not count that as money that you spent on the airline."

Noting that the expansion of merchandizing efforts enables carriers to sell new combinations of goods and services, American Airlines director of merchandising strategy Cory Garner said, "We have to do some things on our side to present those two or three offerings that are most relevant to you. In a leisure context, we're approaching individual travelers, but in the corporate context that could be in the form of a negotiated bundle."

Though corporate travel buyers bemoan ancillary air fees, airline investors encourage it. Speaking at the Strategic Travel Symposium, UBS aviation analyst Kevin Crissey said domestic airlines grew ancillary passenger revenues by 27 percent last year, bringing such revenues to represent just more than 6 percent total passenger revenues. Though that 27 percent growth rate would moderate, Crissey said it would continue to grow as a percentage of overall revenue for some time to come. "I know the airlines want to help you and all that stuff," he told the assembled corporate travel buyers in New York last month,"but from an investment perspective, take your time airlines. There's no reason to make it easier for you guys to start cutting it off."