Manipulating Rent-A-Plates

Even as the Airlines Reporting Corp. weighs the possibility of allowing corporate travel departments to become their companies' official travel agencies, several corporations have been making new wrinkles in the traditional rent-a-plate setup.

ARC is expected next month to decide whether to change its long-standing requirement that travel agencies be open to the public (BTN, Jan. 12). That requirement has prevented most corporations from handling the booking and settlement of airline tickets themselves, and pushed the industry to outsource travel to corporate agencies.

While many companies employ their own agents, they do so under a "rent-a-plate" agreement under which they use an agency's ARC plates, with all remuneration going through the agency before commissions are passed back to the client. Such arrangements are not formally recognized by ARC.

In the past year or so, however, as some travel managers met with ARC to change the requirement (BTN, July 28, 1997), others have come up with creative variations on the rent-a-plate theme. Through one program, corporations are achieving a greater level of autonomy than previously thought possible by having commissions returned directly to them without going through an agency's hands. At a second, they are getting what some say is a better deal by paying a small fee for each airline ticket processed, and getting back 100 percent of commissions on air sales, while splitting car rental and hotel commissions 80/20 with their agencies.

Consolidated Stores Corp. of Columbus, Ohio, for example, is insourcing its corporate travel program in a unique way through the Westerville, Ohio-based TravelSolutions, a consulting company and small travel agency.

With $3.2 million in air sales, Consolidated Stores is no stranger to insourcing; before looking at travel, it already handled its own recruiting, advertising and payroll. Two years ago, it decided to insource its travel program for financial reasons, and switched from Carlson Wagonlit Travel to TravelSolutions.

Because it did not want to be open to the public, as ARC rules mandate, it was set up as a branch operation of TravelSolutions. Besides the ARC appointment, TravelSolutions provides a back office accounting system, but Consolidated considers itself a self-managed operation.

"We handle everything ourselves. We do our own ARC reports. We are already in complete control of the travel program where commissions are coming directly to us for air, car and hotel," said travel manager Henix Teegardin. The travel department also has its own Sabre contract and deals directly with all suppliers. "The airlines are more anxious to negotiate directly with the corporation than they are with the travel agencies," Teegardin said.

All this is possible because TravelSolutions sets up a bank account in the corporation's name. "TravelSolutions is not a point of financial flow," said president and CEO Tammy Troilo. "All money flows directly through a separate bank account to the corporation. We've created a system that makes us completely separate from the whole financial process."

Teegardin said the firm has yet to determine the actual savings the switch has brought. But, she added, "we now receive all of the income which we weren't receiving before. We're paying TravelSolutions a small transaction fee which will go away if ARC accredits companies directly, and we are still a profit center for the company."

ARC in February is expected to rule on whether to accredit corporations directly. If it does, Consolidated Stores plans to be among those signing up, and then will use TravelSolutions as a consultant only.

Ashland Chemical in Dublin, Ohio, also has decided to insource its $10 million in air volume travel program, and moved to TravelSolutions about a year ago. Before that, said travel manager Cheryl Hampton, "our employees were Ashland employees and we never saw any point in having a travel management company give us help." Hampton said Troilo's brainchild was ideal for her company. Prior to that union, Ashland received 100 percent commissions back from its agency but was "paying a high management fee."

Hampton estimated that since the implementation the corporation has experienced savings in the "hundreds of thousands," including specifically "significant savings" from negotiating its own CRS contract. TravelSolutions provides support if needed, but more often Ashland prefers to go it solo.

The company does, however, rely on TravelSolutions for its back room accounting system, though Hampton pointed out that accounting is done onsite at Ashland rather than at the agency. The back-office system provides T&E reports and the company uses a third-party software system in-house for other reporting procedures. Hampton said having reporting capabilities on hand is beneficial because it allows the travel managers to create ad-hoc reports on demand, rather than waiting "maybe two weeks" to get reports from an agency.

The only drawback to the program Hampton could cite was the time involved in handling ARC reporting. Still, she said, "three months into it, we were fine."

To be a part of the TravelSolutions program, clients must first participate in a consulting program designed to determine if they are viable candidates for self management. According to Troilo, a thorough analysis of operating costs, the revenue stream and the existing profit and loss of the travel department is conducted over a one to two month period.

If a corporation is given the green light, it is charged a one time flat fee based on client size for the first 12 months. TravelSolutions works with clients ranging from $2 million to $300 million.

After the first year, corporations have the option to retain TravelSolutions as a consultant for fees ranging from $10,000 to over $50,000 annually.

In the first year, corporate clients can obtain membership in the Hickory Travel Systems consortium under the TravelSolutions umbrella. They also can use the company for anything from supplier negotiations to 24-hour emergency service and participate in the company's user group of insourced travel managers, which sometimes works together to get overrides. TravelSolutions helps with supplier negotiations but "all money earned is put on the table and the user group determines how it is distributed," Troilo said.

Another company offering a new tack on rent-a-plates is Traveler's Choice Inc. of Burnsville, Minn., which rolled out a new Corporate Travel Associate program with the new year.

For a one-time start-up fee of $3,450, corporate clients with at least $4,000 a month in travel expenses can get Worldspan's DialLink CRS, including training and transportation to several Worldspan locations. There is a monthly fee of $239 that can be offset by the corporation's booking 86 segments or more. Traveler's Choice also charges $5 per ticket, but returns 100 percent of commissions on airline tickets. For rental cars, hotels and leisure travel, commissions are split 80/20, with the corporation getting the larger piece. Associates also receive an IATA card. There are no monthly or yearly renewal fees.

Under the Traveler's Choice program, clients have access to all TCI preferred suppliers and all tickets are queued to the agency for fulfillment. The company also is developing a travel management policy manual.

TCI has been active with one corporate client since June, and is in the process of signing another. Though new to the corporate market, it has been offering its associate program to leisure agencies since 1994 and has 750 clients.

Hadley Vukasovich, travel manager for Wham!Net, the "electronic equivalent of Fed Ex," based in Minneapolis, Minn., with $1.5 million in air sales, is pleased with her association with TCI so far, she said. TCI provides ticketing, accounting services and quality control on all PNRs.

Vukasovich said the company has seen 12 percent savings since implementing Traveler's Choice last summer, and has set a goal of 20 percent for 1998.

Dave Colee, supervisor of State Farm Insurance Co.'s air travel and lodging unit and a veteran of the rent-a-plate game, said that while some companies may want autonomy, he prefers to let his agency, Chicago-based McCord Travel Management, handle most of the accounting work.

"Travel agencies have done accounting for a long time," Colee said. If it is a question of accuracy in returned revenue, he said, "right in our contract we have the right to audit their books."

Colee called the $5 transaction fee being charged by TCI "not bad," and the 80/20 split "new."

"Most rent-a-plates are an all or nothing situation," he said. "Without an 80/20 split, a $7 to $10 transaction fee would be more common."

One corporate travel manager, looking forward to a favorable decision from ARC regarding issuing plates to corporations, said that using a rent-a-plate operation "is really like borrowing somebody else's driver's license to rent a car." But despite all of the potential benefits possible from insourcing travel, the travel manager said, "It should not be done in anticipation of increasing profits. By definition that will not happen.