PwC To Cut The TMC Fees It Charges Travelers In Half

PricewaterhouseCoopers soon will cut in half the transaction fee it charges U.K. travelers for using its preferred travel management company, BTI UK. The move is intended to encourage more travelers to stay loyal to the corporate travel program instead of booking trips independently on airline Web sites.

The desertion of travelers from their corporate programs is close to epidemic proportions in the United Kingdom. British Airways estimates leakage is as high as 20 percent in the most extreme cases. BTI UK puts the average figure at 5 percent to 7 percent, rising to 20 percent for businesses with a heavy bias towards short-haul travel.

Many other parts of Europe are experiencing similar travel program compliance problems. "My feeling is that this is happening throughout Sweden," said Ove Svensson, chairman of the Swedish Business Travel Association.

Travelers are ignoring their corporate travel programs because short-haul flights in particular are cheap and easily obtainable directly from airline Web sites. Low-cost carriers and many mainstream airlines have no Saturday night restrictions on lowest discounted fares and their Web sites are simple and quick. In contrast, using the travel management company channel often places a greater emphasis on negotiated corporate fares, which can be more flexible but also more expensive.

To add insult to perceived injury, many travelers have to pay transaction fees passed on by their employer for using the preferred travel management company. "The fare can work out lower than the transaction fee," said PwC head of business services Mark Avery.

BTI UK has been so alarmed by the leakage from corporate travel programs in recent months that it has actively lobbied clients to start absorbing centrally some or all of the transaction fee they pass on to travelers' budgets. BTI UK reasons that travelers are getting a raw deal because most of the fee is for services, such as management information, delivered to the central corporate entity rather than to the traveler.

PwC appears to be the first client to accept this argument and is preparing to reduce the transaction fees by 50 percent. "Half the calls our people are making to BTI UK are shopping calls. In many cases, they are going on to book elsewhere," said Ian Scott, finance director for infrastructure and procurement at PwC. "Now we are asking ourselves why we are passing on the full TMC fee to our clients, when they are only getting some of the services that the fee covers. We have said that, from now on, we will pay for the parts of the fee that relate to meeting our corporate needs."

The PwC team is working through the budgets but intends to cover the costs out of the travel income it still generates. Although airline commission is virtually extinct in the United Kingdom, PwC still receives BTI's commission from hotel and rail bookings, as well as incentives for using an American Express card.

Even if the initiative can be self-funded, keeping back half the fee will create other headaches for PwC. It started passing on the transaction fee in full one year ago for two reasons. One was because internal clients defrayed the fee in turn to their external clients. The second was to promote transparency. Now PwC has to consider, for instance, if passing on half the fee means it should equally pass on only half the benefits obtained from discounted fares.

Notwithstanding such problems, the PwC initiative has drawn support from BA, which also is concerned about policy leakage. "PwC is absolutely right to try to absorb some of its fees centrally," said U.K. and Ireland head of corporate sales Richard Tams. "Travelers regard the fees as too high, which is why they are going on to Web sites like ba.com. We would rather they stayed with their programs because once travelers book through ba.com, our corporate clients lose track of their spend and don't take advantage of the special fares that we offer them."

BTI UK claims clients have lost corporate deals in recent months for missing supplier targets when travelers booked direct. "The need for deals is becoming more important as the market recovers," said BTI UK managing director Mike Platt. "If businesses don't know what their figures are anymore, they cannot do them."

Platt has campaigned vigorously on what he dubbed the "disconnect" between travel buyers and travelers. He said organizations have three options to bring travelers back to the program. One is to mandate rigidly, generally regarded as less acceptable culturally in Europe than in the United States. Another is to communicate in the hope of winning over travelers. The other option is lower fees. "If the traveler is only getting 60 percent of the value of the transaction fee, that is all they should pay for," BTI UK's Platt said.

There is arguably a fourth option in addition to the three suggested by Platt: to find a booking channel that charges lower fees. SBTA's Svensson said companies in Sweden may follow this low-cost option. "We are at a crossroads," he said. "Full-service TMCs may be chased away from the market."

Platt estimates that the average TMC transaction fee in Europe is 30 percent higher than in the United States but maintains there are good reasons for the price difference. The first is that the European market generally demands low- to high-touch service whereas the U.S. is now mainly no-touch or low-touch. This reflects the much lower adoption of online booking in Europe and the absence of significant competition from Internet business travel agencies.

Underlying this higher service demand, Platt argues, is the greater complexity of European travel, which involves far more international journeys and a greater number of languages, cultures, currencies and airlines. Correspondingly, this provides a better opportunity for travel management companies to offer value by finding the best fares in a more complicated market.

Avery said PwC is convinced of the importance of retaining a travel management company, not only for duty of care responsibilities, such as tracking travelers and providing emergency assistance, but also for managing corporate deals and sourcing better one-off fares.

Many buyers are looking to see if Europe follows the United States towards a lower-cost service approach. Platt believes the opposite will happen. "I think the U.S. market will re-think the gap between price and value," he said. "It has swung too far the other way."