Insiders Assess Impact Of Internat'l Cap

<B> Insiders Assess Impact Of Internat'l Cap</B>

By Chris Davis

While the recent round of international airline commission caps may well put a damper on corporate buyers' internal rosters of international meetings--and their use of third parties to plan them--the value of meeting face to face with customers is too important to risk decreasing the frequency of getting together with outsiders, according to a number of meeting industry insiders.

"The positive financial impact of holding international meetings and the demand to have global meetings is so huge in proportion to the amount of money corporations will not get because of the cap that it's not even a decision," said Edwin Griffin Jr., president and chief executive officer of Meeting Professionals International in Dallas. "I don't think the caps will impact many--if any--corporate decisions to hold an important global meeting."

Unfortunately, though, not all international meetings result in revenue for a corporation. For internal gatherings, the extra cost of going global could well make companies reconsider their programs for 1999, said Tom Wilkinson, president of the Travel Management Group, an Alexandria, Va.-based travel management consultancy.

For such confabs, "in the short term, the economic impact of the cap will be to reduce the number of meetings held outside the United States and raise the costs of the ones that are held," Wilkinson said. "The commission cap will have a severe impact."

The furor is the result of a new commission cap set by major carriers last month (See story, page 1). On Nov. 12, United Airlines capped travel agent commissions on all travel from the United States and Canada to points outside of North America at $100 for roundtrip tickets or $50 for one way. American, Canadian, Continental, Delta and Northwest Airlines have since followed suit, while Air Canada last week became the first carrier to impose the cap beyond the U.S. borders, applying it to both U.S. and Canadian agents. Among carriers based outside North America, Lufthansa and KLM capped outbound travel from the United States, but not from Canada.

As the caps spread, Wilkinson argued, third-party meetings providers, particularly travel agencies, will be so affected that they will have no choice but to raise the price of their services.

"If I were a meetings company or agency, I'd think that my revenue has effectively been wiped out," he said. "Therefore, I would have to go back to my clients for all the revenues necessary, including my profit. There's not a revenue pool sitting there to defray that."

Whether corporations will be able to support the extra cost is another matter. Companies will have three choices: find the money within the corporation to finance the additional agency charges, hold fewer international meetings or stop using agencies to help plan meetings.

"It will be very interesting to pay attention to whether corporations even continue to use third parties in that respect," Wilkinson said. "Everybody in the industry is anticipating more commission cuts that will have a similar effect in terms of the corporate revenue stream that supports agency relationships."

At issue is the loss corporations will face in the current environment, where many agencies pass along the commissions they receive from the airlines to their customers, and how that will influence their meetings and incentives programs. American Express corporate services president Ed Gilligan estimated that corporate customers will pay 3 to 4 percent more on international travel, if all domestic airlines follow the lead of the American carriers.

Still, most insiders agreed with Griffin that no matter what the commission level, the business needs fulfilled by international meetings make having them a necessity in an increasingly global business environment.

Said Carol Krugman, president of Fort Lauderdale-based Krugman Group International, a conference planning and management firm, "I don't think anything--commission cuts, fare changes, anything--is going to decrease the number of international corporate meetings, because the trend towards globalization is too strong. I suppose you could make the argument that this might cause more meetings to be held near the greatest concentration of attendees, but that still doesn't decrease the number of international corporate meetings. If a multinational company holds a meeting with managers from all its subsidiaries, somebody's going to be attending. Somebody's going to be flying somewhere."

Griffin agreed. "Corporations that are in the global marketplace have such tremendous amounts of money at stake that while the cap may cut into their profitability or drive expenses higher, it will not materially impact their decision to have or not have a meeting," he said.

Even if the corporation's cost goes up hundreds of dollars per attendee, the potential profit from a $5 million business deal or $100 million product launch will far outweigh the cap-related loss of revenue. "Meetings really are productive and lead to profitability. It's not like they are going to a family reunion," he said.

Griffin also stressed that companies have other alternatives for holding down meeting costs. "There's a substantial amount of direct cost going on the Internet, and there are so many kinds of packaging in the mix, that if you have any kind of ability to forecast your travel needs, you can buy into international markets at a price that seems to be affordable for many corporations, given the economy at this point," he noted.

Rod Abraham of R.E. Abraham & Associates, a Durham, N.C.-based meetings consulting firm, agreed that the cap "will have much more of an impact on travel managers than meeting planners."

At WorldTravel Partners, general manager of meetings and incentives Rigsby Barnes said he didn't see the cuts having a major impact on corporate meetings business because many types of group and meeting fares already don't entail the payment of a commission.

"I don't think it will have that much of an impact, because much of the international meetings and incentives are done on a net basis anyway," Barnes said. "Compared to a corporate travel account--where they have an agreement for two or three years, and they get hit if they're living off commissions--it's a little more straightforward and simple on the group side. Groups have zone fares, or a certain percentage off coach."

Negotiations with airlines for group and meeting travel also tend to involve one event at a time, Barnes noted, making agencies handling international groups less susceptible to the commission cut.

"I'd be surprised if there are a lot of large international group movements that are going commissionable," Barnes said. "You have the perfect opportunity to get a net rate of 10 or 12 percent off the published rate, which you can clearly demonstrate is better for a client than a commissionable rate anyway. I don't know why you would sell commissionable fares to a company, unless they just wanted the commission to flow back into their cost center."

One immediate way for corporate planners to avoid a loss of revenue, or an increase in price, as a result of the cuts is to book group travel on airlines based outside North America, Wilkinson said. Among these, only KLM and Lufthansa had matched the commission cap at press time, and a few--including Air New Zealand and Korean Air--said they plan not to do so. As a result, Wilkinson noted, "foreign flag carriers have about a 9 percent cost advantage."

As in most situations, however, there's no blanket solution. Said Griffin, "There are so many variables in the mix that it's going to be very difficult to determine the impact of this.