A struggling lawsuit and talks at the industry's latest major conference suggest that travel management companies have not yet lived up to their promises to become the agent of the buyer rather than the seller.
Lawyers last week told BTN they are seeking to resurrect a case against Rosenbluth International in the California Supreme Court in part by identifying clients to join a complaint filed in August 2001, alleging Rosenbluth deceived clients by not passing them all override payments to which they were entitled. With no Rosenbluth client as a party to the case, an appeals court dismissed it last month.
Corporate buyers, who spoke confidentially about specifics on the sensitive topic, are concerned about airline override payments, which typically amount to single-digit percentages of the fare and increase with improved performance. Other revenues also are discussed, including GDS incentives and airline marketing payments. Depending on contract terms, agencies may be obliged to pass through such funds to many clients.
While airlines this year have stepped up overrides following the reduction of base commissions to zero
(BTN, May 13, 2001), a tandem trend has agencies employing increasingly sophisticated technologies to shift marketshare—pioneered by Rosenbluth's Dacoda tool
(BTN, Nov. 12, 2001).Buyers can use many such products for themselves, and some Corporate Travel Department managers last year pointed to hidden revenues as part of the rationale for going direct to the Airlines Reporting Corp.
(BTN, Aug. 13, 2001)."The lawsuit filed against Rosenbluth International is completely without merit and lacks any basis in fact or law," said a Rosenbluth spokesperson. "The individual who brought this questionable lawsuit is unknown to us and has no connection to or represents any of our valued customers—none of which has raised any issues with us publicly or privately."
The spokesperson also said, "For more than 100 years, Rosenbluth International has been providing leading travel management services to many of the world's most respected companies. Our reputation speaks for itself."
Rosenbluth was under no obligation to argue the merits of the case. "The opinion was not based on the merits of the allegations, which Rosenbluth never contested," said Oakbrook Terrace, Ill.-based attorney Peter Lubin of DiTommaso and Lubin, who provided the court documents to BTN. "It's just that you have to be a customer to sue them."
Judges ruling in the September decision agreed with Rosenbluth lawyers, who in February argued that the plaintiff—ex-agency competitor Jose Serrano of the Los Angeles area—could not "bring action on behalf of the parties alleged to be injured, because he was not a party to any contract with Rosenbluth," according to court documents.
According to Justice P.J. Turner, who offered a dissenting opinion, the original complaint alleges that Rosenbluth "falsely agrees to refund to its customers 100 percent of rebates that their employees earn while flying on business."
As alleged in the original complaint, which was filed last August in the Superior Court of California for the County of Los Angeles, Rosenbluth, using spreadsheets that employ "an internal calculation known as 'model 4,' prepares a phony spreadsheet calculation that significantly understates the amount of rebates or overrides that are due and owing to the customer."
"It bears emphasis that no definitive evidence has been received on the issue of whether defendant has engaged in the alleged accounting fraud," said Turner, but if it is true, "corporations that are victims of the alleged misuse of the spreadsheet, which frankly amounts to theft by defendant, are necessarily going to pass on the added costs to their customers, the public."
Regarding travel agencies' claims they have moved from being the suppliers' agent to the customers', Eastman Kodak manager of corporate travel services Doug Baldy said, "I'm not sure it's truly there yet when you can turn rocks over and find revenues driven by corporate business. Agencies need to address total revenue streams from a corporate client and put them on the table."
Asked last week during a general session at the Association of Corporate Travel Executives global conference in Munich how important hotly contested GDS incentives are as part of agency revenues, American Express and Carlson Wagonlit Travel waffled, while BTI Central Europe CEO Reto Bacher declined to answer at all.
CWT president and CEO Hérvé Gourio went so far as to call the question "irrelevant. You benefit from our leverage" on this funds flow, he said.
Amex president of global travel services Charles Petruccelli later clarified his comments: "The GDSs compensate us for the costs we incur to train our people in the specifics of their systems or to adapt their hardware to our operating environment. We add value to the process by saving GDSs from having to incur those costs directly. If the economics are going to change, the processes need to be streamlined to take work out of the system, or else costs will simply increase for the customer."
After the session, TQ3 Maritz Travel Solutions president Jack O'Neill said he tells clients the per-segment GDS payment is $1.50, give or take 20 cents.
Hal Rosenbluth last week said GDS incentives are a "very important" part of an agency's revenue stream. "Anyone who says otherwise, I don't believe is being honest with you."