Show Me the Money

<B> Show Me the Money</B>

By Michael Whitesage

<i>Michael Whitesage is president of Prism Group Inc., a travel system development and consulting firm based in Albuquerque, N.M.</i>

Over the past five years I, and others, have pointed out that the cost of distribution in the travel industry was three times higher than the average of other industries. As airlines trimmed costs, it was not difficult

to predict that commissions would be reduced. Today the very agencies that once ridiculed the notion of fees are now fee-based pricing evangelists. Most corporations now are on some sort of fee and dreading the day that income dips below cost.

I want to take issue with my friend, Tom Wilkinson's recent point of view, expressed on this page (<I>BTN,</I> Feb. 22), in which he advocated that travel managers reduce costs by controlling reservation automation, through self-booking systems or controlling automation contracts. Reservation automation is the agency's business.

The benefits of self-booking systems are inflated. The greatest voluntary usage I have seen is 18 percent. Double that and the percentage will be less than half of all bookings, triple that and it's a little more than half. At best, companies will find themselves in a mixed environment of self- and agent-booked reservations. Since self-booking transfers the agent's cost to the company, any savings here is illusory.

Travel agents do receive automation incentives based upon the number of bookings--a dollar here or there per booking. These savings are less than 1 percent of the cost of the ticket. But automation contracts also have booking production requirements and that incentive quickly becomes a liability when you fail to meet your goal. The risk of non-performance outweighs the meager benefits of automation incentives.

Let's get on to doing what's right. Corporate deals, depending on their design, range from discounts of 12 percent to 36 percent. Automation savings pale in comparison. Focused buying is the ball--the only ball.

Tom, the conundrum you presented is right. With commission cuts and net fares, where is the money to fund agency fees and travel management? Today travel managers face the prospect of going to management for money to pay their agents fees and to fund their own department. Where's the money?

The 10 percent used to fund travel arrangement through commissions and travel management through rebates is, of course, nested in departmental travel budgets. The true risk is departments do not recognize that the money required for travel arrangements and travel management services is already in their budgets. Failing to acknowledge this, the money used to fund travel arrangements and management may be used for more trips and hotel nights.

Travel managers need to explain the economics of travel arranging and management to senior management. Two outcomes are required: Departments need to budget separately for travel arrangement that will be billed in fees and companies need to recognize the value of travel management and provide it independent funding.

These are the best of times. As we move to better business practices and rational business relationships, securing funding for travel arrangement and management will enable companies to provide true savings by focusing on their buying power.