Cost Center Conversion Prods Self-Booking Switch
<B> Cost Center Conversion Prods Self-Booking Switch</B>
By Tom Wilkinson
<i>Tom Wilkinson is president of Travel Management Group, an Alexandria, Va.-based travel management consultancy.</i>
This month, many corporate travel departments have received or will receive a skinny, but portentous envelope from their travel agencies. Since most corporate contracts call for "revenue sharing" around 45 days after the close of the calendar
quarter, this is the first month that most companies feel the real impact of last fall's commission cuts. For the first time, they are discovering the true meaning of "cost center."
Most travel managers have recognized that their functions are a cost of doing business. Until now, however, the cost of travel departments has been (more than) fully paid by airlines. The caps on international commissions have removed most of that subsidy. If travel managers need to make net payments to their agency, they will be competing for internal funds for the first time.
Everyone reading BTN knows the value of managed travel. Most travel managers can demonstrate their value to their employers. But the battles will be different when funding for agency services comes out of budgets for R&D, plant and equipment, shareholder returns and executive compensation.
We are fortunate that the airlines have imposed this change gradually, and that we are in good business times. Otherwise competition for funds would be even more fierce.
Nevertheless, tough questions will be asked by non-travel executives who don't, and don't want to, understand the economics of travel management. To wit: Why does it cost my company $30 to buy a ticket when I can call the airline (or my neighbor's travel agency) and get one for free? Travel managers increasingly will be required to achieve what their colleagues in purchasing have long had to do: reduce travel management costs.
There is a floor to the cost of managed travel. There's a shortage of good agents, and agents never have worked for free. There are new GUI interfaces to the CRS, but it still takes time to book a trip. Automation, i.e., online booking systems integrated with point-of-sale and back-office systems, is the only long-term solution.
Finance and purchasing executives don't care about the problems or profit requirements of agencies. They've been beating up on their favorite suppliers for more than a decade, and are more than willing to share that pain.
The problem is travelers don't like booking systems. They like to do things the same way they always have--call the agency or the airline and chat, jot down a few options on the back of an envelope, talk it over, then call back. Free, right? Absurd in the era of the Internet economy? You bet.
Some travel managers argue that automated booking systems are self-defeating because they transfer bookings from trained specialists to inexperienced and self-interested travelers.
Other companies have blown past this quaint paradigm. They pass either the $30 cost of telephone or the $15 cost of online bookings through to travelers and their cost centers. It's amazing how quickly managers can change behavior when money is on the line.
Another problem. Agencies don't automatically pass through the savings from online booking systems. Savings for the corporation are realized only passively through head-count reduction. Catch-22: A company must change to save money, but it doesn't save any money when it changes.
An unpleasant reality is that most companies today, after buying and learning a system, pay the same amount to the agency when they book a ticket as they do when the agency does that work for them. Fair?
From the agency point of view, they've set up the whole travel system, manage all the data, issue the management reports and provide 24-hour service. Try to crack this in contract talks and you quickly start hearing about the burdens of file finishing. In the past, this has been a relatively simple process. With third-party booking systems, however, it assumes a new strategic significance.
Of course, if a company defines a consistent data format, this problem can be avoided. If booking and reporting systems are integrated, the company gets strategic benefits that allow it to pay for full service only when needed. Is this a familiar business model?
Best practice today is to manage automation independently from other agency services. It's a completely different core competency from reservations, and has completely different economics. It takes work, initiative and risk. However, managing independent travel automation also creates significant leverage, which drives lower costs with all suppliers. Do the math, then choose your battle. That's what business is all about.