Most travel management companies now are in, or already have completed, case-by-case discussions with every one of their corporate clients—reminiscent of the first commission cap in 1995—to get them to pay for the 80-cent reduction in per-segment incentives for TMCs that the global distribution systems implemented en masse at the beginning of the month. Not every agency now needs to renegotiate every deal, however, as those travel management companies that have channels that go directly to suppliers are not forced to "opt in" along with the others.
Only American Express, with its TravelBahn infrastructure and long-term deals with airline and GDS suppliers, is in a position not to participate in the new pricing scenario at all. Amex announced at the end of last month that it landed a new content agreement with United Airlines to add to the deals already in place with American, Continental and other undisclosed carriers, and that American Express customers would rely on its internal distribution solution, TravelBahn DS, rather than GDS content arrangements. The only other TMC that has any similar sort of direct channel to suppliers already in place is Carlson Wagonlit Travel, with a G2 SwitchWorks direct connection product that can only be accessed by clients that use CWT's Symphonie platform.
"American Express has taken the initiative here and said, 'We've got the technology, the expertise and the relationships and we're not dependent on the GDS to provide content,' " said Tom Wilkinson, president of Pennington, N.J.-based TRW Travel Consulting. "They've shown the strategic value of building not just the technology, but the relationships and it shows that there is another way for TMCs to get through this without hitting their customers with another cost increase. That's what you pay a TMC for."
One industry source lauded TravelBahn as an excellent product, but noted that the tool does not immunize American Express against fees forever, as its agreements with carriers will expire in a few years.
The new distribution math adds up to higher costs for the clients of every other travel management company, and a financial incentive to consider alternative distribution channels. Buyers understandably are not happy about the way and the fact that the airlines and global distribution systems passed along these costs. According to a National Business Travel Association survey of 237 travel managers released last month, 90 percent said cost implications raise concern. Booking efficiency and content fragmentation—as noted by 75 percent and 68 percent of respondents, respectively—round out the top three concerns.
NBTA said it shared the results with Delta and Worldspan, as well as American Airlines and Sabre, which only recently came to terms on new distribution pacts (see story, page 1). Yet concerns still remain about access to content and its costs. "Delta Air Lines and Worldspan are in ongoing discussions regarding their relationship, though a deadline is not immediately pending," NBTA said, noting that 71 percent of travel managers book American through Sabre or Delta through Worldspan. "If those airline-GDS pairs do not hammer out agreements on their relationships, those transactions will likely move to other channels or those bookings will likely be made on other airlines," NBTA noted.
Travel managers are seeking ways to mitigate cost increases from the new airfare distribution landscape. Of the respondents, 24 percent said companies would take fewer trips, 25 percent would adopt such travel alternatives as phone, video- or Webconferencing, while 21 percent would increase the use of low-cost carriers.
For some travel buyers, however, the real issue presented by opt-in programs is trust. "This whole thing has caused tremendous credibility gaps right now between everybody," said Kevin Maguire, director of global travel services at Applied Materials in Austin, Texas. "The forgotten party, the customer, is being asked to absorb another fee. I know this is a cost of doing business, but how on Earth does everyone come up with the same fees? There must be one accountant on staff for all the TMCs and the airlines."
Carlson Wagonlit Travel—the first TMC to come forward publicly with a plan for addressing the new distribution economics—set the stage with its decision to charge $2 per airline ticket to offset the costs generated by the opt-in programs
(BTN, Aug. 14).Other TMCs, including CWT's mega competitors, were slow to follow suit. BCD Travel said it remains in discussions with carriers, clients and GDSs, while HRG—like most TMCs—said it is working out the financials with each client. "What our customers are telling us is that they want it to be transparent," said Tom Gleason, CEO for North American operations. "If their number is $1.95, they want to pay $1.95. If it's $2.05 per passenger name record, then it's $2.05. We're sitting with each customer individually to say, 'Here's the history and here's how much it's going to be.' Our attempt is to make sure they pay what the cost is."
Meanwhile, many small to midmarket TMCs said they would have to opt in to secure travel content. Casto Travel, which relies on the Galileo GDS, already has completed negotiations with its entire client base, president and COO Marc Casto said late last month.
"Over the past month, we've gone through the process of discussing all costs with our clients and during the course of that we have raised our fees," he said. "Casto has not had a fee increase for well over three years, so this cost, as well as some other things that had happened in the industry, resulted in us needing to share some of the costs back with our clients. We are not treating this as a separate line item for distribution costs. Fundamentally, I don't see that benefiting the client by separating one line item after another for additional cost items."
Oakbrook Terrace, Ill.-based Tower Travel Management will not announce any across-the-board increase, instead opting for client-by-client discussions, said president John Smith. "There are certain circumstances where we will simply absorb the fee, although I don't like to look at it as absorption, because most likely those conversations that we'll have will involve other things, like changes to workflow, service configurations and changes to various services," Smith said.
Gant Travel Management is looking at unbundling services to recoup cost. "Specifically, we have a portion of accounts that we did not charge for voids and now we're moving to recoup costs by unbundling what we do with voids," said Patrick Linnihan, president of the Wood Dale, Ill.-based TMC. Gant also is examining its GDS agreements and Linnihan predicts in the next two years the industry will see a lot of creative contracts between agencies, as well as the agencies and GDSs. "Where before it might be worth it for you to keep your own GDS agreement, I think the conditions are such that you have examine more carefully whether segments are more valuable to you or to someone else," Linnihan said. "It requires you to place a value on the segments and say, 'How I'm going to maximize that value?' Does that mean I go to someone else and say, 'You can have half all of my segments, if you pay me X?'"
New York-based Tzell Travel Group—though looking at accounts individually, specifically those with which the TMC has service agreements—plans to pass the cost to clients. "We're having those discussions over the next two months to see where there is room to increase the service fee," said David Holyoke, vice president of sales and business development for Tzell. "I don't want to say it's across the board—we haven't released anything saying, 'Effective this date, there is a fare increase,' but we looking to pass that on to the client at about a $2 increase, in terms of what the industry is doing, but it is by no means a unilateral."
Expedia Corporate Travel on Sept. 1 communicated to customers that at the start of next month, bookings would reflect an additional charge of $2 per ticket for all airlines except American. "We are only passing through the distribution cost," Stan Sorensen, vice president of marketing for ECT said in a statement. "Additional costs that we incur as a result of the airlines' moves are not being passed through, nor will they be. As a courtesy to our customers, we are absorbing the fees the first 30 days."
Some travel management companies have made decisions and already are contemplating the issues that lie ahead. "Unfortunately, everybody's looking at this myopically and not saying, 'When does your fiscal year end?' Because I may have one corporation whose fiscal year ends in July and another whose ends in December, but I won't get those invoices and bills from the GDS until 60 days later and the client may have been working on a client matter or job number that may have been closed out and who's going to eat that as an expense?" said Jennifer Wilson-Buttigieg, co-president of Valerie Wilson Travel in New York, which is working with clients individually to assess fees. "There's more to come," she said. "What's the customer—the marketplace—going to bear? What are the actual invoice and back up going to look like from the GDS? Because of all the other changes going on, I don't think most of those things have been focused on yet."