Canadian Caps Imposed Contracts Will Move From Revenue Shares To Fees

<H1> Canadian Caps Imposed Contracts Will Move From Revenue Shares To Fees</H1>By Jay Campbell

<I>New York </I>- The commission caps announced by Canada's two major airlines earlier this month will change travel management in that country in many of the ways the U.S. cap altered business travel here.

However, unlike the U.S. cap imposed last year, the moves by Air Canada and Canadian Airlines International came as no shock and will not take effect immediately.

Starting Sept. 1, domestic commissions paid by the two carriers will be capped at about $21 (based on current Canadian-U.S. exchange rates) one way and $42 round trip, with a raise in base pay from 8.25 percent to 9 percent. Transborder commissions will be capped at roughly $25 one way and $50 round trip, with base pay remaining at 10 percent.

The caps stemmed from an increase in competitive cost pressure from both U.S. airlines under the U.S.-Canada open skies arrangement and the launch of carriers such as WestJet Airlines and Greyhound Canada, which could begin a new low-cost era in the Canadian airline industry.

Travel agencies operating in Canada predicted that the changes will speed the transition from revenue share contracts to fee-based contracts, and will transform the role of the agencies. Other sources said the moves also will spur an increase in net fare deals and an overall focus on cost controls.

"You'll see the introduction of a wider range of fee-based deals between what will now be travel and expense management companies and corporations," said Alan Bromfield, president of Carlson Wagonlit in Canada. "Everyone will move to more closely manage costs, including the suppliers, travel management firms and buyers."

Buyers said they were not surprised. "What I'm surprised about is that it didn't happen sooner," said John Craig, corporate services manager for the Bank of Montreal. "For us, there should be minimal impact since we're already using negotiated rates with our preferred airline." He said the company's travel agency contract will be renegotiated to adjust for the changes, but he didn't know whether his current revenue share arrangement would change.

Doug Stuewe, director of corporate acquisitions and negotiations for the Canadian Broadcasting Corp., said many Canadian companies already were planning for the caps. "There has been a move away from the revenue-sharing system and toward management fees," he said. "Although no one is speaking publicly about them, there will be a number of net deals next year."

Air Canada could not be reached for comment, but Canadian Airlines International acknowledged that net fare deals will proliferate. "We only have one such contract at the moment, with the Department of National Defense," said Allister Paterson, Canadian's vice president of sales North America. "But direct deals make sense, and this cap allows corporations to get fares that eliminate hidden costs such as commissions. While I think it is possible to have net arrangements whatever the commission level is, they do require that the agent work for the customer and not the supplier. That will happen more as rebates take a hit under the new caps."

Consultant Samir Andraos, president of Montreal-based Aim International Management, agreed that net fare deals were on the minds of many companies, but the caps will put them into practice.

"The two airlines are ready to negotiate net deals, and there were several proposals on the desks of travel managers at many companies, even before the caps," Andraos said. "Now senior management will notice, and those deals should become more common.