SAS Plans For New Agency Cuts Draw Corp. Fire

<B> SAS Plans For New Agency Cuts Draw Corp. Fire</B>

By Amon Cohen

If you want to know where the corporate-airline-agent relationship--arguably the basis of travel management--is heading, take a look at Scandinavia.

SAS, the leading carrier in Sweden, Norway and Denmark, is about to slash commissions for a second time--and the fallout is just as great as when the airline first tackled agency remuneration in 1997.

Last September, SAS cut commission on intra-Scandinavian flights from 9 to 5 percent. That spurred the big three travel agencies, American Express, Carlson Wagonlit Travel and Bennett BTI, into moving clients onto a variety of fees--either management, subscription or transaction--according to the size of their account.

Now SAS has announced that on Jan. 1, 1999, it will reduce all commissions to 4 percent and introduce a cap of SKr250 (about $32) per one-way sector. On top of that, SAS is scrapping all overrides and other agency incentives and withdrawing commission for its TravelPasses, which allow travelers to purchase multiple trips for a set price.

These latest moves, which most Scandinavian travel managers regard as the last stage before total elimination of commissions, have left a bad taste among corporate clients. They are angry over a perceived lack of a quid pro quo, with SAS apparently offering little in improved fares in return for the effective price increase it is imposing through commission reduction.

Before they limber up for a showdown, travel managers are first carrying out rapid reviews of where the latest cuts will leave their budgets and their agency relationships. The most important implication is that management fees genuinely will become fees rather than a fancy way of dressing up the old commission and rebate system.

"Many big companies have used commissions passed on to them by the agent as the basis for their fees, so they are going to have to renegotiate once more," said Catherine Wickerts, travel coordinator for Skanska and chair of the Swedish Business Travel Association.

However, Brian Cronk, Carlson Wagonlit's vice president for industry relations in Northern Europe, said he believes it is smaller clients that truly will suffer. "Corporate travel departments have now become a cost center," he said. "Larger companies have seen that coming but the small to medium businesses will have problems. These are the ones where the secretary receives a rebate check from the travel agent a couple of times a year. Those checks will now dry up."

Far from being able to pass on rebate checks, Cronk said agents will be earning as little as $6 from SAS for booking a ticket that could cost two to three times as much to process. Not surprisingly, Carlson Wagonlit is redoubling its efforts to introduce self-service reservation systems in Scandinavia and to concentrate on other services, such as providing management information and packaging flights together with hotel and car rentals.

Meanwhile, clients will have to accustom themselves to writing out, rather than receiving back, travel agency checks. "In the future, the commission the client receives on a ticket may be SKr40 but our charge will be SKr50," Cronk said.

That client-airline-agent triangle will start to look very different in consequence. Cronk believes SAS will aim to sell direct to large corporates, leaving the travel agent to intermediate for smaller, more accounts.

"Smaller clients are going to need to come to us because we will work on finding cheaper fares for them, especially with competitor airlines," Cronk said. "I think you are going to find a lot of small European companies moving away from their national carriers."

Annika Ortmark, senior consultant and president of Stockholm-based Ortmark & Consultants, believes long-standing relationships will be transformed forever.

"It is no longer a triangle," she said. "Instead, there will be selling lines from both the airlines and the travel agents to corporate clients. In a sense, both airline and agent are competing for the customer, which is something that has never happened before. It may cause a small bloodbath during the transformation, but in the long run it will be easier for the corporate client, which will be able to have links with whomever it likes."

Whether clients will get a better deal through their agent or directly from the airlines remains to be seen. Carlson Wagonlit's Cronk predicted that corporates will be next to feel the squeeze. "SAS is going after the agent now, but next it will go after the corporate by cutting rebates," he said. "That will be stage two."

What is certainly true is that Scandinavian travel managers are claiming that SAS has been extremely parsimonious in redistributing the funds it has saved through commission cutting.

"I would be happy to see commissions disappear, but I don't see any sign of fares getting cheaper. They say they will be cheaper, but I don't believe it," said Else Becker, travel coordinator for packaging company Elopak and chairman of the Norwegian Travel Managers Association, adding that the prevailing mood among Norwegian travel managers is "negative."

Berit Schroeder, travel coordinator for dairy company Norske Meierier and treasurer of the International Business Travel Association, also expressed disappointment. "We had hoped for better negotiated rates from the airlines," she said. "I don't think prices will go down but will go up. We will have to look for opportunities in the new market and find better ways to negotiate."

As a concession to agents, SAS has introduced a corporate version of its TravelPass. But SBTA's Wickerts said the discounts on the pass are non-negotiable and passes cannot be charged to corporate cards. Like many colleagues, she feels SAS should have made more effort to consult the rest of the travel business. "Airlines pay our card fees when they invoice us, but they have not taken this matter up with us," she said. "Perhaps we should take over this cost."

Wickerts is also in no doubt that what has happened in Scandinavia will quickly spread.

"We are at the forefront because we like to know what everything costs. But I think this will now move very rapidly around the rest of the world," she said.