Several large travel programs have turned to the Corporate
Travel Department model as a means to better collect hotel commissions even while
continuing to use agencies and other external means to manage air travel.
Hewlett-Packard, one of the 20 largest travel programs in
the United States, has operated under this setup for nearly a decade, breaking
new ground by using it for hotel commissions, according to HP manager of
business travel strategy, consulting and administration Jeff Kurn.
In a typical Corporate Travel Department model, the
corporation uses a unique corporate identifier when purchasing air travel,
allowing it to receive any commissions directly. The CTD is accredited by ARC,
an airline-owned company that provides transaction settlements primarily for
air travel but also through other vendor categories.
During a refresh of its travel program in 2004, HP noticed
that while it was getting nearly all of its airline commissions, it was falling
far short in collecting hotel commissions, which generally are available when
travelers book rates that are not net non-commissionable.
"Based on a high-level analysis, because we don't know what
happens at hotels with cancellations and changes of itinerary, we thought we
were missing as much as 50 percent of hotel commissions," Kurn said. "We
even had situations where agencies in certain countries were not sending any
hotel commissions back at all."
In those cases, the agencies reasoned that they had
negotiated net non-commissionable rates. But even so, HP should have been
getting commissions back from travelers booking non-approved hotels or
non-negotiated rates at approved hotels, Kurn explained.
Initial Solution
Hotels tend to bundle commission checks from multiple
clients when they send them to agencies, and agencies' processes to match
commissions to clients are not foolproof, Kurn said.
Although HP considered a full CTD approach, it determined
that it was not necessary on the air side; the company already had good
compliance and wanted to avoid contractual and legal complications associated
with issuing tickets under a corporate identification. Instead, in 2005 it
finalized a contract with ARC for an ID intended only for non-air bookings.
According to Kurn, HP was the first to do so.
In a way, the move was true to the history of the CTD and is
symptomatic of why many CTDs are formed today. Partnership Travel Consulting
CEO Andrew Menkes, who pioneered the CTD concept in 1998 with Republic New York
Corp., said hotel commissions were the primary motivation for establishing a
CTD, as all the bank's airline deals at the time were net of commissions. Over
time, hotel commissions have gone from a "nice byproduct" of ARC
certification to the "primary driver," Menkes said.
"In a non-CTD environment, it's impossible to have a
true audit trail of commissions, especially hotel commissions, because there is
no ARC equivalent for hotels," Menkes continued. "I've done quite a
number of CTDs, and the primary driver is the visibility and auditability of
supplier income, most specifically hotel commissions, which can also include
sleeping rooms for meetings."
Cheryl Benjamin, travel manager for Dart Container Corp. and
chair of the CTD Association, said she knew of no other companies that had
formed a CTD for the sole purpose of collecting hotel commissions. But she
agreed that commission collection often drove companies pursuing the model. For
a few CTDs, hotel bookings far exceed air, she said.
"One company booked hotels for employees who traveled
for the most part by car or truck," Benjamin said. "The CTD allowed
them to collect their commissions. However, they also booked air and cars as
needed."
Siemens has a CTD that once handled air transactions and
kept the designation to handle non-air transactions when it altered its air
strategy about four years ago. IBM, meanwhile, is exploring CTD-type models to
increase its collected hotel commissions, according to industry sources.
In Search Of Revenue
Streams
ECommission Solutions president and CEO Paul Hoffman said he's
seen during the past 18 months a greater focus on hotel commission collection
from large travel programs, whether via a CTD model or through third parties
such as his own—which he said has quadrupled in size during that period. That's
both a function of companies wanting to improve both their bottom lines and
their access to the data behind the commissions.
Hoffman also identified a resurgence of commissionable,
negotiated hotel rates. "Within my client base, it's a very definitive
move in hotel programs," he said. "Some companies take a high level
of pride in a program that's net-noncommissionable, but there are many
corporations—household names—that have used that leverage and, while being able
to keep the expense of the hotels down and without a lot of shifting around,
been able to add that revenue stream."
Even so, an ARC spokesman said the company remains focused
on air tickets and has no plans to track hotels. "The corporate travel
department has an ARC number, and if they use it for hotels, they use it. We
don't see it," he said. "As far as we're concerned, it's just air
tickets."
Other companies, particularly those in the professional
services industry, steer clear of hotel commissions. Much of that stems from a
lawsuit filed more than a decade ago against PricewaterhouseCoopers, KPMG and
Ernst & Young, alleging the companies were billing clients for full travel
expenses while keeping rebates and volume discounts. The lawsuit resulted in
costly settlements.
Boosting Collections
To manage its commissions, HP created a multi-currency
lockbox at Bank of America in San Francisco. HP also contracted with both
Pegasus Solutions and Perot Systems for hotel consolidation services, enabling
it to receive wired money from hotel stays rather than physical checks.
Bookings made globally—either through designated online
portals or the agency—appended HP's ID number to the booking, which flowed to
the hotels. When hotels process commission payments, they can send them either
electronically through Pegasus or Perot Systems, or directly to the lockbox,
Kurn said.
The move boosted HP's volume of commission checks by about
40 percent, and now 70 percent of all checks are wired electronically. "There
were volume changes within the organization that could have driven some of
that, but it was a very quick and substantial win for HP," Kurn said.
Menkes said it is not uncommon for companies to see
commission checks double or triple after forming a CTD.
HP since has fine-tuned and tweaked the process. In 2009,
the company switched from ARC to the International Air Transport
Association—which also accredits CTDs—partly because of some of the more
cumbersome requirements of its ARC contract. HP had to secure airline plates
and issue a weekly airline report to ARC—which was always zero, since HP never
used the ARC number for air transactions—and faced a penalty if it failed to
submit a report. Also, because ARC is more U.S.-centric, HP still was missing
some commissions from hotels in the rest of the world, Kurn said.
"Not every hotel globally buys the ARC directory,"
he said. "There were some hotels that didn't know what to do with those
checks and probably kept them."
HP also subsequently contracted with Pegasus for auditing
and commission follow-up via HP's agency and lockbox feeds. It was an unusual
request at the time for Pegasus to contract directly with a corporation, as its
services primarily are for agencies, according to Kurn.
HP also has added its IATA number to its standard meeting
contract, further boosting commissions. "We have some fairly large
meetings where there are commissionable rates, so those flow into the lockbox
for us," Kurn noted.
He stressed that the commissions issue was never one of
distrusting the travel management companies. "We didn't think agencies
were intentionally keeping the commissions," he said. "It's just the
complexity of these financial flows that make it important that we build a
direct line of sight."
This report
originally appeared in the August 2012 issue of Travel Procurement.