Buyers Look To Rising Manpower Costs As They Budget

<B>Buyers Look To Rising Manpower Costs As They Budget</B>

By Megan Hjermstad

Corporate travel buyers budgeting for next year are looking more carefully at agency costs--many perhaps for the first time. As the fee-based relationship still is relatively new, for many buyers budgeting for agency costs still is an uncertain task. Agencies are tweaking pricing blueprints and those revisions are trickling down to travel departments. Despite pricing changes, most buyers, suppliers and consultants felt that travel managers--particularly those who have moved to transaction fees--should not expect to pay much more for agency costs than last year.

One area where travel managers can expect to allot for a rise in costs is in the salary and benefits that the corporation pays to the agents. Thomas Nulty, president and COO of Navigant International, said agents likely will receive a 3 percent to 6 percent increase in salaries that will be passed on to the customer. Nulty did not anticipate increasing any of the other direct expenses that are passed along to the corporation.

While not all corporations absorb the cost of labor, it is something that agencies will be more likely to pass on as labor costs continue to rise. Mike Mary, director of travel services at Adidas International in Portland, Ore., agreed: "Labor is going up in almost every market," he said. "There just aren't enough quality agents out there."

Gerard Smith, president of EPS Travel Solutions based in Newport Beach, Calif., said that if labor costs flow directly to the corporation, the corporation could be paying from 21 percent to 29 percent of agent benefits. If a corporation asks to have salary and benefits segmented out as line items, it can see exactly how much it is paying. "What corporations need to do is unbundle fees and see what is included or not included," said Smith. "Fees seem to be inching up, so it is important to know what is included in that fee."

It is important especially for benchmarking as corporations go out to bid to compare apples to apples. Agencies are continuing to restructure fee-based pricing and revise exactly what is included in the transaction fee, which is becoming apparent in new agency bids.

Ed O'Connor, president of Thousand Oaks, Calif.-based consultancy Corporate Travel Directions, expects transaction costs to increase as a couple of agencies still are trying to redefine "a transaction."

"The definition of a transaction has changed over the past six months to a year. There have been a lot of attempts to redefine them," said O'Connor. "Agencies have broadened the definition so some corporations now pay for refunds and voids." He doesn't expect direct operating expenses to go up much because most agencies now are very aware of their costs.

John Heilner, a consultant with Management Alternatives in Princeton, N.J., doesn't foresee a rise in the cost of standard services or transactions because agency business still is very competitive in terms of transaction fees. If a company is working with a management fee that is a percentage of revenue, Heilner sees the fee being inched up a bit: "I could see one-tenth or two-tenths percent increase in those kind of fees," he said.

Corporations going out to bid for a new agency may take the brunt of revisions in agency pricing. One travel manager saw a bid from a large travel management company and didn't act at that time. The same agency rebid four months later and with direct costs and transaction fees, the bid was more than 30 percent higher than the original bid. He said the example was extreme, but that "it is typical of some of the craziness going on in the industry."

Meanwhile, travel management companies are going back to the negotiating table with existing customers as well.

Mary said that now that travel management companies have the first few years under their belts they are going back and asking corporations to re-examine pricing. "Many people have driven too hard a deal and the agency can't live up to the service levels. It's a growing kind of discussion that requires both sides working together," said Mary. "Ultimately, everyone is entitled to make a fair profit."

Travel departments, to offset agency costs, are charging back fees to individual departments, a practice that Smith said is becoming more common. "It is no longer in the overhead," he said. "The number is getting too big."

Betty Moilanen, worldwide office services manager for J.D. Edwards & Co. in Denver, this year will begin charging back agency fees to individual business units at the time travel is purchased to defray agency costs. Moilanen also hopes that the implementation of online booking will reduce transaction costs.

"There is a trend to provide separate pricing at a lower transaction fee for self-service reservations," said John Snyder, COO of WorldTravel Partners. Other travel managers who have implemented online booking tools expect to pay the agency less as a result of the lower-cost transaction pricing that has been established by agencies.

Doug Weeks, travel manager at McLean, Va.-based Booz Allen & Hamilton Inc., is budgeting for a decrease in agency costs as a result of online booking. "I don't see them going up," said Weeks. "I've optimistically forecasted a reduction once we implement tiered pricing with our agency.