<B>Countdown To Zero Hour</B>
<I>Corps. Confused About Commissionless Future</I>
By Amon Cohen
British Airways has finalized the service payments it will make to U.K. travel agents when it scraps commission in January 2001. The Guild of Business Travel Agents has proclaimed its satisfaction with the revised figures for handling bookings and making money collections from clients. The new sums are 27 percent higher than those BA originally proposed in January.
While the new airline-agency relationship is beginning to crystallize, the third corner of the payment triangle--the corporate client--remains confused about how the abolition of the commission system will affect travel budgets and how to overhaul corporate travel departments to deal with the new economics. U.S. travel managers looking in and wondering how they should prepare for the eventuality of zero commission largely will find U.K. counterparts in a poor state of readiness, with insufficient data and arguably insufficient understanding, for the biggest change travel remuneration has yet seen.
Companies that do not prepare face missing a major opportunity to strengthen their travel purchasing. Business Travel International COO Mike Platt thinks zero commission will make savvy corporates stronger than ever before. "The scales will tip radically in favor of corporations negotiating the commodity once known as air travel," he said. "This deregulates the rule book, giving corporates a lot more room to negotiate than ever before."
There are many questions to be answered first, however, including what will happen to airfares. BA has said it will compensate for the effective hike caused by the cutting of commission in two ways: It will announce new flexible fare types for business class within the next month and will cut actual published fares, although not until the end of the year.
"Announcing the lower fares in advance could be interpreted as signaling and we could get into trouble for that," said Tiffany Hall, BA's general manager for sales for the U.K. and Ireland.
Hall would not reveal the new fare types either, but said, "We believe having one fare in Club World--for full flexibility--does not make much sense. If clients are prepared to accept restrictions on when they fly and flexibility regarding cancellations and alterations, they can pay less; if they want a product like interlineability, they should pay more." Hall added that the new fares would not involve a minimum Saturday night stay, so that business travelers can use them midweek.
Chaotic times lie ahead in logistical terms as well, with significant technical changes required from the International Air Transport Association, Billing and Settlement Plans (national equivalents of the Airlines Reporting Corp.) and others to cope with the new remuneration system and issues such as interlining. "Many people are looking at the technical problems and some are saying they will be insurmountable, certainly by the end of this year," said Platt.
On top of this, U.K. travel managers are having to figure out how to switch their operations from profit centers to cost centers, something that few have grasped. Even when they can see what needs to be done, they fear having to make the case to senior management and travelers for, in many cases, starting to charge internal transaction fees.
"We have not yet addressed the problem in the U.K.," said the British travel manager of one global accountancy practice. "Our agreements are all back end, so we won't immediately have to deal with it as we will have one more airline check to come. We are in the process of considering how to charge for transactions: If we had net fares, it would be easy to add a transaction fee. With back-end deals, charging a fee to travelers would be adding insult to injury."
Mike Bor, managing director of London business travel agency World Travel, confirmed the lack of preparation among many corporates. "We are working on it actively with a couple of clients but for many others it is still a warming-up process," he said. "People know there is change afoot but they haven't yet tackled it head on. One problem is that we don't yet know what other airlines will do, so we cannot make an accurate prediction of how much remaining commission payments will defray costs."
Travel agents are working hard on the changes even if their clients are not. P&O Business Travel has conducted a thorough analysis of all its costs in anticipation of moving clients on to transaction fees next year. It has concluded that it will charge a basic booking fee of around $40-$47 per ticket. How clients cope with agency transaction fees, said P&O sales and marketing director Keith Haynes, will depend on whether their financial structure allows costs to be moved down to end users or must be dealt with centrally. "Companies will not want to handle travel centrally because it is not a pot of gold anymore," Haynes said. "Most cost centers will want to settle up with the travel department as they go along because if they wait until the end of the year, the bill could hit them when budgets are already low."
BA and agents are pushing IATA to reconsider its refusal last year to create a box on tickets that displays the agent's fee to the client. BTI's Platt believes this would remove the dilemma of moving to a cost center, since travelers and budget-holders would start to comprehend the agency fee as an integral cost of the ticket. Platt sees this combined with net fares as crucial in the drive to full price transparency that will commoditize the air ticket and give the corporation control of negotiations. "I want to see all the savings and all the charges up front," he said.
However, Hall dampened down this vision by making it clear there will not be net fares for all. "There are disadvantages as well as advantages in net fares. They are, for instance, more administratively intensive," she said. "They will not necessarily work for smaller companies or on routes with small volumes. We also need to be sure the client will meet its commitments."
Hall added that the ticket is not necessarily the best place to display the agent's fee, especially as this would not work with e-tickets. Cathrine Wickerts, chair of the Swedish Business Travel Association, agreed.
Around 80 percent of Swedish companies with international offices have long since transferred their agency relationship from a profit to a cost basis and devised systems to pass charges on to travelers. SBTA members moved over to transaction fees in the late 1990s after SAS cut commission to 4 percent. Based on their experience, including her own as travel manager for Skanska, Wickerts said it's crucial that corporations conduct a thorough audit of the cost of each step of their travel process. "In our companies, we have to analyze the costs we incur every day," said Wickerts. "You have to know how much it costs to take care of an invoice and what the manpower costs. It is very important both for us and our agents to stop hiding any costs."
Transparency is the rational way ahead but the task of explaining to colleagues why it entails dipping into their pockets for the privilege is a daunting one for travel managers. Noting that the old-fashioned agency check "was a quantification of travel managers' jobs," Haynes said, "there needs to be some in-depth communication as to why this is happening." Said BTI's Platt, "Travel managers will grasp it and in many cases the financial managers will grasp it, but the problem will be the budget holders, who may think they can go down the road and get the ticket for $10 cheaper."
Wickerts advises travel managers to demonstrate how travelers always have paid in hidden form for the apparently new costs they face and to quote examples from their own company of how they work with clients and other suppliers in exactly the same way. "The best way to see the agency charge," she said, "is as a consultancy fee.